The Collapse of the Bretton Woods System

The Bretton Woods pegged exchange rate system, based on the official reserve currency role of the dollar, collapsed in 1971 because the United States had accumulated more short-term debt to foreigners than it was willing to redeem in gold.  The collapse of the Bretton Woods system, based on the official reserve currency role of the dollar, ushered in the worst American economic decade since the 1930s.  The unemployment rate in 1982 was higher even than the unemployment rate occasioned by the collapse of the Fed-induced real estate bubble of 2007-09.

Similarly, the recession of 1929-30 became the Great Depression of the 1930s because of the collapse and liquidation of the interwar official reserve currency system—based as it was on the pound and the dollar.  The liquidation of official sterling and dollar currency reserves deflated the world banking system because without those reserves the banks were forced to deleverage, call in loans, or go bankrupt.  Banks worldwide did all three.