On July 1, 1944, representatives of 44 states gathered in the resort town of Bretton Woods in the northeast of the United States. On July 22, 1944, the audience signed an agreement that would become known as Bretton Woods and would mark a new structure of the world monetary and financial system.

There were still fierce battles on the fronts of World War II. At that time, the allied troops of the United States, Great Britain and Canada were just opening a second front, landing on the coast of France, and Soviet troops launched Operation Bagration to liberate Belarus. But the members of the anti-Hitler coalition were already thinking about the post-war peace: at the meeting in Bretton Woods, it was to agree on a system of economic order and international cooperation that would help recover from the war and promote long-term global growth. International cooperation was necessary to avoid a repetition of the currency chaos of the period after the First World War, which marked the beginning of permanent economic crises, unemployment, trade protectionism, which, in turn, formed the conditions that contributed to a new world war.

The possibility of such cooperation was unprecedented for countries that built barriers between their economies for two decades. They did not yet imagine that the economy could grow rapidly, because they knew only economic depression, financial chaos, autarky and war - and hoped to restore stability and a "pre-depressive" level of economic activity.

Farewelling, the conference participants talked about a bright future, a quick peace, predictability and prosperity.

The agreements reached in Bretton Woods have indeed ensured the phenomenally rapid recovery of war-torn economies, as well as the subsequent rapid growth, expansion of international trade and global macroeconomic stability.

But the post-war monetary and financial architecture was based on many contradictions that fell into a single scenario during the development of the drama, which unfolded behind the scenes of Bretton Woods - the confrontation between the "British" and "American" versions of the agreement.

The dollar, thanks to the Bretton Woods system, until now, half a century after its collapse, remaining the main world reserve currency, has not been considered as the central element of the system and received this status virtually by accident.

The bet on the national currency of one country, rigidly tied to gold, predetermined the short, by historical standards, fate of the Bretton Woods system: it lasted only a quarter of a century.

However, the Bretton Woods Conference was key to the formation of international financial cooperation, which later in the 20th century made it possible to move to a more flexible global floating-rate monetary and financial system that still exists today.

Interwar period: gold and currency chaos

In the 1920s, countries one by one began to restore the gold standard - the binding of national currencies to gold. The gold standard existed quite successfully and without serious convertibility crises for three decades before the First World War that destroyed it.

It was considered as a source of relative prosperity of the late 19th and early 20th centuries, so it is not surprising that many war-to-war countries independently decided to return to it, often under pre-war parity.

By 1925, of the 48 currencies included in the list of the League of Nations, about 60% were tied to gold, and by 1930, the absolute majority of currencies had such a binding.

However, already in the 1930s, countries also began to abandon this binding one by one and devalue their currencies. The period of the late 1920s and 1930s for the whole of Europe and the United States became a time of permanent banking panics, crises, currency wars, economic depression and as a result the collapse of the globalized financial system, all this was a key contributor to an attempt to return to the gold standard.

This was due to the fact that the post-war gold standard was significantly different from the "classical" one, the period before the First World War, and these differences, in turn, were caused by the factors and conditions that developed after the war.

The pre-war gold standard was a hegemonic system centered on Great Britain. In the interwar period, the relative decline of Britain and the inexperience and isolation of the new potential hegemon (the United States), as well as ineffective cooperation between central banks, left no one who would be able to take responsibility for the system as a whole, economic historian Harold James and Ben Bernanke, known not only as the head of the Fed during the global crisis of 2008, but also as an economist who received the Nobel Prize for his research on the causes of the Great Depression, note in his work on the connection between the gold standard and the Great Depression.

According to the "rules of the game", the central banks of countries experiencing an influx of gold were to promote the "flow of prices and gold" by expanding the domestic money supply and inflation, while countries with deficits had to reduce the money supply and carry out deflation.

In practice, deficit countries were forced to comply with these rules due to the need to avoid complete loss of reserves and problems with convertibility, but countries with a surplus did not prevent them from sterilizing the flow of gold, accumulating reserves and preventing inflation. Thus, the interwar gold standard had a clear and total deflationary bias.

The asymmetry between the two groups of countries existed before the First World War, but with the significant difference that then the gold standard was concentrated around the operations of the Bank of England.

The Bank of England, as well as a commercial institution, had an incentive not to hold large reserves of gold that did not bring interest income, unlike other assets that brought such income. The bank managed the gold standard in such a way as to avoid both a steady inflow and a steady outflow of gold. This helped to ensure continuous convertibility with a surprisingly low level of gold reserves, Bernanke and James note.

