The United States reshaped its gold policy during the Great Depression by centralizing monetary gold at the U.S. Treasury. The Gold Reserve Act of 1934 set the framework for valuing gold at $35 per troy ounce, a price that later became the anchor of the Bretton Woods dollar–gold link. This pre-war decision mattered because it established the dollar’s official gold price that other countries would later rely on.
Delegates from 44 Allied nations met in Bretton Woods, New Hampshire, to plan a stable post–World War II international monetary system. They sought to avoid the competitive devaluations and financial instability that had damaged trade in the interwar period. The conference produced agreements that led to the IMF and the World Bank, and laid the groundwork for fixed-but-adjustable exchange rates tied to the U.S. dollar.
The IMF’s Articles of Agreement entered into force, putting the Bretton Woods rules into operation. Member countries set "par values" (official exchange rates) for their currencies, defined in terms of gold or the U.S. dollar, while the dollar was tied to gold at the official U.S. price. This created a system where gold convertibility was mainly an official, government-to-government mechanism rather than an everyday tool for private trade.
After being closed during World War II, the London gold market reopened, restoring a major center for private (non-official) gold trading. This mattered for Bretton Woods because it created a visible market price that could diverge from the official $35 price used between central banks. That gap later became a pressure point as demand for gold rose.
Economist Robert Triffin warned that a system using the U.S. dollar as the main reserve currency could become unstable over time. To supply the world with enough dollars for trade and reserves, the United States would likely run persistent balance-of-payments deficits, but that would also weaken confidence in the dollar’s gold convertibility. This tension became known as the "Triffin dilemma" and foreshadowed later crises.
A group of major central banks agreed to cooperate in the London market to keep the market gold price near $35 per ounce. The idea was to reduce speculation and protect confidence in the Bretton Woods system by using pooled gold reserves to meet surges in demand. Over time, maintaining this defense became harder as global dollar holdings grew faster than U.S. gold reserves.
After heavy demand for gold and mounting strain on official reserves, participating central banks ended the Gold Pool. They announced they would stop supplying gold to the private market, while keeping the official $35 price for transactions between monetary authorities. This "two-tier" approach tried to separate private gold trading from official convertibility, but it also signaled that the Bretton Woods gold anchor was weakening.
IMF members approved the creation of Special Drawing Rights (SDRs), a new international reserve asset meant to reduce pressure on gold and the U.S. dollar. SDRs were bookkeeping claims on freely usable currencies rather than physical commodities, designed to add liquidity (usable reserves) to the world economy. This step reflected growing doubts that gold supplies and U.S. gold reserves could support expanding global trade indefinitely.
The IMF began allocating SDRs to member countries, adding to their official reserves. While helpful, the scale was limited compared with the growing size of international payments and dollar holdings. In practice, SDRs did not remove the underlying problem: many countries still held large dollar reserves they could, in principle, try to convert into U.S. gold.
President Richard Nixon directed the U.S. Treasury to suspend the convertibility of dollars into gold for foreign governments and central banks. This ended the central promise of the Bretton Woods design: that official dollar holders could exchange dollars for U.S. gold at the official price. The decision responded to growing pressures on U.S. gold reserves and confidence in the dollar.
Major industrial countries negotiated new exchange-rate parities after the U.S. closed the gold window. The agreement devalued the dollar relative to gold (to $38 per ounce) and widened the allowable trading bands around fixed rates, aiming to stabilize currency markets. However, the U.S. did not fully restore gold convertibility, leaving the revised system fragile.
After repeated strains, major countries moved toward floating exchange rates rather than maintaining fixed parities tied (directly or indirectly) to gold. With convertibility already suspended, widespread floating marked the practical end of Bretton Woods dollar–gold relations as an operating system. The outcome was a transition to a world where gold no longer served as the official anchor for the U.S. dollar in international settlements.
Bretton Woods Gold Convertibility and Dollar–Gold Relations (1944–1971)