The world economy is a complex system that has undergone many different phases in the past century. As strange as it may sound today, there have been times when banking crises were rare, pay was rising alongside productivity, and the U.S. dollar would buy a certain amount of pure gold. Despite its obvious successes in certain areas, the global monetary system that laid the foundations for this time of stable growth eventually failed, and here’s why.
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When $35 Bought You an Ounce of Gold
The post-World War II era started with a negotiated monetary system that set the rules for international commercial and financial relations. This was a product of the Bretton Woods agreement from 1944, which created a new financial order in a world devastated by its largest military conflict yet.
The conference in New Hampshire, held before the war was over, established the main pillars of global finance and trade: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), now part of the World Bank Group. The General Agreement on Tariffs and Trade (GATT), later replaced by the World Trade Organization (WTO), was signed soon after.
The governments behind the Bretton Woods system, many of them wartime allies against Nazi Germany, aimed to create a world in which a major armed conflict and a global depression could never happen again. That was to be achieved by building an effective international monetary system and reducing barriers to free trade. Over 700 representatives of 44 countries hammered the agreement in the course of
