By the early 1970s, as the costs of the Vietnam War and increased domestic spending accelerated inflation,‏¹ the U.S. was running a balance-of-payments deficit and a trade deficit, the first in the 20th century. The year 1970 was the crucial turning point, because foreign arbitrage of the U.S. dollar caused governmental gold coverage of the paper dollar to decline from 55% to 22%. That, in the view of neoclassical economics and the Austrian School, represented the point where holders of the U.S. dollar lost faith in the U.S. government's ability to cut its budget and trade deficits.
By 1971, the money supply had increased by 10%.‏¹ In the first six months of 1971, $22 billion in assets left the U.S.‏² 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.‏¹ In the following three months, West Germany's move strengthened its economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark.‏¹
Due to the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America's "promise to pay" – that is, the redemption of their dollars for gold. Switzerland redeemed $50 million of paper for gold in July.‏¹ France, in particular, repeatedly made aggressive demands, and acquired $191 million in gold, further depleting the gold reserves of the U.S.‏¹ On August 5, 1971, Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against "foreign price-gougers."‏¹ Still, on August 9, 1971, as the dollar dropped in value against European currencies, Switzerland unilaterally withdrew the Swiss franc from the Bretton Woods system.‏¹