The Bretton woods system: how it all began

A Certain circle of experts knows that long before any of the Bretton woods system, on our planet there was a time the gold standard, when the pound sterling could be freely exchanged for gold. Britain in those days was a strong world power, therefore, could afford such operations. But everything changed in 1914, when the period of the 1st World war in the financial arena came the currency of the United States, which has spread in North and Latin America.

In 1922, was an attempt to create a reserve currency and a gold standard based on pre-war models. In 1925 England introduces the gold standard for the pound, backed by gold and the reserve currency (the USD). However, in 1929, in America, there was a collapse on the stock exchange, and in 1931 on the London financial market started to panic, which finally took the pound a secondary role after the dollar. In 1931, 1933 years in the UK and the USA  was accordingly abolished gold standard, i.e. currencies become floating, which served as the basis for future Forex systems. Attempts to create gold convertibility of the currencies of European countries have failed (in 1936, the collapse of the “Golden block", which included a number of countries, including France, Holland, etc.).

By the end of the forties of the 20th century due to the financial crises of the thirties and World war II in the world there is a need for radical renewal of the financial system. In this regard, in 1944, was convened the Bretton woods conference at which it was decided to peg the currencies of 44 countries to the dollar, and the dollar to gold at a rate of 35 dollars per Troy ounce (31,1034 grams). After World war II in the United States has focused the overwhelming majority of the world's supply of gold, which gave this country to world leadership. In December 1944 the Bretton woods system began its work.

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At the conference, 1944, a resolution was adopted on the establishment of two organizations, which will exercise control functions and to provide countries-participants of the agreement funds for the stabilization of the national currency. It was the international monetary Fund and the international Bank for reconstruction and development. The Bretton woods system assumed that the final medium in international payments remains gold, national currencies are freely traded, that national currencies have solid courses to the dollar, and Central banks support this course (+- 1%).

But by the mid-70's gold reserves have been reallocated to other financial centres (European, Asian), and thus was in violation of the theorem Triffin that the issue of currency must be compared with the gold reserves of the country that this issue has produced. The Bretton woods system began to lose its relevance, which intensified speculation, instability of foreign currency balances of the participating countries, the currency crisis of 1967. This creates the preconditions for change of the existing world monetary system, which the US supported for many years by force of arms, because the gold reserve equivalent to the emission of dollars, they have for many years.