What was the “Bretton Woods system,” and what happened to it?

A number of European leaders have called for “a new Bretton Woods system” to design “a global way of supervising our financial system.” But what was the old Bretton Woods system, anyway? Does it still exist? And what would a new Bretton Woods look like?

Bretton Woods was the regime that drove the international monetary system from 1944 to 1973. Before Bretton Woods, countries expected one another to hold gold reserves. These were held in proportion to the value of their currency in relation to other currencies; many also saw the British pound as an acceptable substitute.

But the world saw more than 20 years of economic crisis after World War I: recession, hyperinflation in Germany, then the Great Depression. Many countries, looking to boost their economies, started devaluing their currency, which would make their exports cheaper to international buyers. Meanwhile, countries were losing confidence in both gold and the British empire. What to do?

Central planning! British and American economists, led by John Maynard Keynes and Harry Dexter White, saw that world finance had to be managed in some way. Their work culminated at the U.N. Monetary and Financial Conference in Bretton Woods, N.H. Forty-four countries convened and decided to keep gold as a basis for confidence but set a rate for the U.S. dollar that could be converted to gold. Since the United States was the world’s dominant economy, this cemented the U.S. dollar as the de facto currency that other countries could rely on. Exchange rates would be set on an “adjustable peg,” fixed to the dollar but able to be changed in extraordinary circumstances.

They also created the International Monetary Fund, which would stockpile currency, finance countries’ trade deficits when necessary, and generally act as a forum for managing the system. (Bretton Woods also saw the creation, almost as an afterthought, of the General Agreement on Tariffs and Trade and the International Bank for Reconstruction and Development, the precursors to the World Trade Organization and the World Bank.)