AZnomicsBuilding the World's Financial System
Forty-four nations meet in a New Hampshire hotel and design the global economy
World War II is still raging. But 730 delegates from 44 Allied nations gather at the Mount Washington Hotel in Bretton Woods, New Hampshire, to solve a problem: the last peace had failed partly because of economic chaos. They had three weeks to design a new global financial order.
The US dollar would become the world's reserve currency — the anchor everyone else priced against. Every other currency was pegged to the dollar. The dollar was pegged to gold at $35 per ounce. Two new institutions were created: the IMF (to rescue countries in financial trouble) and the World Bank (to fund development). The rules of global trade were set here.
The two architects were John Maynard Keynes (Britain) and Harry Dexter White (US). Keynes wanted a neutral global currency called "bancor." White wanted the dollar at the centre — giving the US permanent economic power. White won. The dollar has been the world's reserve currency ever since.
By 1971, the US was spending heavily on Vietnam and Great Society programs. Other countries started demanding their dollars be converted to gold — and the US was running out. On August 15, 1971, Nixon went on television and ended gold convertibility. The dollar became pure paper backed by faith in America. Every other currency followed. The modern fiat money system was born.
The IMF and World Bank still exist. The dollar is still the world's reserve currency. When oil is bought between Brazil and Saudi Arabia, it's priced in US dollars. That's the legacy of three weeks in a New Hampshire hotel in 1944.