Bretton Woods Gold-Backed U.S. Dollar Reserve Currency Turns 80

Written by Chriss W. Street

The Betton Woods Conference was held in 1944 to “look beyond the carnage of war to establish a new world order founded on commerce and cooperation” by creating the U.S. gold-backed dollar as the world’s reserve currency just turned 80-years old, and nobody is celebrating.

At the end of World War II, the United States had accumulated 70 percent of the world’s gold reserves. The United Kingdom went from being the world’s greatest creditor to the world’s greatest debtor, and most countries sold off the majority of their gold and dollar reserves, as well as their foreign investments, to pay for U.S. war material shipments.

Shortly after the 1939 outbreak of the war in Europe, the United States Congress passed TheNeutrality Act of 1939.  The legislation allowed all of the belligerent nations to purchase hundreds of millions of war materiel and oil from the U.S. on a “cash-and-carry” basis, which meant payment in gold and export on non-American ships.  

European war demand caused the American economy boom with car production hitting a record 3 million units in 1941.  But the December 7, 1941 Japanese attack on Pearl Harbor caused Congress to declare war and essentially nationalize industry by passing the War Production Board. Only 139 cars rolled off the assembly lines over the next four year, as automakers built millions of guns, trucks, tanks and aircraft engines.

Between 1942 and 1946, the U.S. exported about $32.5 billion worth of goods to its Allies through Lend-Lease, of which $13.8 billion went to Great Britain and $9.5 billion went to the Soviet Union.  Britain ran out of gold and began transferring colonial assets.

World War II cost $1.3 trillion and caused about 73 million deaths.  The only Allied belligerent country that was not devastated was the United States. With the Allies facing a post-World War 1 type global deflationary crash and about a third of the world turning to communism, the Americans took economic leadership to re-establish trade.  

The United States hosted 730 delegates from 44 Allied nations at the Bretton Woods Conference in New Hampshire.  The United States essentially agreed to honor trades in U.S. dollars backed by America’s $11.062 billion U.S. Gold Reserves at $35 an ounce.  

A portion of U.S. gold reserves were pledged to back-stop formation of multi-national institutions such as the International Monetary Fund, The World Bank, and a stronger Bank of International Settlements. Although multi-national institution gold still supports $32 trillion dollars of commerce, the U.S. retains the right to withdraw its gold.

Gold-convertibility of the dollar led to a post-war economic boom for Bretton Woods participants.  The Unted States initially was the biggest winner, as the official U.S. Gold Reserves more than doubled to an all-time high of $24.771 billion in August 1949.  

But Bretton Woods also created a significantly over-value U.S. currency that vacuumed upimport of goods, services, and capital.  That made exported American manufactured products more expensive, and imported foreign goods cheaper for Americans to buy.  

Big American companies stopped investing to modernize domestic factories, and became multi-national companies that outsourced global manufacturing and jobs to Western Europe, and later to the “third-world.”  Economist Sam Nakagama observed  that by the late 1970’s: “Americans had great houses and lousy factories.”  

With the U.S. manufacturing competitiveness collapsing and the gold-backed dollar over-valued, France predatorily drained America’s gold reserves by predatorially demanding exchange of its U.S. dollars for gold bullion, rather than French francs.

U.S. dollar-convertibility caused gold reserves to plummet to a post-WW II low of $9.662 billion, about the same level as at the end of the war.  President Nixon ended Bretton Woods by terminating $35 an ounce U.S. dollar gold-convertibility on August 15, 1971.

The official U.S. gold reserves in dollars have remained relatively unchanged at $11.041 billion as of May 2024, but the exchange rate of gold rose about 6,800 percent to $2,400.  The Bretton Woods fostered multi-national institutions continue to be backed by pledges of American goldthat are not calculated as official U.S. gold reserves.

The Mountain Top Times will soon publish Part 2 of the 80^th Anniversary of Bretton Woods with an analysis of the neoliberal era’s spectacular inflation and hyper-globalization impacts as shown by the graph below: