Era 05 · 1944 — 1971

Bretton Woods & the Dollar

What backs it

Backed by dollars, backed by gold

Pulse cycle

4.5s

At a New Hampshire resort in July 1944, 44 Allied nations designed the postwar monetary order. The dollar was pegged to gold at $35/oz; every other currency pegged to the dollar. The Federal Reserve became the global monetary authority. The IMF and World Bank were created. It was the first deliberately-negotiated global monetary system in history — and the last one before the current era of free-floating currencies.

Events in this era

Jul 1 — 22, 1944

Bretton Woods conference

730 delegates from 44 Allied nations met at the Mount Washington Hotel for three weeks. The dollar was pegged to gold at $35/oz and every other currency pegged to the dollar. Keynes, representing Britain, argued for a more neutral international unit called the 'bancor.' The US, which held two-thirds of the world's gold, refused. Keynes lost.

Dollar became de facto world reserve currency

1960

The Triffin dilemma

Economist Robert Triffin told the US Congress that a currency used as global reserve forces its issuer to run persistent deficits, which eventually undermines its backing. Throughout the 1960s, foreign central banks accumulated dollars faster than the US accumulated gold. By 1971, US gold reserves could not remotely cover the dollars owed.

Bretton Woods predicted its own failure

Mar 1946

IMF and World Bank open

The institutions agreed at Bretton Woods began operations at their inaugural meeting in Savannah, Georgia. The IMF would provide short-term lending to stabilize currency pegs. The International Bank for Reconstruction and Development (now the World Bank) would finance postwar reconstruction and later development. Both still operate today, with budgets that are small relative to their influence.

Multilateral financial architecture becomes operational

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