After the Second World War, the Bretton Woods system placed the United States dollar at the center of world money. Foreign governments could hand in dollars and receive gold at a fixed rate of thirty-five dollars an ounce. Many other currencies were pegged to the dollar in turn. The world held a common reference point, and the dollar became the main reserve held by central banks and used in trade.

The system depended on the United States keeping faith with the peg while also supplying the world with enough dollars for trade and reserves. Over the years those two jobs pulled against each other. As spending, shortfalls, and foreign dollar holdings grew, the belief that every dollar could still be handed in for gold began to weaken. By the late sixties, far more dollars were held abroad than the gold base behind them could cover.

The system needed two things from Washington at the same time — discipline and dollars. In the end, the world got dollars.

Heavy spending on the Vietnam War and the Great Society programs drove steady shortfalls. Foreign central banks, France under de Gaulle most of all, began stacking up dollars and asking for gold in return at the stated rate. The London Gold Pool — a band of central banks that had been selling gold to hold the market price near thirty-five — came apart in 1968. By 1971, the weight of the problem had grown beyond any clean fix.

On the fifteenth of August, 1971, President Nixon closed the gold window and suspended the dollar-to-gold handover. The Smithsonian Agreement that followed tried to hold things together at a new rate of thirty-eight dollars an ounce, but it broke down quickly. By 1973 the major currencies were floating against each other, with their worth set by the market day to day. Gold, no longer held down by a peg, climbed from thirty-five dollars in 1971 to more than eight hundred dollars by 1980.

The modern money system is fully fiat — backed by the word of the government and public faith, not by gold. Central banks still hold gold as a reserve asset, but no major currency has a formal tie to the metal. Bretton Woods matters for anyone thinking about a household holding because it marks the clean line between a gold-backed order and the one that has run ever since. Knowing where that line falls is the starting work of deciding what part gold should play in what a family owns.