Case Study

Bretton Woods system

Forty-four nations sent delegates to a hotel in New Hampshire to redesign the global economy.

United States

In July 1944, delegates from forty-four Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, to negotiate a new international monetary system.1 The conference lasted three weeks. Its architects were John Maynard Keynes, representing Britain, and Harry Dexter White, representing the United States.

The two economists had competing visions. Keynes proposed an international clearing union with its own currency. White proposed a system anchored to the U.S. dollar. The United States, holding most of the world's gold reserves and much of its industrial capacity, prevailed.2

The agreements created two institutions: the International Monetary Fund, designed to stabilize exchange rates and provide short-term loans to countries with balance-of-payments problems, and the International Bank for Reconstruction and Development, later known as the World Bank, designed to finance postwar reconstruction and long-term development.1

Under the system, all participating currencies were pegged to the U.S. dollar at fixed exchange rates, and the dollar itself was convertible to gold at $35 per ounce. This made the dollar the world's reserve currency and gave the United States unique influence over the global financial system.3

Nations whose delegates negotiated the Bretton Woods agreements in July 1944

For roughly a quarter century, the system functioned largely as designed. Fixed exchange rates reduced the currency volatility that had contributed to the Great Depression, and the Marshall Plan provided the capital that allowed Europe to rebuild within the Bretton Woods framework.4

On August 15, 1971, President Nixon suspended the convertibility of the dollar to gold, a decision that became known as the "Nixon Shock."5 Mounting U.S. trade deficits and the cost of the Vietnam War had made dollar-gold convertibility unsustainable. By 1973, the major currencies had shifted to floating exchange rates. The IMF and World Bank survived the end of fixed rates and later became the primary vehicles for structural adjustment programs across the developing world.6

Timeline

1944

Delegates from 44 nations met at Bretton Woods, New Hampshire, to create a new monetary system.

1945

The IMF and the World Bank were formally established as the system's governing institutions.

1971

President Nixon suspended gold convertibility on August 15, ending the Bretton Woods system.

Endnotes

1 Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton: Princeton University Press, 2013).

2 Robert Skidelsky, John Maynard Keynes: Fighting for Freedom, 1937-1946 (New York: Viking, 2001).

3 Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton: Princeton University Press, 2008).

4 Congressional Research Service, "The Marshall Plan: Design, Accomplishments, and Significance."

5 Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton: Princeton University Press, 2008).

6 Eric Toussaint and Damien Millet, Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers (New York: Monthly Review Press, 2010).