In the interwar period, by the end of the 1920s, about 60% of the world's gold reserves were controlled by two countries - France and the United States. At the turn of the 1920s and 1930s, a stream of gold poured into France, which was perceived as a "safe haven", as a result of which its share in world reserves doubled to more than 30% in four years, by 1932; the share of the United States remained stable at 40%. The flow of gold to France meant its "leaching" from the reserves of other countries. At the same time, in France itself, such an influx had practically no impact on inflation. On the contrary, in 1929 the country experienced a strong deflation of wholesale prices - by 11%.

In addition, central banks at that time were severely limited or even deprived of the right to conduct operations on the open market. This ban also applied to the Bank of France, which seriously reduced its ability to convert gold inflows into monetary expansion, as it should have been in accordance with the "rules of the game". France's inability to carry out inflation meant that it continued to attract reserves and impose deflation on other countries. The United States did the same: in the late 1920s, the Fed tightened monetary policy, partly to prevent the outflow of gold to France, partly to cool down speculation in the stock market. In 1929, the price level in the United States fell by 4%.

The "battles" between the United States and France turned out to be wounds inflicted on themselves, Bernanke and James note: no fundamental circumstances forced the Fed to deflation, and the French government to prohibit the central bank from selling gold.

As soon as the deflationary process began, central banks began competitive deflation and the fight for gold, hoping to protect their currencies from speculative attacks.

Attempts by any single central bank to increase the money supply and lower the rate were met with an immediate outflow of gold, which forced it to raise the rate and deflate again.

Even the United States, which had the largest gold reserves in the world, faced this restriction.

Thus, the peculiarities of gold standard management in the interwar period caused global deflation in the late 1920s and early 1930s. It was aggravated by the fact that since the war the price level had risen greatly, and the gold standard restored at pre-war parity required a reduction in this level and an extremely strict monetary policy, and the tasks of post-war recovery - on the contrary, monetary expansion.

Deflation has at least a triple negative impact on economic activity. Firstly, through real salaries. Nominal salaries have a certain "siffness", and deflation leads to an increase in real wages. Faced with a decrease in profits due to the fall in prices for their products with rising wages, enterprises reduce the demand for labor and investments.

Secondly, through real interest rates: during deflation, they also increase. The increase in the real value of nominal debt obligations caused by the fall in prices undermines the financial situation of borrowers. Thirdly, deflation erodes the capital of banks, forming a gap between their liabilities (usually fixed in nominal terms) and the real value of their assets. The impending depletion of bank capital leads to the flight of depositors, which provokes bank bankruptcy and banking crises.

Banking panics accompanied almost the entire interwar period. From 1921 to 1936, there were 46 banking crises in the world, a third of which occurred during the peak of 1931, by which the world had been experiencing global deflation for two years. In 1931, the Austrian Creditanstalt, once the leading bank of the Habsburg monarchy, which became the largest bank in the Republic of Austria and had extensive ties with banks throughout Europe, collapsed. Its collapse caused a domino effect with a wave of numerous bank panics swept across the continent - in Germany, Hungary, the Czech Republic, Romania, Poland, Switzerland, Turkey, Belgium, Latvia, Estonia, Great Britain and even France - plunging Europe into the Great Depression with accompanying mass unemployment on an unprecedented scale. By the end of 1931, the banking crisis and economic depression had become global.

As a result of the pan-European crisis, the United Kingdom was the first to abandon the gold standard - in the same 1931, four months after the collapse of Creditanstalt, and devalued the effective exchange rate of the pound sterling (weighted average to the currency basket of the trading countries depending on their share in trade turnover) by almost a quarter. This immediately increased the competitiveness of its exports and is believed to have become a turning point in its way out of the crisis.

Over the next few years, 25 more countries followed Britain's example, refusing to peg currencies to gold or its alternative - the dollar and devaluing them. In the absence of international cooperation, the process was chaotic, and those who, like Britain, managed to get away from gold and devalue the currency before others benefited. And the "latecomers" didn't want to lose. The "race of devaluations", or currency wars, has begun. The United States abandoned the gold standard in 1933, France in 1936. The Gold Bloc and with it the globalized financial system were destroyed, and in solving the collective problem of global macroeconomic stabilization, each country was left to itself.

