The Bretton Woods Agreement of 1944 tied currencies from forty-four countries to the dollar and set the value of the dollar at 1/35 of an ounce of gold ($35/ounce). The Federal Reserve Bank, a private organization not bound by U.S. treaties, proceeded to print paper notes ad infinitum, exceeding fourteen billion dollars by 1966 – more than four times the amount of gold held by the U.S. Treasury (not a bad arrangement I must say, a private bank printing notes that must be redeemed by gold held by the United States government).
When Nixon suspended the gold standard in 1971, he was simply acknowledging reality; the gold standard was meaningless. If countries could not redeem their FRS notes (dollars) for gold, then the U.S. dollar would crash, and by extension, the entire global economy (which had already started to drift from the Bretton Woods agreement because of the excessive number of FRS notes in circulation).
Having nothing to backstop the billions of pictures of dead presidents floating around the world, the United States could only hope to preserve the dollar as a reserve currency through oil trading. All OPEC oil is traded in dollars. OPEC nations’ only impetus for trading in dollars is the implicit protection of the global oil industry by the United States. President Trump has learned this the hard way, having been forced to retain troops in Syria – against his preferred judgment – to protect oil production.
The system is as despicable as it gets and there are other better ways of doing things, but until then we are the world’s police force.
*Except the Afghan War, that protects the opium trade.
