Bretton Woods Agreement — 81 Years Ago

Designing the Postwar Financial Order

In July 1944, as World War II was still being fought, representatives from 44 Allied nations gathered at a hotel in Bretton Woods, New Hampshire. Their goal was to design a new international financial system to prevent the economic chaos that had followed World War I. The conference produced two landmark institutions: the International Monetary Fund and the World Bank. It also established a system of fixed exchange rates, with all currencies pegged to the U.S. dollar, which in turn was pegged to gold at $35 per ounce.

How the System Worked

Under the Bretton Woods system, countries agreed to maintain their exchange rates within a narrow band and to buy or sell dollars as needed to stay within that range. The United States, holding most of the world's gold reserves, became the anchor of the system. This arrangement provided stability that helped fuel remarkable economic growth in the postwar decades. International trade expanded, and European and Japanese economies rebuilt rapidly. The World Bank funded development projects in poorer countries, while the IMF provided emergency loans to nations facing balance-of-payments crises.

The End of Bretton Woods

By the late 1960s, the system was under strain. The United States was running large deficits to fund the Vietnam War and social programs, undermining confidence in the dollar's gold backing. In 1971, President Nixon ended the dollar's convertibility to gold, effectively ending the Bretton Woods system. Exchange rates became floating, meaning they were determined by market forces. The IMF and World Bank survived and remain central to global finance. See also the IMF founding for more on these institutions.