"Razori neighbor"

The European crisis developed independently of the events in the United States, at least partially, which contradicts the "American-centric" explanation of the causes of the Great Depression, Bernanke and James note. The countries that came out of the 1920s in a relatively weaker state suffered the most seriously, including Germany, which was most vulnerable to banking panic due to economic upheavals and hyperinflation in the early 1920s.

Panic and central banks
The rules of the gold standard limited the ability of central banks to mitigate panic, acting as a lender of last resort. Banking panic often coincided with currency crises, which made people strive to transfer funds to more stable currencies. This led to a fall in the gold reserves of central banks (for example, the reserves of the Bank of England decreased by 40 times), creating a threat to the convertibility of national currencies. To prevent this, central banks usually further tightened the policy before the threat of panic. After the abandonment of the gold standard, there were practically no serious banking panics in any country - although it is also true that by the time the gold standard was abolished, most countries had carried out financial reforms to strengthen banking systems, Bernanke and James note.

Economic unrest provoked states to protect their producers from competing with imports.

The 1920s-1930s are considered an "exemplary" period of the implementation of the "razor neighbor" policy - consisting in the desire to improve their own economic situation (for example, by supporting exports) by worsening the economic situation of others (import restrictions). For example, from 1929 to 1932, U.S. exports to Europe decreased by three times, and imports from Europe decreased by almost 3.5 times. In general, world trade decreased by two-thirds during this period.

The subsequent "race of devaluations" did not help world trade at all - on the contrary, it restrained trade, because in response to the devaluation of trading partners, countries imposed restrictions on imports.

Countries that did not have access to raw materials suffered from trade restrictions, countries such as Germany, Italy, Japan did not have it (unlike Great Britain, France, the USSR or the United States), which caused them to "increase the living space", which in turn required large-scale rearmament - in the case of Germany, this meant the rejection of the Treaty of Versailles, which officially ended the First World War and fixed its results.

Freedom of trade was assumed as one of the clauses of the treaty, but it was not included in the final document. At the same time, in order to pay the reparations provided for by it, Germany needed to increase its export revenues significantly above the pre-war level, and for this the United States and its allies had to reduce their tariffs. However, instead of lowering trade barriers, the United States and other countries began to raise them. Due to the lack of export income, Germany became dependent on American loans, which the United States gave it to pay reparations to its European allies (and they, in turn, paid off their debts to the United States accumulated during the First World War from Germany's reparations).

But due to the collapse of Wall Street and the Great Depression that began in the United States, lending was suspended. Germany could not cope with the payments, despite their restructuring, and in 1931 it declared default.

Germany's economic crises led to a loss of confidence in the liberal-democratic government of the Weimar Republic, hatred of the post-war peace agreement, which was considered the cause of all troubles, and the growth in popularity of radicals who shared and fueled these feelings.

This helped the National Socialists to grow from a marginal group gathered in Munich pubs into one of the largest political forces in the country and come to power in 1933, after which Germany refused to implement the Treaty of Versailles and began to restore the armed forces and create a "blockade-free economy".

The lessons of the interwar period were learned, so even before the end of World War II, representatives of countries gathered in Bretton Woods to agree on cooperation and the creation of a system that would contribute to the growth of economies, not crises, and the formation of supranational financial support institutions.

The agreement signed in Bretton Woods provided for the creation of two supranational organizations:

the International Monetary Fund (IMF), designed to prevent the "race of devaluation" and lend currency to countries with a balance of payments deficit,
the International Bank for Reconstruction and Development (IBRD), responsible for providing financial assistance to the countries most in need.

World currencies were tied to the dollar, the dollar to gold at a fixed rate of $35 per ounce, and the United States opened a "golden window": at this rate, central banks of other countries could exchange dollars for American gold. The participating countries undertook not to change exchange rates by more than 1% unilaterally (it was allowed to change the rate only after consultation with the fund, and by more than 10% only with its approval).

Conflict of interest: behind the scenes of Bretton Woods

According to a legend in the American Ministry of Finance, on the night of Sunday, December 14, 1941, less than a week after the United States entered World War II, U.S. Treasury Secretary Henry Morgenthau dreamed that the world had switched to a single currency in international trade. Despite the day off, early in the morning Morgenthau called the economist of the American Treasury Harry Dexter White and asked him to est out how such a system could function after the war.

Two weeks later, White brought the boss a plan to create an international stabilization fund and a world bank. The first was to ensure the stability of the currency markets, the second post-war recovery, growth of economies and trade.

