Bretton Woods

The 1944 international monetary agreement that established fixed exchange rates pegged to the US dollar, which was in turn convertible to gold at $35 per ounce.

The Bretton Woods conference took place in New Hampshire in July 1944 as Allied leaders planned the post-war international financial order. Forty-four nations agreed to peg their currencies to the US dollar at fixed exchange rates, while the dollar itself was convertible to gold at $35 per ounce. The IMF and World Bank were created as institutions of the new system.

The arrangement worked well through the 1950s and 1960s, providing monetary stability that supported the postwar economic boom. But it contained a fatal flaw: as the US ran persistent trade deficits and printed dollars to fund Vietnam and Great Society programs, foreign nations accumulated more dollars than could be backed by US gold reserves. France began redeeming dollars for gold, threatening to drain Fort Knox.

In August 1971, President Nixon ended dollar-to-gold convertibility — the "Nixon shock" — effectively ending Bretton Woods. By 1973 major currencies were floating freely. The episode remains the defining event in modern monetary history, explaining why today's dollar is a pure fiat currency backed only by faith in US institutions.

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