55 years ago today, on August 23, 1971, U.S. President Nixon suddenly announced the suspension of the dollar's convertibility into gold on August 15.
Nixon's 55th Anniversary of Yen Float
55 years ago today, on August 23, 1971. U.S. President Nixon suddenly announced the suspension of the dollar's convertibility into gold on August 15, dismantling the post-war Bretton Woods system which pegged "one ounce of gold = 35 dollars," while the yen was previously fixed at 360 yen to 1 dollar.
The foreign exchange markets of major European countries closed to avoid chaos and reopened the same day. Most countries did not return to fixed exchange rates but restarted with floating rates.
The Tokyo market chose to remain open. In response to the wave of dollar selling, the Bank of Japan continuously bought dollars at 360 yen, purchasing about 4 billion dollars within two weeks. At the beginning of the month, foreign exchange reserves were less than 8 billion dollars, which increased by half within two weeks. However, it could not stop the sell-off, and on August 28, authorities ultimately abandoned support buying, leading the yen to shift to a floating exchange rate, marking the end of the 360 yen era.
Europe paused discussions, while Tokyo insisted on remaining open; different paths led to the same endpoint. Once the premise of fixed exchange rates collapsed, no choice could restore it.
Source: Public Information
ABAB AI Insight
The Nixon administration faced ongoing trade deficits and pressure from gold outflows, ultimately unilaterally terminating the dollar's peg to gold, ending the core mechanism of the Bretton Woods system. The Bank of Japan consumed a large amount of reserves in an attempt to maintain the 360 rate within two weeks after the shock, demonstrating a path dependency on fixed parity.
In terms of capital flow, Japanese authorities rapidly increased foreign exchange reserves from less than 8 billion to about 12 billion dollars through large-scale dollar purchases, motivated by the desire to delay the impact on export competitiveness and domestic adjustments. However, they ultimately abandoned this strategy due to the scale of the sell-off, shifting from fixed exchange rate support to floating market pricing.
Similar cases can be seen in the 1997 Asian financial crisis where multiple countries attempted to defend fixed exchange rates but were ultimately forced to float, as well as the Swiss National Bank's abandonment of the euro cap in 2015. Currently, we are in a phase where floating exchange rates have become the global mainstream, and the costs of central bank intervention have significantly increased.
The structural judgment indicates a transfer of pricing power: after the collapse of fixed exchange rates, pricing power shifts from official parity to market supply and demand, as unilateral commitments cannot withstand the scale of capital flows, leading to accelerated reserve depletion and forced policy shifts, ultimately reshaping global currency and trade adjustment paths.
ABAB News · Cognitive Law
Fixed commitments cannot withstand capital flows
No amount of reserves can stop the trend
Different paths often lead to the same endpoint