BrettonWoodsSystem

The Bretton Woods system was an international monetary order established in 1944 at the Bretton Woods Conference in New Hampshire. It aimed to foster economic stability, reconstruction, and growth after World War II by creating a framework of fixed but adjustable exchange rates and by shaping the governance of key financial institutions, notably the International Monetary Fund and the World Bank.

Its core mechanism was a system of fixed exchange rates with the U.S. dollar anchored to gold at 35 dollars per ounce. Currencies were pegged to the dollar through fixed par values that could be adjusted with IMF approval. The United States pledged to maintain the dollar’s convertibility and to pursue policies supportive of global monetary stability. The IMF provided surveillance, temporary financial assistance, and guidelines for exchange-rate adjustments; member states used foreign reserves and, when needed, capital controls to manage balance-of-payments pressures.

The principal institutions created were the IMF and the World Bank (originally the International Bank for Reconstruction and Development). They supported reconstruction and development, offered policy advice, and promoted international cooperation on macroeconomic policy, exchange-rate arrangements, and capital flows.

By the late 1960s, persistent U.S. deficits and growing external liabilities strained the system. In 1971, the United States suspended gold convertibility, effectively ending gold backing of the dollar. A series of adjustments failed to restore stability, and by 1973 most major currencies moved to floating exchange rates, signaling the end of the Bretton Woods fixed-rate regime.

The Bretton Woods system left a lasting imprint on the international monetary order. It established the IMF and World Bank and helped shape postwar economic policy, balance-of-payments surveillance, and the emphasis on international monetary cooperation, while its collapse led to the shift toward more flexible exchange-rate arrangements.