Bretton Woods & the Dollar

1944: the dollar became the world's reserve currency, and never gave it back.

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The brief

In July 1944, with the war not yet won, 730 delegates from 44 Allied nations met for three weeks at the Mount Washington Hotel in Bretton Woods, New Hampshire, to design the postwar international monetary system. The British negotiator was John Maynard Keynes, who arrived proposing a supranational currency he called the bancor; the American was Harry Dexter White, who held the only chips that mattered — the United States then owned roughly two-thirds of the world's monetary gold. White won. The system that emerged fixed the major currencies to the US dollar at adjustable rates and the dollar to gold at $35 an ounce. It created the IMF to oversee those monetary rules and the World Bank to finance reconstruction and development. The dollar became the world's reserve currency, and has remained so for more than eighty years.

The system was designed against the memory of the interwar disaster — the rigid gold standard and the competitive devaluations that had deepened the Depression — and it came with a trade half: the GATT (1947) liberalized commerce round by round until the WTO succeeded it in 1995. The monetary half held until August 1971, when Nixon — facing inflation, a collapsing trade surplus, and foreign claims on Fort Knox that far exceeded the gold inside it — closed the gold window. What was supposed to be the end of the dollar's reign turned out to be the beginning of its real reign. Once foreign central banks could no longer exchange dollars for gold, persistent American deficits no longer threatened the same drain on Fort Knox; they supplied dollar assets the rest of the world wanted to hold. The 1974 petrodollar understanding with Saudi Arabia recycled its oil surpluses into US Treasuries and entrenched the dollar pricing oil already had; trade between third countries was settled in dollars; the world's safest asset became the US Treasury bond. This exorbitant privilege, as French finance minister Valéry Giscard d'Estaing called it in the 1960s, has let the United States borrow more cheaply than it otherwise might, absorb the world's surplus savings (Asia's reserves recycled into Treasuries), and — most consequentially in the 21st century — weaponize the dollar through sanctions that lock targeted states out of the dollar-clearing system. As of 2025, close to 60 percent of global central-bank reserves and about half of all cross-border payments still ran in dollars, decades after the gold that once backed them vanished.

Why nowEvery decade announces the dollar's decline; every decade the dollar disappoints the announcers. The current contest — can the BRICS, the renminbi, gold, or cryptocurrency build an alternative settlement layer fast enough to matter? — is the most concrete frontier of the multipolar economic order. The 2022 freezing of Russia's $300 billion in reserves made clear to reserve managers wary of Western sanctions that dollar assets could be made inaccessible, adding urgency to record gold-buying and bilateral local-currency deals. Yet no rival offers Treasuries' depth, liquidity, and legal certainty. The dollar is, at the moment, both more dominant than ever and more contested than ever.