The United States government has approximately $17 trillion debt outstanding as of today. The United States government conducts treasury debt auctions every week. Yet, the government is paying only 0.3% interest rate for its 2-year debt, 1.3% for 5-year, and 2.6% for 10-year as opposed to Australia, a comparable highly developed nation’s 2.7%, 3.5%, and 4.2% respectively for similar maturities. The most recent treasury report shows China holds nearly $1.3 trillion of United States treasury debt and Japan has the next most, holding $1.2 trillion. After reading this, one might wonder why the United States government is able to borrow from its citizens and the rest of the world with no limit and at the lowest cost. In July of 1994, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire (Bretton Woods System, 2013). This meeting would be known as the United Nations Monetary and Financial Conference, or as people know it today as the Bretton Woods Conference. At the Bretton Woods Conference, the delegates created a system of rules, institutions, and procedures to regulate the international monetary system, which later became known as the International Monetary Fund (Bretton Woods System, 2013). The main components of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the United States dollar and the ability of the International Monetary Fund to bridge temporary imbalance of payments (Bretton Woods System, 2013). The Bretton Woods Institutions were set up to encourage free trade while also offering states options to correct imbalances without having to deflate their economies (Balance of Payments, 2013). Exchange rates were established, anchored by the dollar which alone remained convertible into gold. This was very successful, creating a period of high global growth. This would not last as it came under pressure due to the inability of governments to maintain effective capital controls and due to instabilities related to the central role of the dollar (Balance of Payments, 2013). The imbalances caused gold to flow out of the United States and a loss of confidence in the United States ability to supply gold for all future claims by dollar holders resulted in escalating demands to convert dollars (Balance of Payments, 2013).
In August of 1971, President Nixon declared that the convertibility of the United States dollar