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Bretton Woods agreement (1944)
July 1944· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
The 1944 agreement among 44 Allied nations that built the postwar money system: currencies pegged to the dollar, the dollar to gold.
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Delegates met at the Mount Washington Hotel in Bretton Woods, New Hampshire, in July 1944. Britain's John Maynard Keynes proposed a new world currency, the 'bancor'; the US, led by Treasury official Harry Dexter White, won a dollar-centered plan. Currencies kept fixed but adjustable rates to the dollar, and the US promised foreign central banks gold at $35 an ounce. The conference also created the IMF and World Bank. The system ran fully from 1958 until 1971.
Why it matters
It framed the postwar boom of 1950–73 and made the dollar the world's central currency.
Facts, rules and data
The conference's Final Act and IMF Articles of Agreement; Keynes's and White's papers; histories such as Benn Steil's The Battle of Bretton Woods (2013).
Debates and risks
Decoded Soviet cables indicate White passed information to Soviet intelligence; how much, if at all, that shaped his design is debated.
Inside this (1)
Connections (5)
▸The gold standard was revived in modified form by Bretton Woods agreement (1944)Fact, law or data
The connection
Bretton Woods kept gold as the anchor, but at one remove: the US promised foreign central banks gold at $35 an ounce, and other currencies pegged to the dollar rather than to gold. Private citizens could not redeem, and Americans could not legally hold gold bullion from 1933 to 1974. Economists call this a 'gold-exchange standard'.
When and why
Designed at Bretton Woods, New Hampshire, in July 1944; the $35 price dated from FDR's 1934 devaluation. It worked fully from 1958 to 1971.
How we know
The IMF Articles of Agreement set each currency's par value in gold or 1944 dollars, and the Treasury recorded its gold sales to foreign central banks.
Debates and risks
Whether any gold-linked system could keep pace with growing world trade, given gold's slow supply growth, is still argued; economist Robert Triffin warned of this in 1960.
▸Bretton Woods agreement (1944) established The US dollar as the world's reserve currencyFact, law or data
The connection
The US held roughly two-thirds of the world's monetary gold in the late 1940s and was the largest economy left intact by the war. Bretton Woods put the dollar at the center: other currencies pegged to it, and only it was convertible to gold. Central banks therefore held dollars as reserves, displacing the British pound.
When and why
The July 1944 conference set the rules; by the 1950s the dollar had overtaken sterling as the main reserve currency.
How we know
IMF par-value records and reserve-composition data show the dollar replacing sterling after the war.
Debates and risks
Barry Eichengreen and Marc Flandreau found the dollar briefly passed sterling in the 1920s, so Bretton Woods may have formalized rather than created its lead.
▸Bretton Woods agreement (1944) created IMF and World BankFact, law or data
The connection
The conference wrote two charters. The IMF would police the pegged exchange rates and lend short-term to countries running low on reserves, so they would not devalue or erect trade barriers. The International Bank for Reconstruction and Development, the World Bank, would lend long-term, first to rebuild Europe and later to develop poorer countries.
When and why
Articles signed July 22, 1944, in force December 27, 1945; the World Bank's first loan, $250 million to France, came in May 1947.
How we know
Both founding Articles of Agreement survive with the conference records, and the institutions' archives document their early operations.
Debates and risks
The informal deal giving Europe the IMF's top job and the US the World Bank's is increasingly challenged by emerging economies.
▸Nixon shock: the dollar leaves gold (1971) ended Bretton Woods agreement (1944)Fact, law or data
The connection
By 1971 foreign-held dollars were several times the US gold stock at $35 an ounce, and countries such as France were converting dollars to gold. Closing the gold window removed the system's anchor. December 1971's Smithsonian Agreement tried new pegs, devaluing the dollar to $38 an ounce, but it collapsed, and major currencies floated by March 1973.
When and why
Camp David meeting August 13–15, 1971, with Nixon, Connally, Burns and Volcker; Smithsonian Agreement December 1971; floating March 1973.
How we know
Nixon's televised address, Treasury and Federal Reserve records, and the IMF's official histories of the period.
Debates and risks
Was collapse inevitable, as the Triffin dilemma suggests, or caused by 1960s US spending and loose money? Historians and economists still argue.
▸Keynesian economics (John Maynard Keynes) helped design Bretton Woods agreement (1944)Fact, law or data
The connection
Keynes led Britain's delegation and drafted a plan for an international clearing union with its own currency, the 'bancor', that pressed surplus countries to adjust too. Harry Dexter White's US plan largely won, but Keynesian goals shaped the deal: fixed but adjustable exchange rates, capital controls and an IMF to lend, so countries could pursue full employment.
When and why
Bretton Woods, New Hampshire, July 1944; 44 Allied nations, with Keynes and White as the principal architects.
How we know
Keynes's and White's draft plans, conference records and Keynes's letters; histories such as Benn Steil's The Battle of Bretton Woods (2013).
Debates and risks
Whether Keynes's bancor plan, by pressing surplus countries too, would have avoided the system's 1971 collapse is a long-running debate.