What was the Bretton Woods system?

A monetary arrangement established in July 1944 at Bretton Woods, New Hampshire. It pegged the U.S. dollar to gold at $35 per troy ounce, and other countries pegged their currencies to the dollar. It created the IMF and World Bank and governed international monetary policy from 1944 to 1971.

Why did the Bretton Woods system end?

U.S. budget deficits from the Vietnam War and domestic spending created more outstanding dollar liabilities than U.S. gold reserves could cover. Foreign central banks increasingly redeemed dollars for gold. President Nixon suspended gold convertibility on August 15, 1971, ending the system.

What replaced the Bretton Woods system?

Floating exchange rates. After 1971, major currencies were no longer pegged to gold or to the dollar. Market forces, interest rates, trade balances, and monetary policy determine currency values. This is the system still in use today.

What happened to gold prices after Bretton Woods ended?

Gold rose dramatically. From $35/oz at the end of Bretton Woods in 1971, gold reached $800/oz by 1980, a 22x increase in nine years. It later pulled back sharply before resuming a long-term uptrend. The end of the gold peg removed the artificial price ceiling.

Bretton Woods and the break from gold

The post-war monetary order

Bretton Woods was designed to restore monetary order after World War II. The dollar became the reserve anchor, the dollar was convertible into gold at $35 per ounce for foreign official holders, and other currencies were pegged to the dollar.

The arrangement helped stabilize trade and exchange rates while the global economy rebuilt. It also made U.S. gold reserves and fiscal discipline central to the credibility of the entire system.

1944 agreement among allied nations
Dollar anchored to gold at $35 per ounce
Other currencies pegged to the dollar
Stable exchange rates for post-war trade

II.

Why the system broke

The system required the United States to supply enough dollars for world trade while still keeping those dollars credibly backed by gold. By the 1960s, foreign dollar claims were growing faster than the gold reserve behind them.

Vietnam War costs, Great Society spending, inflation, and foreign redemption pressure forced the issue. On August 15, 1971, President Nixon suspended dollar-gold convertibility. The price of gold floated, and the modern fiat-currency era began.

U.S. deficits expanded foreign dollar claims
Gold reserves could not cover every claim
Foreign central banks demanded metal
The 1971 gold-window closure ended convertibility