Innovation & Wealth › Mass production & the consumer age › Postwar boom and the rise of the middle class
Bretton Woods system
July 1944 – August 1971· Law or policy· Laws, labor & antitrust
Well documentedSolid records, texts or physical evidence.
A 1944 agreement among 44 Allied nations that pegged world currencies to the US dollar and the dollar to gold.
See it on the Innovation & Wealth map →What happened
At the Mount Washington Hotel in Bretton Woods, New Hampshire, in July 1944, delegates created the International Monetary Fund and the World Bank. Currencies were fixed to the dollar, adjustable only to fix large imbalances, and foreign governments could swap dollars for gold at $35 an ounce. Countries could restrict capital flows to protect their pegs. The system worked fully from 1958. As US deficits grew and gold drained abroad, President Nixon ended dollar–gold conversion on August 15, 1971; floating rates followed by 1973.
Impact on society and the economy
It gave the postwar boom stable exchange rates and made the dollar the world's reserve currency, an advantage French officials called America's 'exorbitant privilege.'
How we know
The conference proceedings, IMF and World Bank Articles of Agreement, US Treasury and Bank of England archives, and Benn Steil's history The Battle of Bretton Woods (2013).
Still debated
How much the system caused the boom, rather than coinciding with it, is debated. Most historians conclude US negotiator Harry Dexter White passed information to Soviet intelligence; his motives remain disputed.
Connections (4)
▸John Maynard Keynes and the General Theory helped design Bretton Woods systemWell documented
The connection
Keynes led Britain's delegation and drafted an ambitious plan: an international clearing union with its own currency, the 'bancor,' that would pressure surplus countries as well as debtors. The US, the dominant creditor, preferred Treasury official Harry Dexter White's smaller, dollar-centered fund. White's plan largely won, but Keynes shaped many details of the IMF and World Bank.
When and how
Anglo-American talks, 1942–1944, and the Bretton Woods conference, July 1944; Keynes, White and US Treasury Secretary Henry Morgenthau.
How we know
Both men's draft plans, the conference records and their correspondence survive, published in Keynes's collected writings and held in US Treasury archives.
Debates
How much of the final system was Keynes's versus White's is debated, as is whether the bancor would have prevented later imbalances; China's central bank revived the idea in 2009.
▸Bretton Woods system underpinned Postwar boom and the rise of the middle classMostly agreed
The connection
Bretton Woods fixed exchange rates to the dollar, which was convertible to gold at $35 an ounce, and created the IMF and World Bank. Stable currencies and limits on speculative capital flows let countries expand trade, pursue full employment and rebuild, with the Marshall Plan's dollars financing European recovery.
When and how
Agreed by 44 Allied nations at Bretton Woods, New Hampshire, in July 1944; fully working from 1958; ended when Nixon closed the gold window on August 15, 1971.
How sure are we?
Treaty texts, IMF records and trade data show trade and growth rising under the system; economists agree it helped but not on how much.
Debates
Some argue the boom came mainly from postwar catch-up, cheap oil and technology, and Bretton Woods mattered less. The system strained as US gold reserves fell in the 1960s.
▸Bretton Woods system collapsed in 1971, opening the era of Deregulation, privatization and 'shareholder value'Mostly agreed
The connection
Bretton Woods fixed exchange rates to a gold-backed dollar and let governments limit money flowing across borders. After Nixon ended dollar–gold convertibility in 1971 and currencies floated by 1973, capital controls fell away, financial markets grew, and governments embraced freer markets, setting the stage for deregulation.
When and how
Washington, August 15, 1971, the 'Nixon shock'; floating rates from 1973. The US lifted its capital controls in 1974 and Britain in 1979.
How sure are we?
Records of the 1971 decision, IMF exchange-rate data and studies of financial liberalization show the timing; the causal link is argued rather than proven.
Debates
Whether the end of fixed rates drove deregulation, or both grew from 1970s inflation and the rising influence of economists like Friedman, is debated.
▸Bretton Woods system was negotiated during World War II mobilization and wartime researchWell documented
The connection
Planners met in July 1944, a month after D-Day, determined to avoid the 1930s pattern of currency wars, tariffs and depression that they believed had helped cause the war. The war had made the US the world's main creditor and holder of most monetary gold, so it largely set the terms.
When and how
Mount Washington Hotel, Bretton Woods, New Hampshire, July 1–22, 1944; 730 delegates from 44 Allied nations, including the Soviet Union, which never ratified the agreement.
How we know
The conference proceedings, delegates' records, and the IMF and World Bank founding documents.
Debates
Why the Soviet Union stayed out, and whether the US used its wartime leverage over a weakened Britain fairly, are still debated.