The Bretton Woods Agreement refers to a landmark international monetary agreement signed by representatives from 44 nations in 1944. The agreement was signed at a conference held in Bretton Woods, New Hampshire, and was aimed at establishing a new international monetary system after the end of World War II.
The primary aim of the Bretton Woods Agreement was to establish a stable exchange rate system between different currencies, as well as to create the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which later became the World Bank.
Under the Bretton Woods Agreement, the US dollar was made the global reserve currency, and other currencies were fixed to the US dollar at a fixed exchange rate. The US dollar was backed by gold reserves held by the US government, and other countries could exchange their US dollars for gold at a fixed rate.
The Bretton Woods Agreement was seen as a major milestone in international economic cooperation and helped stabilize the global economy in the post-war years. However, by the late 1960s, the system had become unsustainable, with other countries increasingly dissatisfied with the dominance of the US dollar and the fixed exchange rate system.
In 1971, the US government effectively ended the Bretton Woods Agreement by suspending the convertibility of the US dollar into gold. This led to the creation of a floating exchange rate system, where exchange rates between different currencies are determined by market forces rather than fixed by governments.
Despite its eventual demise, the Bretton Woods Agreement remains an important landmark in the history of international economic cooperation. Its aim to stabilize exchange rates and create a stable global economy continues to shape international economic policy today, as nations continue to strive for stability and growth in a constantly changing global economy.