In order for the countries left without reserves to trade after the war, the fund issued loans to cover the deficits of their balances of payments (see the inset below), saving them from the temptation to do so at the expense of competitive devaluations and trade restrictions. The assets of the fund and the bank were formed at the expense of countries' contributions in currency and gold.

The value of national currencies was recalculated in accordance with a universal conversion system for all - White thought it was easier than inventing a new currency.

Balances of payments: surplus and deficit
The balance of payments reflects transactions between residents (individuals, enterprises and governments) of one country and residents of all other countries. If the country exports more than it imports, the inflow of currency into the country will exceed the outflow and the current account will be surplus. If a country imports more than it exports, the volume of foreign currency obtained through exports will not be enough to pay for all imports, and the current account will be scarce. The current account deficit can be financed either by the country's foreign exchange reserves or by capital inflows - for example, foreign currency loans or the sale of securities. Otherwise, the country's currency is devalued, which will increase import prices and thereby reduce it, restoring the balance. In market conditions, with free exchange rate formation, this happens automatically - but in the interwar period, devaluations were resorted to "forcibly" in order to limit imports; similarly, the deficit (or increase the current account surplus) of import restrictions are compensated through, for example, tariff barriers.

Almost simultaneously with White, one of the most influential world economists of the 20th century, the "father of macroeconomics", advisor to the British Minister of Finance John Maynard Keynes, began to work on the plan for the post-war restructuring of the world monetary system.

Keynes' proposals contrasted sharply with White's proposals. As a supporter of state intervention in the economy during crises, Keynes called for the creation of a large global organization with the resources and authority for such intervention in the event of imbalances.

At the center of Keynes' monetary and financial system was the world central bank - the International Clearing Union (ICU), which issued just a single international currency that the American Minister of Finance dreamed of - the "banker". The banker's exchange rate was tied to gold, but by the decision of the ISS council it could change, that is, it was regulated. Bankor could be bought for gold at a fixed rate, but it was impossible to get gold for bankers.

Central banks placed accounts in bankers in the ICS, and if they needed to cover the balance of payments deficit, they received "credit lines" from the surplus of surplus currency of surplus countries.

The mechanism proposed by Keynes encouraged countries to limit not only the deficit, but also the surplus of balances of payments, since the country with an excess surplus had to share bankers with the Clearing Union.

First of all, such a measure could affect the United States and other major exporters.

The USA didn't like the English plan.

Keynes and the Treaty of Versailles
In 1919 Keynes, as a representative of the British Ministry of Finance, participated in the Paris peace talks, during which the Treaty of Versailles with Germany was prepared, among other things. Keynes objected to the huge payments imposed on Germany, calling them punitive: this would lead, he argued, to the fact that Germany would remain forever poor and, therefore, politically unstable, which happened. Keynes was not listened to, and he resigned his powers, and described his rejected beliefs in the book "Economic Consequences of Peace", published in the same 1919. She instantly glorified him - that is, even before he proposed a way out of economic depressions in the 1930s at the expense of fiscal and monetary incentives, and this time he was listened to. Supporting demand in the economy through coordinated actions of the government and the central bank and their active intervention in the market during recessions began to be called "Keynesianism".

The differences in the vision of the British Keynes and the American White of the post-war monetary and financial system were explained by the radically different situation in which Great Britain and the United States found themselves during the war years. "Among the largest consequences of World War II were changes in the economic situation of Britain and the United States. It was almost a complete contrast," wrote Columbia University Law Professor and former American diplomat Richard Gardner in the book Sterling-Dollar Diplomacy.

In 1945, the United States accounted for about 50% of world industrial production, the country was the world's largest exporter with a current account surplus of $11.5 billion, which was more than 10 times higher than the late 1930s.

Great Britain, which before the First World War held the status of the most powerful power and the world's largest creditor, turned into the largest borrower during the Second World War, who needed additional recovery loans. If on the eve of the First World War the ratio of British debt to GDP was 29%, by the end of World War II it was 240%. British exports in 1945 decreased by two-thirds compared to 1939, and the current account deficit increased almost 16 times.

The United States, which expected to maintain its position as the largest exporter and net creditor, was interested in controlling the volume and terms of loans they would have to provide, and not in limiting the surplus of their balance of payments. The small amount of stabilization fund and the loans themselves, assumed by White's plan (unlike the five times larger volume of Keynes Clearing Union funds), was explained by the rate on lending to allies by private American institutions, which was supposed to transfer the heart of the global financial system from London to New York. In turn, Britain was interested in access to resources that would allow it to cover the budget deficit all the time it would take to recover the economy.

