The Bretton Woods System established the post-World War II international monetary order and was agreed upon by 44 allied nations at a conference in Bretton Woods, New Hampshire in 1944. It created institutions like the IMF and World Bank and established a system of rules, standards, and cooperative agreements regarding exchange rates and commercial policy. A key aspect was pegging currency to the U.S. dollar, which was convertible to gold. However, the system broke down in the early 1970s due to heavy U.S. spending during the Vietnam War which depleted U.S. gold reserves. This led President Nixon to end the dollar's convertibility to gold in 1971, severing the final link between currencies and gold and

1. The Bretton Woods System
By: Denise Davies

2. History
• Named for the Bretton Woods Monetary
Conference which took place in New
Hampshire, during July 1-22, 1944.
• 44 allied nations and one neutral
• US Treasury Harry Dexter White and
Britain’s Treasury John Maynard
Keynes collaborated for 2 1/2 years to
formulate a plan for post-war recovery

3. Events leading up to the
conference
• Restrictive market practices which
caused the devaluation, deflation and
depression that defined the economy of
the 1930s.
• World War II
• The gold standard

4. The Gold Standard
• A certain amount of currency is easily
convertible into its equivalent of gold
• Towards the end of the war, many
nations, such as Britain, did not want to
return to the pre-war gold standard, and
sought for a more stable standard

5. Goals of the Conference
• Intended to govern currency regulations
and establish legal obligations (through
the IMF)
• Set a standard for exchange rates
• Establish international monetary
cooperation
• Money pool from which member nations
can borrow funds

6. Outcome:
formally established December 27, 1945
• 1) “Adjustable peg” currency
• 2) Quotas embedded in the IMF which require
member nations to pay a certain amount of money (to
the Fund)
• 3) Members were forbidden to engage in
discriminatory currency practices to prevent them
from manipulating their price levels and exchange
rates
• 4) The creation of the IMF and World Bank
(International Bank for Reconstruction and
Development)
• 5) The dollar standard

7. Problems
• Post-war monetary relations were
unstable
• The member nations underestimated
the strength of their funds... after two
years of lending, the IMF was drained of
its money

8. Results: Dollar Hegemony
• This ultimately led to the U.S., the most powerful
nation in the world, taking responsibility as global
monetary manager
• 1) The US maintained an open market for imports
and trade
• 2) Granted long-term loans and grants to other
nations via the Marshall Plan and other aid programs
• 3) Established a liberal lending policy for short-term
funds in times of crisis
• Soon, the gold exchange standard
becomes the dollar exchange standard

9. The Implied Bargain
The U.S.
becomes a
global
hegemon due
to strength of
the dollar
US's allies acquiesce to
this hegemonic system
because it benefits their
own economies
U.S. allows
allies’ use of
the system for
their own
benefit
U.S. is able
to act
unilaterally to
secure its
own interests

10. The End of the Bretton Woods
System
• Due to the costs of the Vietnam War
and nations trading $ for gold, On
August 15, 1971, President Nixon
announced three changes in the U.S.’s
economic policy….
• (1) He imposed a 90-day wage-price
freeze
• (2) He imposed a temporary tariff on
imports.
• (3) The end of the Bretton Woods

11. Results….
• The link between gold and the dollar is
severed
• Economies allow their currencies to float
freely against the dollar
• Flexible exchange rates allow for countries to
adjust to increased prices, as was seen in the
oil price shocks of the 1970s
• The formation of the European Monetary
System, to create fixed exchange rates
between participating European nations
– Members of European Economic
Community (now the EU) linked their

12. Bretton Woods II &
Today’s World
• On September 24-25, 2009, President
Obama met with the G20 nations where
a realignment of currency exchange
rates was proposed
• The World Bank and IMF are still active,
although they have been severely
criticized for some of their policies

13. Sources
• http://www.time.com/time/business/articl
e/0,8599,1852254,00.html
• http://www.polsci.ucsb.edu/faculty/cohe
n/inpress/bretton.html
• http://www.imf.org
• http://www.globalpolicy.org/component/co
ntent/article/209/42675.html