Definition
Bretton Woods refers to the monetary order established at a 1944 conference in Bretton Woods, New Hampshire, where Allied nations designed the rules for the post-war global economy. Currencies were pegged to the US dollar at fixed rates, and the dollar in turn was convertible to gold at a set price.
The conference also created two enduring institutions: the International Monetary Fund, to lend to countries facing balance-of-payments crises, and the World Bank, to finance reconstruction and development.
Why it matters
How it works
Under the system, member countries kept their currencies within a narrow band against the dollar, intervening in markets to hold the peg. The dollar's gold convertibility anchored the whole structure, giving participants confidence that values were stable and predictable.
The system strained as the United States ran growing deficits and the dollars held abroad exceeded its gold reserves. In 1971 the US suspended gold convertibility, and within two years the major currencies floated freely. Bretton Woods remains the reference point for debates about whether exchange rates should be fixed or flexible.