The Phaserl


An Interview with Paul Volcker – Gold and Inflation

from The Daily Coin:

Ending Gold Convertibility

Feldstein: Let me start with your experience at the Treasury department in the early 1970s. President Nixon suspended gold convertibility in 1971 and that led to the collapse of the Bretton Woods arrangement. I have three questions about that. First, what was your view at the time of the desirability of that policy? Second, what is your view in retrospect? Did the United States have any choice? And finally, how much do you think that action contributed to the sharp rise in inflation in the remainder of the decade?

Volcker: I certainly was a major proponent of suspending gold convertibility, in fact the principal planner. I had come to the conclusion that we needed to negotiate a sizable exchange rate adjustment. At the time, we didn’t have a choice, as I saw it, to suspending convertibility as a transition to a reformed system. In the end, the Smithsonian agreement1 was not a very reasonable outcome from my point of view because I didn’t think the changes in exchange rates were big enough to instill confidence.

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