Reckless Monetary Policy Resulted in the US Ditching the Gold Standard and the Truth About Bretton Woods

Benn Steil, author of The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, writes at WSJ:

This month marks the 70th anniversary of the historic United Nations Monetary and Financial Conference in Bretton Woods, N.H., today known simply as Bretton Woods. The conference, attended by 44 allied nations in the wake of the D-Day landings at Normandy, established the International Monetary Fund, the World Bank and a global fixed exchange-rate system based on the U.S. dollar and gold. The latter lasted until 1971, when President Nixon ended the last remnants of the dollar's gold convertibility.

The name of the remote New Hampshire town has become virtually synonymous with enlightened, cooperative globalization. After all, the quarter-century post-World War II "Bretton Woods era" was marked by robust economic recovery and the formalization of a multilateral trading system.

It is thus no surprise that in the wake of the 2008 global financial crisis world leaders were calling for "a new Bretton Woods" to restore economic order.

But was Bretton Woods actually the cause of the postwar economic revival? The simple answer is no...

 [T]he monetary system established at Bretton Woods cannot be said to have started until 1961, 15 years after the IMF was inaugurated, when the first nine European countries formally adopted the convertibility commitments required by IMF Article VIII. By then the system was already under strain as European nations converted excess dollars to gold, depleting the U.S. gold reserves underpinning the dollar's supposedly indelible gold-backing...

The designer of the Bretton Woods monetary system, U.S. Treasury official Harry Dexter White, had told Congress that there was "no likelihood" that "the United States will, at any time, be faced with the difficulty of buying and selling gold at a fixed price freely." But the U.S. rejected any obligation to manage its monetary policy such that it would always have enough gold to back the dollars it issued. And so in the end it didn't.