Nixon declared that the United States would no longer honor requests to convert dollars for gold. In one fell swoop, the announcement cut down the central pillar of Bretton Woods and essentially forced the global financial system to adopt floating exchange rates. Under Bretton Woods, currency values had been set by agreement among governments; after the “Nixon shock,” they were set by the market. It was the dawn of a new era for the world economy—one in which financial markets, contrary to Keynes’s wishes, would reign supreme.
