Nixon Shock is a phrase used to describe the aftereffect of a set of economic policies touted by former President Richard Nixon in 1971.
Most notably, the policies eventually led to the collapse of the Bretton Woods system of fixed exchange rates that went into effect after World War II.
KEY TAKEAWAYS
- The Nixon Shock was an economic policy shift undertaken by President Nixon to prioritize the United States’ economic growth in terms of jobs and exchange rate stability.
- The Nixon Shock effectively led to the end of the Bretton Woods Agreement and the convertibility of U.S. dollars into gold.
- The Nixon Shock was the catalyst for the stagflation of the 1970s as the U.S. dollar devalued.
- Thanks in large part to the Nixon Shock, central banks now have a greater degree of control over their own money, making it easy to “manage” variables such as interest rates, overall money supply, and velocity.
- Many decades after the Nixon Shock, economists are still debating the merits of this massive policy shift and its eventual ramifications.