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