Bretton Woods System
The postwar monetary order that pegged world currencies to a gold-backed US dollar and created the IMF and World Bank.
In July 1944, with the war not yet won, delegates from 44 nations gathered at a mountain resort in New Hampshire to answer a question that had haunted the 1930s: how do you keep the world economy from tearing itself apart? The competitive devaluations and trade walls of the Depression had helped feed the war. The Bretton Woods system was the architecture built to make sure it never happened again, and it governed global money for a generation.
The design
The core idea was fixed but adjustable exchange rates, anchored by a single currency. Every member pegged its money to the US dollar, and the dollar alone was convertible into gold at a fixed 35 dollars an ounce. That made the dollar the world's reserve currency, the yardstick against which everything else was measured, backed ultimately by the gold piled up in American vaults. To keep the system running, the conference created two institutions that still dominate global finance: the International Monetary Fund, which would lend to countries caught in a balance-of-payments crisis so they would not have to devalue in a panic, and the World Bank, built first to fund the reconstruction of a shattered Europe.
A generation of stability
For roughly twenty-five years it worked. The postwar decades brought fixed exchange rates, expanding trade, and the fastest sustained growth the industrial world had ever seen. Businesses could plan across borders because the price of a currency would not swing overnight, and the dollar, as good as gold, greased the whole machine.
The built-in flaw
The system carried the seed of its own collapse, a problem the economist Robert Triffin named in 1960. The world's growing trade needed an ever-larger supply of dollars to function. But the more dollars the United States pumped out, the more claims piled up abroad against a gold reserve that was not growing to match them. Eventually foreigners held far more dollars than America had gold to redeem, and confidence that every dollar could really be swapped for metal began to crack. That was the Triffin dilemma: the currency that oiled the world also had to become a currency the world might stop trusting.
By the late 1960s, with dollars flooding out to pay for the Vietnam War and Great Society spending, foreign governments, France loudest among them, began cashing in dollars for gold, and the reserve drained. On August 15, 1971, Richard Nixon ended it, suspending the dollar's convertibility to gold in what became known as closing the gold window. The pegs came apart, and the major currencies floated free to be priced by markets.
The New Hampshire resort gave its name to an order that has outlived its own rules. The gold link is long gone, but the dollar that Bretton Woods enthroned is still the world's anchor currency, and the IMF and World Bank it created still sit at the center of global finance, arguing over the same balance-of-payments crises the delegates gathered to solve in 1944.