By 1971, the money supply had increased by 10%. In the first six months of 1971, $22 billion in assets left the U.S. In May 1971, inflation-wary West Germany was the first member country to unilaterally leave the Bretton Woods system — unwilling to devalue the Deutsche Mark in order to prop up the dollar. In the next three months, West Germany's move strengthened their economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark.Due to the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America's "promise to pay..."
"When the era of floating rates began, in 1971 when President Richard Nixon abruptly abandoned the link between the dollar and gold that had been the foundation of the post-war fixed-currency system known (after the place where it was agreed upon) as Bretton Woods, there was another Asian country widely accused of unfair trading. It was Japan, whose rapid, environmentally dirty growth in the 1960s, based on cheap labour and a cheap, fixed currency, had produced a big trade surplus and was being blamed for America’s trade deficit.
"At that time, America really did have a currency weapon in its hands: by abandoning Bretton Woods and the link to gold, Nixon could force other countries to revalue their currencies against the dollar. He did so as part of a deal, in which he removed a 10% surcharge on all imports that he had imposed several months earlier. The yen soared in value. The Japanese have ever since called this “the Nixon shock” which, combined with the 1973 oil-price hike, forced their companies and their government to move their economy sharply upmarket, towards higher technology and greater energy efficiency.
"Today, there are some crucial differences but one important similarity. The similarity is that tensions over currencies and trade imbalances are centring on a rising Asian giant, one whose rapid, environmentally dirty growth has been based on cheap labour and a cheap fixed currency: China, of course. The differences are that a Nixon-style import surcharge would be illegal under World Trade Organisation rules, and that thanks to floating exchange rates the currency weapon is not in the hands of President Barack Obama but rather the Chinese themselves, for only they can choose to relax capital controls and to float their currency. It is harder now to have an “Obama shock." But it is not impossible."