Bretton Woods

The Bretton Woods system was established at the United Nations Monetary and Financial Conference held from 1 to 22 July 1944 at the Mount Washington Hotel in Bretton Woods, New Hampshire, where 730 delegates from 44 Allied nations negotiated the post-war international economic order. The conference produced the Articles of Agreement of two institutions: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), the original arm of the World Bank Group. The intellectual contest at the conference lay between the British plan of John Maynard Keynes — who proposed an International Clearing Union and a supranational currency, the bancor — and the American plan of Harry Dexter White, whose more conservative, dollar-centred design prevailed because the United States held the dominant creditor position and most of the world's gold reserves.

Under the Bretton Woods monetary arrangement, member currencies were pegged to the US dollar at fixed par values, and the dollar alone was convertible into gold at the rate of US$35 per ounce. Member states were obliged to maintain exchange rates within a one-per-cent band, adjusting their reserves to defend the parity, while the IMF extended short-term balance-of-payments financing drawn from a pooled quota subscription that also determined each member's voting weight. A fundamental disequilibrium permitted a sanctioned devaluation. The system was a regime of "adjustable pegs" designed to combine the stability of the gold standard with the flexibility needed to avoid the competitive devaluations and protectionism that had deepened the Great Depression. The General Agreement on Tariffs and Trade (GATT, 1947) is often counted as the third, trade pillar, though a proposed International Trade Organization never came into force.

The system functioned through the long post-war boom but collapsed when persistent US balance-of-payments deficits and dollar overhang made gold convertibility unsustainable. On 15 August 1971 President Richard Nixon suspended the dollar's convertibility into gold — the "Nixon Shock" — and the Smithsonian Agreement of December 1971 failed to restore fixed parities. By 1973 the major currencies had floated, and the Jamaica Accords, ratified through the Second Amendment to the IMF Articles (1976, effective 1978), formally legalised floating exchange rates and demonetised gold. The IMF and World Bank nonetheless endure as the "Bretton Woods institutions," their headquarters in Washington, D.C.; as of 2026 both retain near-universal membership and the post-war convention by which a European heads the IMF and an American the World Bank persists despite reform pressure from emerging economies seeking quota realignment.

For competitive examinations, Bretton Woods appears in international relations and global-institutions papers and in general-studies economics sections. UPSC and FSOT questions typically probe the Keynes–White rivalry, the US$35-per-ounce gold peg, the distinction between the IMF and IBRD mandates, and the causes and date of the 1971 collapse. Candidates should be able to distinguish the original fixed-rate "system" from the surviving "institutions," and to link the 1944 settlement to the broader liberal post-war order alongside GATT and the United Nations.