Bretton Woods¶
Bretton Woods refers to the 1944 international monetary agreement that established the United States dollar as the world's reserve currency, backed by gold at $35 per ounce. This system fundamentally reshaped global finance and set the stage for American economic dominance—until President Nixon unilaterally ended it in 1971, severing the last link between modern money and precious metals.
Birth of a New Order¶
The Bretton Woods system represented "a significant departure from the gold standard, which had been in place since the 19th century." Under the traditional gold standard, currencies were directly pegged to gold. Under Bretton Woods, countries fixed their exchange rates to the US dollar, which was in turn fixed to gold at $35 per ounce. This made the dollar an intermediary between other currencies and gold, positioning it as the global reserve currency.
The agreement was negotiated in 1944 at Bretton Woods, New Hampshire, as World War II drew to a close. Another secret meeting about how money should work. The devastated Allied nations "were in such shambles they had no choice but to accept the terms of Bretton Woods. Only the Soviets refused, a decision which would cost them their country 45 years later."
American Dominance¶
With the Bretton Woods agreement in place, the United States controlled an extraordinary concentration of global economic power:
- Two-thirds of the world's gold supply
- 80% of the world's food production
- Each of the world's seafaring chokepoints via its navy
- Creditor status to nearly every WWII participant, ensuring strong demand for dollars for debt repayment
This arrangement meant that "American materials would be shipped overseas and paid for in dollars, ensuring both employment for Americans and an immediate demand for dollars. Reconstruction loans made to countries would have to be paid in dollars, ensuring a steady demand for dollars for decades."
The System's Contradiction¶
The Bretton Woods system contained an inherent contradiction. As the world's strongest post-war economy, the United States exported far more than it imported. Other countries needed to acquire dollars to purchase American goods, which meant the US had to print more dollars to sell to other nations. But the total amount of dollars potentially exceeded the value of gold reserves in Fort Knox—the massive gold depository built in 1935 to secure America's unprecedented gold holdings.
The fundamental problem: "Having a globally dominant currency meant that the issuer would have to have enough gold in the vault to represent a vast and growing amount of international trade. This was impractical."
Additionally, the post-war baby boom created surging domestic demand for dollars. "A larger population needed to be paid and also needed access to money to pay for goods and services domestically. This increased the demand for dollars, and that demand could not be met if the value of the dollar was pegged to gold."
The Nixon Shock¶
In 1971, President Richard Nixon announced that the United States would no longer convert dollars into gold, effectively ending the Bretton Woods system. "Given the history of paper money, and the disastrous experiment with paper money in Europe after World War I, the US' decision to leave the gold standard and print paper money backed by faith seems perplexing if not foolish."
Yet leaving the gold standard gave the US government what it desired: "greater flexibility in monetary policy. Without the constraints of the gold standard, the US government could print more money to meet the demand of international trade and a growing population at home. Additionally, leaving the gold standard allowed the US government to finance its spending without having to worry about the value of the dollar."
Consequences¶
The abandonment of Bretton Woods marks a critical inflection point in monetary history. The website "WTF Happened in 1971?" documents dramatic changes that followed: soaring wealth inequality, explosive growth in household debt, proliferation of asset bubbles, and fundamental shifts in economic dynamics. Evidence shows that abandoning the last link to gold enabled unprecedented currency debasement and wealth redistribution.
The Bretton Woods era lasted just 27 years (1944-1971), yet its legacy persists. The dollar remains the world's reserve currency, now maintained not by gold backing but by the petrodollar system and American military power, particularly the US Navy's control of global maritime chokepoints essential for oil transportation.