The main conflict of interest in the preparation of plans for the post-war international monetary and financial system was that Britain wanted to avoid a situation in which the burden of structural adjustment would fall on the shoulders of borrowers like it, and the United States wanted to make sure that this burden would not be placed on countries with a surplus, such as the United States.

"Absolute badlam" and unexpected "purpose" of the dollar

At the beginning of 1943, newspapers began to write about the preparation of a new monetary and financial world order. The White Plan was officially published on April 7, 1943, and Keynes' plan the next day, April 8.

Throughout 1943, both plans were actively discussed at the international level. At the same time, the United States and Britain held separate bilateral negotiations, which one of their participants described as "absolute bedlam", "a duo of disagreements" and "crescendo of mutual insults".

Despite his world fame, Keynes had weak bargaining power, behind him stood a debtor state with depleted reserves, which also expected to receive a large loan from the United States. Behind White's position was the gold of Fort Knox - a repository of the U.S. gold reserve, which, according to various estimates, at that time accumulated from half to three quarters of the world's monetary gold reserve.

The international banker proposed by Keynes caused the Americans to be wary: they saw two threats in this idea at once - the distribution of money to wasteful nations, which, moreover, is not quite money, but unreliable "wrappers" for which the United States will have to sell its goods. When the proposal for bankers and the world central bank was rejected, Keynes proposed to make the White Units a universal means of payment, allowing them to be converted into any national currency.

White was adamant: this, in his opinion, would lead to the fact that all participants would demand dollars and the United States would have to provide them. As a result, both bankers and units disappeared from the final agreement.

Keynes managed to defend the proposal on the possibility of restrictions on capital operations and on changes in the exchange rates of national currencies with the permission of the IMF; another concession to the famous economist was the clause on the regulation of surplus balances of payments by the fund.

However, such a measure could be introduced only if the country's currency became scarce, in this case, the fund could limit the import of goods, the price of which is denominated in a deficit currency.

The role of the IMF
Keynes and White agreed on the creation of the IMF quickly (.pdf) and were in full agreement on its role: the IMF was to become a "Keynesian" institution, that is, a regulator that promotes prosperity through reasonable policies and helps countries avoid actions that "destruin national or international prosperity". Subsequently, for many years, the IMF has been criticized for promoting austerity rather than economic growth. The main argument of the IMF is that prosperity cannot be sustainable if it is not supported by reasonable policies. "Countries in economic distress often have to experience short-term suffering in order to achieve long-term success," notes IMF historian James Bowton.

The unexpecteds continued at the conference itself. The dollar, which remains the main world reserve currency thanks to the Bretton Woods system, was not considered in this status in the working version of the Bretton Woods Agreement.

A joint statement ( .pdf) of the United States and Great Britain, which became a compromise between their proposals and laid the foundation for the creation of the IMF, was published in late April 1944, three months before Bretton Woods, and introduced the concept of a "gold-convertible currency".

It was assumed that all currencies would be used in international payments, since "insufficient access to a certain currency and lack of its liquidity create a serious problem for the fulfillment of international payment obligations" (partly this fear was caused by the establishment in 1969 of IMF special drawing rights - SDR, an international reserve asset, sometimes called "paper gold").

During one of the meetings, the representative of the Indian delegation asked for clarification what kind of "gold-convertible currency" would be accepted as a contribution. To this, the chief economist of the U.S. Treasury Department Edward Bernstein replied that an attempt to define the term currency convertible into gold will turn into a long discussion, so that as such "it would be easier to consider the US dollar".

Thus, a clause appeared in the final agreement, which stated that "the denomination of the currency of each participant will be expressed in gold or in US dollars". This became the legitimization of the dollar as the only global currency - apparently due to chance.

Little-known "father" of Bretton Woods

The agreement adopted in Bretton Woods was mainly based on the White Plan. White himself soon became the first director of the IMF, established in December 1945.

Keynes did not hide his disappointment, calling White a "bad colleague" "having no idea about the rules of civilized communication", and the Bretton Woods Conference - "a monstrous monkey man".

Keynes wanted to "make a deal between the United Kingdom and the United States and present it to other allies," writes IMF historian James Bowton. White, on the other hand, organized a series of meetings for small groups of countries before gathering more than 700 delegates in Bretton Woods.

White believed that "prosperity, like the world, is indivisible," Bouton writes: White's message to his compatriots, embedded in the Bretton Woods Agreements project, was that the U.S. economy could not thrive if people and companies in other countries could not buy its products. Part of his vision was to encourage the enemy Axis countries to join the agreement as soon as they were ready to accept the terms of membership, which happened.

