The U.S. Gold Reserve Act of 1934 had fixed gold at $35 per ounce and moved U.S. monetary gold to the Treasury, shaping the precondition for Bretton Woods. Under Bretton Woods, this $35 price became the anchor point for dollar–gold convertibility used in official (government-to-government) transactions.
Delegates from 44 Allied countries met in Bretton Woods, New Hampshire, to design rules meant to prevent the competitive devaluations and financial instability seen in the 1930s. The plan centered on fixed-but-adjustable exchange rates and new institutions to support stability and reconstruction.
The IMF’s Articles of Agreement were adopted at Bretton Woods, setting the legal basis for the Fund and the postwar exchange-rate system. This created a framework for countries to cooperate on exchange rates, balance-of-payments problems, and international monetary rules.
After countries deposited the needed ratifications, the IMF agreement entered into force. This converted the Bretton Woods plan from a wartime conference decision into an operating international treaty framework.
The IMF began financial operations, enabling it to provide resources to member countries facing balance-of-payments pressures. In the Bretton Woods design, this lending capacity supported fixed exchange rates by giving countries alternatives to abrupt devaluation or harsh trade restrictions.
The World Bank approved its first loan: $250 million to France for postwar reconstruction needs such as equipment and raw materials. Reconstruction lending complemented the Bretton Woods monetary rules by supporting recovery and trade as currencies were stabilized under fixed exchange rates.
Economist Robert Triffin argued that a system relying on the U.S. dollar as the main reserve currency faced a built-in conflict: the world needed more dollars for trade and reserves, but supplying them through U.S. deficits could weaken confidence in dollar–gold convertibility. This critique helped frame later debates about Bretton Woods’ long-term sustainability.
The United States and several European central banks created the London Gold Pool to coordinate gold sales and purchases in the London market. Its goal was to keep the market price near the official $35 per ounce, reinforcing confidence in the dollar’s gold convertibility.
After severe strains in gold markets, monetary authorities agreed to a two-tier system: official transactions stayed at the official price while private markets were allowed to trade at a market price. This reduced the obligation of central banks to supply gold to private markets, but it also highlighted the growing gap between official rules and market realities.
Amendments to the IMF’s Articles enabled the creation of Special Drawing Rights (SDRs), a new reserve asset meant to supplement global liquidity. SDRs were designed to reduce reliance on gold and U.S. dollar reserves, addressing strains that had been building under the fixed-rate system.
The IMF made its first allocations of SDRs to member countries over 1970–1972. This was a practical attempt to strengthen reserves without requiring countries to run persistent deficits (to supply dollars) or to expand gold holdings.
President Richard Nixon announced that the United States would suspend the convertibility of dollars into gold for foreign official holders (often called closing the “gold window”). Because the dollar’s gold convertibility was the system’s anchor, this step made the Bretton Woods arrangement effectively inoperable.
Major industrial countries negotiated new exchange-rate parities and wider trading bands in an effort to restore stability after the U.S. suspension of gold convertibility. The U.S. also reset the official gold price to $38 per ounce, but pressures on fixed rates soon returned.
After renewed market strains, key currencies moved toward floating exchange rates rather than fixed parities against the dollar. This shift marked the practical endpoint of the Bretton Woods fixed-exchange-rate era and the start of a world where exchange rates were more often set by markets.
Bretton Woods, Dollar Convertibility and the End of Dollar–Gold Link (1944–1971)