On this thread i encountered an interesting explanation of the "Petrodollar". The user makes the claim that the dollar was being weakened by the vietnam war to the point that other nations were beginning to lose trust in the currency. My question is: Did the vietnam war cause the weakening of the dollar to the point of making the gold standard obsolete? i've always understood the abandonment of the gold standard to be a more of a modernizing move to allow federal banks to be more in charge of their own currency(flawed understanding i know).
Also, a bit out of topic, how true are the rest of his claims? they have a conspiracy feel to them.
The Vietnam War contributed but Bretton Wood system was breaking down even before the Vietnam war began. The post-war international monetary system used a pseudo gold standard where the USD was fixed to gold at $35/ounce and all other European currencies was fixed to the USD at rates delimited by their governments.
The problem with is that this system is unsustainable in several ways. First of all, as you yourself identified, it restricts domestic monetary policy making because international monetary policy is tied to US monetary policy which is in turn tied to the supply of gold, while more flexible than the classical gold standard, it had reached a point by the early-mid 1960s that the amount of USD had already exceeded the US gold supply at $35/ounce. Expansionist monetary policy in both the US and abroad were constrained by the absolute ratio set between gold and the dollar, hence the dollar must be revalued or else deflation (and a recession/depression) would occur.
The second perhaps even more fundamental reason is that Bretton Woods was incompatible with a system with free movement of capital and that capital controls in modern finance is close to impossible. In order to maintain both fixed exchange rates and maintain domestic control over interest rates/monetary policy you must prevent the movement of capital to arbitrage prices between the market and the rates set by the government. If the government set the the value of the pound to dollar at 5:1 for instance, and the market thinks the value should be 4:1, then if you can freely convert between the pound and dollar then it would allow the market to arbitrage between the government rate and the market rate and hence making fixed exchange rates unsustainable.
Indeed European countries had very strong capital controls in the post-war era: to the point where private British tourists were forbidden to carry more than something like 50 pounds out of the country with them while on vacation.
But what started to happen in the late 1950s and 1960s is something called the off-shore dollar market in which the dollar was being arbitraged outside of the US (in places like Japan) and hence nullifying the fixed rates set by governments, by the 1970s there was a fear that there would be a run on the dollar, namely that the value of the dollar has gotten so out of sync with the rate set by the government European central banks were ready to "cash" in their dollar at the $35/ounce rate or sell off their dollar. The Nixon shock was the bare admission that governments can no longer keep up fixed exchange rates.
In economics there is something called the monetary trilemna, in which you can choose 2 of the following 3 things to have:
Fixed Exchange Rates
Domestic interest rate policy
Free movement of capital
Bretton Woods is a system which needed 1) and 2), the modern system has 2) and 3) while the 19th century gold standard had 1) and 3). The truth is I think 2) and 3) are the only ones which is sustainable under the current global economy because capital controls are impossible and the movement of capital across borders is so embedded in our economy, the end of the gold standard was not due to a conspiracy: it was due to larger economic forces which made the old system unsustainable.
E: I know this might be complicated so feel free to ask any questions