[jmherbener]

During Bretton Woods, only foreign governments and their central banks could directly redeem dollars for gold at the Treasury. Take a look at Rothbard’s chapter on Bretton Woods in his book, What Has Government Done to Our Money:

http://mises.org/money/4s5.asp

[samgheb]

Ok then I have understood it correctly. But in my study I kept reading that because of Bretton Woods there was a possibility of arbitrage that started to happen in the 60’s which drained the American gold stock and led to seperate gold markets by law in the late 60’s. If only government institutions could reedem the dollars in gold how was this possible?

[jmherbener]

Foreign governments, especially the French, began to redeem dollars for gold. They could take $35 and redeem it at the Treasury for an ounce of gold and then have an asset that was worth more than $35 in world markets. Gold was flowing out of the Treasury into the hands of foreign governments during the 1960s. Foreign governments realized that the Fed had inflated the dollar money stock to the point at which redemption of the dollar at $35 an ounce was becoming untenable.

Take a look at chart 14.1 in the publication below.

http://fraser.stlouisfed.org/docs/publications/bms/1941-1970/section14.pdf

It documents that the Treasury gold stock peaked in Jan. 1958 at $22,784 million and then started to steadily decline. By Dec. 1970 it stood at $10,732 million.

Here is Jacques Rueff’s account of the collapse of Bretton Woods. Rueff was an economic adviser to French president Charles de Gaulle.

http://mises.org/books/monetarysin.pdf

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