Bretton Woods
The 1944 international monetary conference that established the post-WWII global economic order, pegging currencies to the US dollar (backed by gold) and creating the IMF and World Bank, making the dollar the world's reserve currency.
Bretton Woods was held in July 1944 in New Hampshire while WWII was still being fought, its architects knew the war was won and were designing the postwar order. The foundational insight was that the economic chaos of the 1930s (Great Depression, competitive devaluations, trade wars) had enabled fascism. A stable international monetary system was therefore a prerequisite for lasting peace.
The agreement created: a fixed-rate currency system with all currencies pegged to the dollar, the dollar pegged to gold at $35/ounce; the International Monetary Fund (to stabilize exchange rates and provide emergency financing); and the World Bank (to fund post-war reconstruction).
This gave the United States what French officials later called an 'exorbitant privilege': because all international trade used dollars, America could print currency and run deficits that would bankrupt any other nation. The entire world had to hold dollars, giving the US perpetual demand for its currency.
Nixon ended the Bretton Woods system in 1971 when he severed the dollar-gold link (the 'Nixon Shock'), but the dollar's reserve currency status was maintained through the petrodollar arrangement (1977), requiring oil to be priced in dollars.
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Frequently asked questions
Why did Bretton Woods end? ＋
By 1971, US gold reserves could no longer back all outstanding dollars (the US was running deficits for Vietnam and social programs). Nixon 'closed the gold window', ending convertibility, making the dollar a pure fiat currency maintained by faith and military power.
What is the 'exorbitant privilege' from Bretton Woods? ＋
Since all international trade requires dollars, every country must hold dollar reserves, giving the US permanent demand for its currency regardless of economic fundamentals. America can run trade deficits indefinitely because the world needs dollars to function.