The Bretton Woods system was the set of rules agreed in July 1944 that fixed the world's main currencies to the US dollar, and the dollar to gold at $35 an ounce. It also created the International Monetary Fund and the World Bank. For about 25 years exchange rates barely moved, which helped trade rebuild after the Second World War.

The system broke down between 1971 and 1973, and its collapse created the floating currency market that forex traders use today.

AgreedJuly 1944, Bretton Woods, New Hampshire
DelegatesAbout 730, from 44 nations
AnchorUS dollar convertible into gold at $35 an ounce
Other currenciesPegged to the dollar within 1% bands
Institutions createdIMF and the World Bank
EndedGold link cut in 1971; floating by March 1973

Why the world wanted fixed rates

The leaders who met in 1944 remembered the 1930s. After the gold standard collapsed in the Great Depression, countries devalued their currencies to make exports cheaper, raised tariffs and blocked payments. Each move invited retaliation, trade shrank and the slump deepened. The planners wanted a system that would keep exchange rates stable, stop competitive devaluations and allow trade to grow, while giving governments enough freedom to fight unemployment at home.

The conference at Bretton Woods

Delegates gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, from 1 to 22 July 1944, while the war was still being fought. About 730 people from 44 allied nations attended. Two men dominated the talks: John Maynard Keynes, the famous British economist, and Harry Dexter White of the US Treasury.

Keynes wanted an international clearing union with its own currency, which he called bancor, and rules that would push both deficit and surplus countries to adjust. White wanted a smaller fund built around the dollar. The United States was by far the strongest economy and held most of the world's gold, so White's plan largely prevailed.

How the system worked

The Bretton Woods chain$35Dollar to goldForeign central bankscould swap dollars forgold at $35 an ounce±1%Currencies to dollarOther currencies peggedto the dollar withinnarrow bandsIMFSupportShort-term loans tocountries struggling tohold their pegRareAdjustmentPegs could change onlyto correct a"fundamentaldisequilibrium"Source: Articles of Agreement of the IMF, 1944fxrecap.com
Gold anchored the dollar, and the dollar anchored everything else.

Each country committed to keep its currency close to an agreed rate against the dollar, buying or selling in the market to hold it there. If a country ran persistent deficits, the IMF could lend to give it time to adjust. Changing the peg was allowed only in serious cases, and most governments treated a devaluation as a political defeat.

Controls on capital were also part of the design. Governments limited how freely money could move in and out of their countries, so speculators could not easily attack a currency. That made the fixed rates far easier to defend than they would be in today's open markets.

The golden years

For two decades the system worked well. Europe and Japan rebuilt with American aid, trade expanded rapidly and growth was strong across the developed world. Stable exchange rates made it easy for companies to plan exports and investments, and the dollar became the world's main currency for trade and reserves. Currencies became fully convertible for trade in Western Europe from the end of 1958, and the system reached its peak in the early 1960s.

The flaw at the heart of the system

The economist Robert Triffin spotted a contradiction around 1959 and 1960. A growing world economy needed more dollars to pay for trade and hold as reserves, and the only way to supply them was for the US to run deficits, sending dollars abroad. But the more dollars piled up overseas, the less believable the promise to swap them for gold at $35 became. The system needed the US to do two incompatible things at once.

The Triffin dilemma in simple termsIllustrative, not actual dataSmallDollars abroad,earlyLargeUS gold, earlyLargeDollars abroad,laterShrinkingUS gold, laterSource: FX Recap illustration of Robert Triffin's argumentfxrecap.com
As dollars abroad outgrew US gold, the $35 promise lost credibility.

How it broke

By the 1960s spending on the Vietnam War and new social programmes was adding to US deficits and inflation. Foreign central banks, led by France, began exchanging dollars for gold. A group of central banks known as the London Gold Pool tried to hold the market price of gold at $35, but it collapsed in March 1968 under heavy buying.

On 15 August 1971 President Nixon suspended the dollar's convertibility into gold, the event known as the Nixon Shock. A patched-up version of the system, the Smithsonian Agreement, followed in December, but by March 1973 the major currencies were floating. The IMF's rules were formally changed in the following years to accept that reality.

Bretton Woods vs today's systemBretton Woods, 1944–1973TodayRates fixed to the dollarMost major rates floatDollar tied to goldNo link to goldCapital movements controlledCapital moves freelyDevaluation rare and politicalPrices change every secondSource: FX Recapfxrecap.com
The modern forex market exists because this system ended.
Illustrative case: a 1960s London importer

Imagine a London wine merchant in 1965 buying French wine. Sterling was fixed at $2.80 and the French franc was fixed to the dollar, so the merchant could price next year's orders with confidence. That certainty disappeared on 18 November 1967, when Britain devalued sterling to $2.40, a cut of about 14%. Overnight, every franc of wine cost the merchant about 17% more in pounds. Even in a fixed-rate system, the rates were only fixed until the government decided otherwise.

What traders can learn from a fixed system

It is tempting to think fixed exchange rates mean no risk. Bretton Woods shows otherwise. Pegs could and did change, from sterling's devaluation in 1967 to the German mark's revaluations, and each change was sudden and large. When rates are held still by policy, pressure builds quietly and then releases all at once, which is far more dangerous for a trader than steady daily movement.

The system also shows why interest rates and capital flows matter so much. Bretton Woods survived for years partly because capital controls kept money from rushing between countries. Once money could move freely and in huge volumes, holding fixed rates became almost impossible for the major economies, and today only smaller economies run firm pegs, usually backed by large reserves.

What Bretton Woods left behind

  • The IMF and World Bank still exist and still lend to countries in trouble, though their roles have changed.
  • The dollar's central role survived the end of the gold link. It remains the main reserve and trading currency.
  • Pegs still exist. Several countries fix their currencies to the dollar today, using the same basic idea on a smaller scale.
  • Floating rates created the forex market as a place to trade for profit, with daily moves driven by interest rates and economic news.

Follow the story forward in the history of forex, and see how a single policy change can move a currency in the Swiss franc crash of 2015.

Cite this guide

FX Recap, "The Bretton Woods System Explained: How the World Fixed Its Currencies", updated 11 November 2026, https://fxrecap.com/learn-forex/education/bretton-woods-system

Free to quote with a link. Journalists: data and comment in our press room.

Frequently asked

What was the Bretton Woods system?

An international monetary system agreed in July 1944. The US dollar was fixed to gold at $35 an ounce, other currencies were pegged to the dollar, and the IMF and World Bank were created to support it. It ran from the late 1940s until the early 1970s.

Why did Bretton Woods fail?

The world needed more dollars as trade grew, but as dollars abroad outgrew US gold reserves, the promise to swap them for gold at $35 became unbelievable. US deficits and inflation in the 1960s made it worse, and the gold link was cut in 1971.

What is the Triffin dilemma?

Robert Triffin's observation that a currency used as the world's reserve must be supplied through the issuing country's deficits, yet those deficits undermine confidence in the currency. Under Bretton Woods it meant the dollar's gold promise would eventually fail.

Who designed the Bretton Woods system?

Mainly John Maynard Keynes for Britain and Harry Dexter White for the US Treasury. Their plans differed, and because the US was the dominant economy, the final system followed White's dollar-centred approach more closely.

When did Bretton Woods end?

It began to end on 15 August 1971, when President Nixon suspended the dollar's gold convertibility. A temporary deal held until early 1973, and by March 1973 the major currencies were floating.

Does the IMF still exist?

Yes. The International Monetary Fund, created at Bretton Woods, still monitors the world economy and lends to countries facing balance of payments problems, though it no longer polices fixed exchange rates.