The Bretton Woods System

Convertibility ended with the Great Depression, and the major powers left the Gold Standard and fostered protectionism. As the political climate deteriorated and the world headed for war, the foreign exchange markets all but ceased to exist. With the end of World War II, reconstruction for Europe and the Far East had as its base the Bretton Woods system.

In 1944 the Bretton Woods agreement devised a system of convertible currencies, fixed rates and free trade.

In 1944, the post-war system of international monetary exchange was established at Bretton Woods in New Hampshire, USA. The intent was to create a gold-based value of the American dollar and the British pound and link other major currencies to the dollar. This system allowed for small fluctuations in a 1% band.

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