In Gold We Trusted, but now In God We Trust. From Gold to Handbags: The story of fragile trust behind money.

Until 1970, every major currency in the world was backed by gold reserves. The post-war Bretton Woods system pegged the U.S. dollar to gold at $35 per ounce, while other currencies (pound, franc, yen, etc.) were pegged to the dollar within narrow bands.

By the late 1960s, however, U.S. spending on the Vietnam War and ambitious social programs far outpaced its gold reserves. Too many dollars, not enough gold. France called the bluff and asked for gold. U.S. reserves started to deplete.

In August 1971, President Richard Nixon announced the so-called “Nixon Shock”, suspending dollar-to-gold convertibility. Since then, the strength of the dollar has rested not on gold, but on trust—quite literally embodied in the phrase “In God We Trust” on U.S. bills.

The United States has sustained its reserve currency status through innovation, deep capital markets, and global confidence.

In the past century, we have witnessed how currencies can collapse when trust evaporates. I have written about hyperinflation in Weimar Germany.

In Venezuela, banknotes lost so much value that artisans now weave them into handbags: 500 notes, worth less than 50 pence in total, are turned into bags that retail for £70 on ETSY (see image below).

In Argentina, during times of strict currency controls, the wealthy bought luxury goods — Rolex, Hermès, Chanel, Louis Vuitton as portable hedges, later tradable in Miami or Madrid.

As of July 2025, the largest foreign holders of U.S. Treasuries are Japan, the UK, and China.

I do not imagine central bankers stitching handbags out of US Treasuries anytime soon. But history reminds us not to take that trust for granted.

Take it easy until next time.

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