Bretton Woods and the Petrodollar
How the gold standard collapsed between the world wars, how 730 economists designed a new monetary order at Bretton Woods, and why the petrodollar deal and network effects have kept the dollar dominant through every crisis since 1971.
18 lessons · about 2 hours
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Questions this course answers
- Who bore the real cost of keeping the gold standard stable?
- Why did Harry Dexter White win nearly every dispute with Keynes at Bretton Woods?
- Why did dollar dominance grow stronger after Nixon abandoned gold?
- How did oil replace gold as the foundation of the dollar?
- How did dollar dominance cause the 1997 Asian financial crisis?
- Why has no country been able to replace the dollar since Bretton Woods?
18 lessons
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1
5 min
The Gold Standard and Pax Britannica
Before the dollar ruled, the pound sterling did. For 44 years the gold standard kept exchange rates stable, while workers absorbed the shocks of deflation.
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2
6 min
The Interwar Collapse
Every attempt to restore the gold standard after World War I failed. Britain returned at the wrong rate, the US raised tariffs, and global trade fell by 65%.
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3
6 min
Keynes vs. White
Keynes was the most famous economist alive, but Harry Dexter White won nearly every dispute because the US held about two-thirds of the world's gold reserves.
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4
6 min
The Bretton Woods System Explained
Only the dollar could be exchanged for gold, and only by foreign central banks, at $35 an ounce. Every other currency was pegged to the dollar for 25 years.
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5
5 min
The Dollar Empire
Soviet banks created the Eurodollar market to avoid US regulation, and British banks expanded it. Dollar dominance grew partly by design, partly by accident.
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6
6 min
The Triffin Dilemma and De Gaulle's Gold War
In 1959, Robert Triffin showed the dollar-gold system could not last. In 1965, Charles de Gaulle tested it by trading France's dollars for US gold.
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7
5 min
The Nixon Shock
On August 15, 1971, Richard Nixon told the world the gold standard was over. Freed from gold, the dollar became even more dominant.
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8
6 min
The 1973 Oil Embargo
The 1973 Arab oil embargo lasted five months and produced the petrodollar arrangement, which quietly replaced gold as the dollar's anchor for fifty years.
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9
6 min
The Petrodollar Deal
Classified until 2016, the 1974 petrodollar deal was simple: Saudi Arabia prices oil in dollars, buys US Treasuries, and receives American military protection.
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10
7 min
Volcker's Shock
In 1979, Paul Volcker raised US interest rates toward 20%. Inflation was broken, but over a dozen Latin American countries defaulted on their dollar debts.
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11
6 min
The Plaza Accord
In 1985, the US, Japan, West Germany, France and Britain agreed to weaken the dollar. It fell 50% against the yen, but the US-Japan trade deficit stayed large.
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12
6 min
The Asian Financial Crisis
The Thai baht collapsed in July 1997, and by December South Korea was bankrupt. Asian countries with dollar pegs and dollar debts were hurt by a strong dollar.
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13
6 min
Dollar Dominance in the 21st Century
After every predicted decline, the dollar's share of global reserves has barely moved. Network effects make the dollar nearly impossible to replace.
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14
6 min
The Future of the Dollar
Digital currencies can bypass SWIFT, and bilateral deals can bypass dollar clearing. Whether this leads to dollar decline or just adaptation is still unclear.
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15
7 min
2008: When the Fed Became the World's Central Bank
The 2008 crisis started in US dollar markets. Within weeks the dollar had strengthened, because every bank that owed dollars scrambled to buy them at once.
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16
6 min
Sanctions: How the Dollar Became a War Tool
The US Treasury can cut any country from global finance with one designation. Iran spent a decade under sanctions, and Russia had $300 billion frozen in hours.
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17
6 min
Freezing Russia: The 2022 Watershed
Russia spent 8 years cutting dollar reserves and stockpiling gold. The G7 froze $300 billion in 2022 anyway, because Russia's euros sat at a Western custodian.
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18
7 min
BRICS and De-dollarization
No BRICS currency exists or is imminent. BRICS members are building payment systems that avoid the dollar, but China will not open its capital account.
Lessons you can finish in one sitting.
Each lesson tells one part of the story and explains why it happened, with maps, images and quotes from the sources. A few questions at the end check that it stuck, and the key facts go into the course's flashcards.
- 5 to 7 minutes a lesson
- Two to four questions after each lesson
- 144 flashcards for this course
