Bretton Woods System
IntermediateThe Bretton Woods system was an international monetary system created in 1944, under which major currencies were pegged to the US dollar, and the dollar was convertible into gold at a fixed price.
Representatives of 44 countries met at Bretton Woods, New Hampshire, in 1944 to design a stable post-war monetary system. Countries fixed their currencies to the US dollar within narrow bands, and the United States agreed to exchange dollars for gold with other countries’ central banks at 35 dollars per ounce. The conference also created the International Monetary Fund and the World Bank.
The system supported strong growth in trade and the post-war recovery. Over time, however, the United States’ gold reserves became insufficient to back the growing number of dollars held abroad, and confidence weakened.
In 1971, President Richard Nixon suspended the dollar’s convertibility into gold. Attempts to maintain fixed exchange rates continued briefly, but by 1973 the major currencies were floating.
The end of Bretton Woods led to today’s system of mostly floating exchange rates among major currencies. The dollar nonetheless remained the world’s main reserve currency, and the institutions created at Bretton Woods continue to play central roles in the global economy.
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