1. The Claim In Question
“When trust in the currency collapses, governments impose capital controls, suspend convertibility, or force cash settlement.”
This post will show that this is not theory, it is repeated historical practice.
2. United States: Gold Convertibility Broken
Under Franklin D. Roosevelt (1933):
- Private gold ownership was banned by Executive Order 6102.
- Citizens were forced to surrender gold at a fixed price.
- Dollar–gold convertibility for Americans was ended.
Under Richard Nixon (1971):
- The US suspended dollar convertibility into gold for foreign governments.
- Bretton Woods collapsed overnight.
- Gold clauses in contracts were rendered unenforceable.
Result
Paper claims to gold survived only as cash settlement in devaluing dollars.
Glossary
Convertibility – The legal right to exchange currency for a specific asset, such as gold.
3. United Kingdom: Capital Controls And Forced Containment
Under Clement Attlee (late 1940s):
- Strict capital controls were imposed after WWII.
- Sterling holders were prevented from moving funds abroad.
- Gold and dollar access was tightly rationed.
These controls remained in place for decades. They were not lifted until the Thatcher era.
Result
Sterling claims existed, but exit was blocked.
Glossary
Capital controls – State restrictions on moving money across borders or into hard assets.
4. France: Repeated Convertibility Failures
Under Charles de Gaulle:
- France demanded gold settlement from the US and indeed sent a warship to fort Knox to demand its gold.
- This exposed US gold weakness and accelerated the 1971 collapse.
Earlier French regimes repeatedly:
- Suspended gold convertibility.
- Devalued the franc.
- Forced holders into paper settlements.
Result
Legal claims survived. Real value did not.
Glossary
Forced settlement – Being paid in currency rather than the promised asset.
5. Argentina: Modern Example Of Paper Failure
Under Fernando de la Rúa:
- Bank deposits were frozen (the “corralito”).
- Dollar accounts were forcibly converted into pesos.
- Withdrawals were restricted.
Contracts were honoured nominally.
Purchasing power collapsed.
Glossary
Corralito – State-imposed banking freeze to stop capital flight.
6. The Pattern
Across countries and eras:
- Governments prioritise system survival over contracts.
- Legal promises are rewritten in emergencies.
- Paper claims are settled in whatever form the state chooses.
Gold fails only when it is a claim.
Physical gold has no president, decree, or counterparty.
7. Bottom Line
History shows that in every currency crisis:
- Convertibility is suspended.
- Capital is trapped.
- Paper claims are honoured in name, not substance.
This is why, in crises, paper promises fail and physical assets do not.
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