Bretton Woods Conference
The 1944 international monetary conference in Bretton Woods, New Hampshire, that established the post-WWII global financial architecture: the US dollar as the sole reserve currency (pegged to gold at $35/ounce), fixed exchange rates for other currencies, and the creation of the IMF and World Bank, institutionalizing American economic hegemony.
The Bretton Woods Conference (July 1–22, 1944) assembled delegates from 44 Allied nations in New Hampshire to design the post-war international monetary system. The key contest was between John Maynard Keynes (UK) and Harry Dexter White (US): Keynes proposed a supranational currency (the 'bancor') to prevent any single nation from gaining structural advantage; White proposed dollar hegemony, which the US, as the world's dominant creditor and military power, was able to impose.
The system established: (1) All currencies were pegged to the US dollar at fixed exchange rates. (2) The dollar was pegged to gold at $35/ounce, giving dollar convertibility a physical anchor. (3) The IMF was created to stabilize currencies in crisis through conditional loans. (4) The World Bank was created to lend for reconstruction and development. (5) The GATT (later WTO) framework established rules for international trade.
The structural advantage for the US: because all trade was denominated in dollars, and all currencies were pegged to dollars, the entire world needed to hold dollar reserves. This gave the US 'exorbitant privilege', the ability to run trade deficits, consume more than it produces, and issue debt that the world must absorb. France's Charles de Gaulle explicitly named this as an injustice in the 1960s.
The Nixon Shock (1971): when the US ran large deficits funding the Vietnam War and Great Society programs, foreign governments began redeeming dollars for gold, draining US reserves. Nixon unilaterally ended dollar-gold convertibility on August 15, 1971 (the 'Nixon Shock'), breaking the Bretton Woods system. The dollar remained the reserve currency without gold backing through the subsequent petrodollar arrangement with Saudi Arabia (1973).
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Frequently asked questions
What did the Bretton Woods Conference establish? ＋
The post-WWII global financial architecture: (1) US dollar as the sole reserve currency, pegged to gold at $35/ounce. (2) All other currencies pegged to the dollar at fixed rates. (3) IMF created to stabilize currencies in crisis through conditional loans. (4) World Bank created for reconstruction and development lending. The system gave the US 'exorbitant privilege', the world needed dollars, so the US could run deficits others couldn't.
Why did the Bretton Woods system collapse in 1971? ＋
The US printed too many dollars to fund Vietnam and domestic programs, foreign governments (led by France) began redeeming dollars for gold, draining US gold reserves. Nixon unilaterally ended dollar-gold convertibility on August 15, 1971, the 'Nixon Shock.' The fixed exchange rate system collapsed. The dollar retained its reserve currency status through the 1973 petrodollar deal with Saudi Arabia: all oil would be priced in dollars, creating permanent global dollar demand without a gold anchor.