BERKELEY – August 13-15 marks the 50th anniversary of “the weekend that changed the world,” when US President Richard Nixon suspended the dollar’s convertibility into gold at a fixed price and rung down the curtain on the Bretton Woods international monetary system. The subsequent half-century brought many surprises. From a monetary standpoint, one of the greatest was the dollar’s continued dominance as a vehicle for cross-border transactions.

Under Bretton Woods, the dollar’s supremacy was readily explicable. America’s financial position coming out of World War II was impregnable. Changes in the price at which dollars could be converted into gold were unthinkable, first because of that financial strength and then, as the country’s monetary position weakened, because of the possibility that one devaluation would create expectations of another.

Many thought that Nixon’s move would diminish the dollar’s international role. With the currency fluctuating like any other, it would be too risky for banks, firms, and governments to put all their eggs in the dollar basket. They would thus diversify by holding more reserves and conducting more transactions in other currencies.

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Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. He is the author of many books, including the forthcoming In Defense of Public Debt.