1, however, concern was increasing both in foreign banks and in the United States about the large amount of dollars held outside the country. Under Bretton Woods, dollars could be exchanged for gold, but there were more dollars held by foreign banks by the mid-1960s than there was gold left in the Treasury. By 1971, there were only 22 cents of gold for every dollar held by foreign banks (Klein 6A).
In August 1971, President Nixon took the bold step of removing the American dollar from the gold standard, meaning that dollars would no longer be converted directly into gold by the American government. There were two immediate results of this action: currencies around the world returned to floating against each other, and the price of gold was no longer fixed at $35 per ounce. The stage was set for speculation in both currencies and gold.
Flexible currencies (those that float against each other) mean that individuals or companies in one nation can convert their currency into that of another nation. Depending on whether the currencies move up or down, speculators can make (and lose) considerable sums of money in this way. Recognizing that this could lead to a shift in currency from nations with relatively weak currencies to those with relatively strong currencies, some nations have taken steps to prevent the free conversion of currency; typically, these limitations are based on how much citizens and noncitizens can convert. This is currency convertibility (Hill 288).
To get around the issue of currency convertibility, companies will sometimes engage in countertrade. In countertrade arrangements, companies accept remuneration for goods and services not in currency, but in goods that can be sold in a different market for the agreed upon price. Thus a company might accept goods worth $150 million in situations where currency is nonconvertible; this is common practice in East European countries such as the former Soviet Union ...