Bretton Woods Agreement
The 1944 international monetary agreement that established fixed exchange rates pegged to the US dollar and gold.
What is Bretton Woods?
The Bretton Woods Agreement was a landmark international monetary framework established in July 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. It created a fixed exchange rate system in which world currencies were pegged to the US dollar, which was in turn convertible to gold at $35 per troy ounce. The agreement also established two major international institutions: the International Monetary Fund (IMF) and the World Bank. The system provided post-war monetary stability but collapsed in 1971 when President Nixon suspended gold convertibility (the "Nixon Shock"), leading to the modern era of floating exchange rates.
Example
Under Bretton Woods, the British pound was fixed at $2.80 per pound. When the UK faced a balance-of-payments crisis in 1967, it was forced to devalue sterling to $2.40 — a 14.3% reduction — illustrating the system's vulnerability to speculative pressure when a country's trade position diverged from its fixed peg.