The Bretton Woods system was monetary management system that established a new monetary order. The name comes from the location of the meeting where the agreements were drawn up, Bretton Woods, New Hamshire. This meeting took place in July 1944. The Bretton Woods agreement was responsible for the set up of the International Monetary Fund. The Bretton Woods System was an attempt to avoid worldwide economic disasters such as the ones experienced in the 1930's.
What was the Purpose of Bretton Woods?
The purpose of the Bretton Woods meeting was to set up new system of rules, regulations, and procedures for the major economies of the world. The main goal of the agreement was economic stability for the major economic powers of the world. The system was designed to address systemic imbalances without upsetting the system as a whole.
The Effect of Bretton Woods on the US Dollar
The Bretton Woods system established the US Dollar as the reserve currency of the world. It also required world currencies to be pegged to the dollar rather than gold. The demise of Bretton woods started in 1971 when Richard Nixon took the US off of the Gold Standard to stem the outflow of gold.
By 1976 the principles of Bretton Woods were abandoned all together and the world currencies were once again free floating. Bretton Woods is an important event for forex traders because it was truly the founding of forex trading.