In July 1944, delegates from 44 Allied nations met at a hotel in Bretton Woods, New Hampshire, to design the international monetary system for the postwar world. What they agreed became the framework governing global finance for the next quarter-century — until, in August 1971, one unilateral American decision ended it.
Pegging every currency to a currency pegged to gold
The Bretton Woods system set the US dollar as the anchor of the international system. The dollar itself was pegged to gold at a fixed rate — 35 dollars per ounce — and every other member country's currency was pegged to the dollar, adjustable only under specific circumstances. In effect, the dollar functioned as a stand-in for gold in international trade and reserves, since foreign governments and central banks could, in principle, exchange dollars for gold at that fixed rate.
Why the peg couldn't survive its own success
Over the following decades, growing US trade and budget deficits, combined with a rising volume of dollars held abroad relative to America's actual gold reserves, made the promise underlying the system increasingly difficult to honour. By the late 1960s, far more dollars were circulating internationally than gold existed to redeem them at the official rate, had every holder tried to cash in at once. On 15 August 1971, President Nixon unilaterally suspended the dollar's convertibility into gold — an event now often called the "Nixon Shock" — ending the Bretton Woods system and ushering in the era of freely floating exchange rates most major currencies still use today.
What we're still unsure about
Economists still genuinely disagree about how much of the Bretton Woods collapse was inevitable — baked into any system that ties a fixed international peg to one country's unilateral domestic monetary policy — versus how much was a specific, avoidable outcome of particular US policy choices in the 1960s, financing both the Vietnam War and domestic social programmes without matching tax increases. That disagreement matters beyond history, since it shapes ongoing debates about whether any future fixed-exchange-rate system anchored to a single national currency could avoid the same underlying tension, or whether the flaw was structural from the start.
This sits inside Bretton Woods & the Post-War Economic Order, one of seven topics in Economic History, one of seven domains in History, one of seventeen subjects the app can quiz you on.