Part of The Gold Story, our cited history of gold.
Building the post-war world on gold
In July 1944, as the Second World War drew towards its end, delegates from forty-four nations gathered at a hotel in Bretton Woods, New Hampshire, to design the financial system of the world that would follow. What they built rested, in the end, on gold. The United States dollar was fixed to gold at thirty-five dollars an ounce, and every other major currency was fixed to the dollar. The dollar was, in effect, a paper claim on American gold (U.S. Department of State, Office of the Historian).
Why they chose gold
It is telling that when the finest economic minds of the twentieth century sat down to build a durable system from the wreckage of war, they did not choose to trust paper alone. They anchored the whole structure to metal. Gold was the disciplining force — the thing a government could not simply print more of. For a generation, from the late 1950s onward, the system held, and the Western world enjoyed an era of remarkable monetary stability.
The flaw at the heart of it
But the system carried a contradiction, identified by the economist Robert Triffin and now known as the Triffin dilemma. To supply the world with dollars, America had to run deficits — sending out more dollars than it held gold to back. Every year, more paper claims existed than there was metal in the vaults. The promise was becoming impossible to keep. By the late 1960s, foreign governments began, quite reasonably, to ask for the gold their dollars entitled them to. The vaults could not satisfy them all. The reckoning, as we will see in the next chapter, arrived on a single evening in August 1971 — and the world has lived in its aftermath ever since.