What happened to the dollar's link to gold in 1971?
Correct answer
Answer A: The United States suspended the exchange of foreign monetary authorities' dollar reserves for gold.
Detailed explanation
Under the Bretton Woods system, many currencies were linked to the US dollar. The United States maintained an official gold price of 35 dollars per troy ounce and promised foreign monetary authorities that their dollar reserves could be exchanged for gold under the system's rules.
On August 15, 1971, President Richard Nixon suspended this convertibility. This step is often called closing the gold window. Private individuals had not previously had a general right to redeem every dollar note for gold at that rate at their own bank.
1971 was a decisive turning point, but it did not immediately introduce all of today's monetary arrangements. Attempts to retain fixed exchange rates in modified form continued. Major currencies only moved to more flexible exchange rates in 1973.
Fiat money also existed long before 1971. The year's significance lies in the interruption of the dollar's central international link to gold. An external redemption mechanism disappeared, shifting responsibility for stability more strongly toward monetary policy, institutions and market confidence.
Key takeaway
1971 ended official dollar-gold convertibility, not the whole history of money.
Common misconception
Many believe all currencies immediately floated freely in 1971 or that fiat money first appeared then. The specific step taken in August 1971 must be distinguished from later developments.
What the sources support
The Federal Reserve source documents the end of dollar-gold convertibility in 1971. BIP 42 documents Bitcoin’s capped issuance schedule. The comparison shows different monetary rules; it does not establish that the 1971 event caused Bitcoin.