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Profile: Paul Volcker
Paul Volcker was a participant or observer in the following events:
President Nixon officially announces the end of the gold standard system of monetary policy for international exchange of gold deposits in an evening address to the country. Nixon’s move to sever the link between the dollar’s value and gold reserves effectively ends the Breton Woods system of monetary exchange and changes the dollar to a “floating” currency whose value is to be determined largely by market influences. Nixon’s decision results from a run on gold exchanges and rampant speculation in gold markets in Europe, and he changes the US monetary policy after receiving advice from Treasury Secretary John Connally, Under Secretary for Monetary Affairs Paul A. Volcker, and others in a special working group. The dollar becomes a fiat currency, causing a brief international panic before other countries follow suit and also allow their currencies to “float.” [New York Times, 8/16/1971, pp. 1]
On a two day tour of Europe stopping in London and Paris to meet with finance ministers, Undersecretary of the Treasury for Monetary Affairs Paul A. Volcker meets with the finance ministers of both Britain and France to reassure their governments that the end of the gold standard is in the best interests of both governments and maintain that the United States is in no position to prevent other governments from “floating” their currencies. [New York Times, 8/18/1971]
The US Federal Reserve, under recent Carter appointee Paul Volcker, declares that it will begin a major policy shift by tightening the money supply. Its main method of doing so will be significant increases in the interest rate. [Campbell, 2005, pp. 194-195]
A combination of factors puts the Mexico into a major balance of payments crisis. US Federal Reserve Bank Chairman Paul Volcker’s decision to increase the Federal Reserve’s interest rate (see October 6, 1979) increases the amount of debt held by the Mexican government. In addition, a decrease in the global price of oil and a recession in the US (thereby decreasing US demand for Mexican goods) makes it harder for Mexico to pay off the debt on its own. The Mexican government decides to devalue the peso, its national currency, by 78 percent. [Hart-Landsberg, 12/2002]
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