Quote from: kjj on June 02, 2011, 04:08:55 AM

Quote from: Bazil on June 02, 2011, 03:55:13 AM

WWII saw the opening of the Bretton Woods era in the world economy. Where governments started to keep US dollars as reserve in place of gold or silver. They trusted that the US wouldn't inflate it's currency (Hahahahha). Richard Nixon put an end to that in the 70ies and we started to see massive inflation until the fed jumped the interest rates into the double digits. We've been in a quasi bretton woods economy ever since, with some countries pegging to the US dollar. Less and less as we go on because of the weakening dollar fewer countries want to peg their currencies to it.

Erm. I'm not sure the part about the dwindling number of pegged currencies is true, but I'm too tired to do the research tonight. Nixon closing the international gold window certainly did happen, but it was probably caused by, rather than causing, inflation.

Currencies are highly fungible. The dollar is shitty, but it still beats all of the alternatives. Any country could swap their dollars for any other currency, more or less at any time. So we must come to the conclusion that countries keep (and accumulate!) dollars as reserves because they prefer it.

Yep he stopped the gold standard because of inflation and he knew investors would start raping the US' stores of gold in exchange for dollars which would have crashed. So he decided to let it float, inflation exploded after that but maybe not as much as it would have if the foreign investors cashed out.