The same force that made the dollar the world’s reserve currency is working to dethrone it.
July 22, 1944, marked the official conclusion of the Bretton Woods Conference in New Hampshire.
It was at Bretton Woods that the dollar was officially designated the world’s leading reserve currency – a position that it still holds today. Under the Bretton Woods system, all major currencies were pegged to the dollar at a fixed exchange rate. The dollar itself was pegged to gold at the rate of $35 per ounce. Indirectly, the other currencies had a fixed gold value because of their peg to the dollar.
Other currencies could devalue against the dollar, and therefore against gold, if they received permission from the International Monetary Fund (IMF). However, the dollar could not devalue, at least in theory. It was the keystone of the entire system – intended to be permanently anchored to gold.
From 1950 – 1970 the Bretton Woods system worked fairly well. Trading partners of the U. S. who earned dollars could cash those dollars into the U. S. Treasury and be paid in gold at the fixed rate.
Trading partners of the U. S. who earned dollars could cash those dollars into the U. S. Treasury and be paid in gold at the fixed rate.
In 1950, the U. S. had about 20,000 tons of gold. By 1970, that amount had been reduced to about 9,000 tons. The 11,000-ton decline went to U. S. trading partners, primarily Germany, France and Italy, who earned dollars and cashed them in for gold.
This post was published at Wall Street Examiner on January 27, 2017.