Bretton Woods Agreement (1945)
Post–World War II agreement for international economic
cooperation.
Bretton Woods, New Hampshire, was the site of the 1944
United Nations Monetary and Financial Conference in which
the United States, the United Kingdom, and 44 of their allies
(plus Argentina) agreed to establish international monetary
and financial institutions to promote peace and prosperity in
response to the destruction wrought by World War II. The
agreement was actually signed in 1945. Much of the conference was dominated by the emergence of two rival plans, one
put forth by Henry Dexter White of the U.S. Treasury
Department and the other by John Maynard Keynes of the
United Kingdom. The compromise that emerged after the
negotiations reflected the dominance of the preeminent
postwar power, the United States.
In principle, the countries agreed to establish a multilateral institutional framework that created an international
monetary system based on stable and adjustable exchange
rates. Nations agreed to (1) submit their exchange rates to
international discipline; (2) avoid the classical medicine of
deflating their domestic economy when faced with balanceof-payment deficits; (3) establish the U.S. dollar as the standard to which other currencies were pegged, and; (4) create
supranatural organizations—the International Monetary
Fund (IMF) and the World Bank—whereby member countries could establish protocol and procedures to coordinate
international monetary cooperation. These four points
would become known as the “Bretton Woods System” that
governed international monetary cooperation.
In the years after World War II, the IMF would come to
regulate currency values and convertibility, supply monetary
liquidity (ability to convert assets to cash), and serve as a consultative forum for its members. In fact, the Bretton Woods
system soon became equivalent to the dollar exchange standard, a system under which dollars could be traded for gold
at the Federal Reserve. The United States became the source
of global liquidity growth through the deficits in its own balance of payments. Then, in the late 1960s, America’s net gold
reserves dropped, undermining the confidence of investors,
who feared that the dollar was overvalued and not convertible to gold. The Bretton Woods system eventually broke
down on August 15, 1971, when President Richard Nixon
suspended the convertibility of the dollar into gold, thus
floating the dollar against other currencies.