Another part of his vision was the preservation of the Great Alliance of World War II - the coalition of the United States, Great Britain and the Soviet Union. In an unpublished manuscript written in 1945, White argued that "no major war is possible if [the United States and the Soviet Union] are not on opposite sides... The main task facing American diplomacy - and the only task that has any real value for solving the main problems we face - is to develop ways to ensure friendship and military alliance between the United States and Russia,".

White personally negotiated with the USSR on a new world order, the Soviet delegation was present in Bretton Woods and signed an agreement.

But the USSR did not ratify it and did not join the IMF, suspecting the West of trying to trap it and subordinate it to its financial interests.

After World War II and with the beginning of the Cold War, the USSR began to form its own international financial system within the framework of the Council for Mutual Economic Assistance of Socialist Countries, based on the "transfer ruble" - a supranational currency with gold support, which existed until 1991.

Shortly after Bretton Woods, White was accused of espionage for the Soviet Union. This caused such damage to his reputation that the "architect of the world financial system" remained a little-known official, but its creation is firmly connected with the name of Keynes. Because of the accusations, White resigned after working as the head of the IMF for about two years, and died in 1948 of a heart attack after testifying to the Congressional commission to investigate anti-American activities.

Keynes, exhausted by difficult negotiations with the United States on a 50-year loan of $3.75 billion at the end of 1945, fell ill, and in the spring of 1946 suffered a heart attack and died. Both antagonists in fact never saw the incarnation of the Bretton Woods system, which was fully operational only in 1958.

"Deadly Flaw" by Bretton Woods

Until about the mid-1960s, everything went smoothly: the opportunity to exchange dollars for gold gave full confidence in the value of the new global currency and contributed to the rapid economic growth of countries. But along with the growth of economies and exports, the need for new reserves also grew, to meet which dollars and gold were needed. More and more dollars were printed, and it was impossible to replenish gold reserves just as quickly.

With the growth of world trade in the 1960s, world gold production increased by an average of 7% by 1-1.5%, and gold miners had no incentive to increase production at a rather low "frozen" price of $35 per ounce. U.S. gold reserves were melting: during the 1960s, their volume halved.

Even earlier, in 1950, the United States, counting on long years of surplus, turned into a country with a balance of payments deficit that continued to grow: the current account surplus was insufficient to cover the outflow of capital - American net private investment abroad, military spending and loans to non-residents. In 1961, analysts of the St. Louis Fed sounded the alarm, noting that the deficit and the associated outflow of gold are of serious concern both in the United States and abroad regarding the American position in gold.

In fact, the system faced a problem warned by Congress in 1959 by Yale University professor Robert Triffin and which was included in textbooks as the "Triffin Paradox".

On the one hand, in order to provide the central banks of countries with the necessary amount of dollars to form national currency reserves, it is necessary that the United States has a constant deficit in the balance of payments; on the other hand, the US balance of payments deficit undermines confidence in the dollar and its value as a reserve asset - trust requires a balance of payments surplus. This paradox makes the collapse of the Bretton Woods system inevitable, predicted by Triffin.

Triffin considered the trigger mechanism of the inevitable crisis to be the moment when the volume of U.S. obligations to foreign central banks in dollars will exceed the value of the gold reserve of Fort Knox. In 1964, these indicators equalized, after which American dollar liabilities continued to grow.

Inflation in the late 1960s aggravated global imbalances, playing the role of an "elephant in the room", which could no longer be ignored, says Michael Bordeaux, a professor at Rutgers University. Against the background of accelerated inflation, the dollar exchange rate remained at $35 per ounce of gold. The dollar was overvalued: for the United States it meant cheap imports, expensive exports and problems with competitiveness and employment, for the rest of the world - that gold is becoming much more reliable than the dollar. At the same time, the system of currency parities of the Bretton Woods Agreement did not allow the devaluation of the dollar against other currencies without changing the value of gold in dollars.

Countries were against such a change, fearing the devaluation of their dollar reserves, and, on the contrary, tried to prevent a significant increase in the market price of gold to the officially established parity.

In early August 1971, when U.S. obligations to foreign countries exceeded U.S. gold reserves in dollars by 5 times, France and Great Britain demanded that the United States exchange its dollar reserves for gold, which would almost empty the U.S. gold reserves. In response, U.S. President Richard Nixon announced the closure of the "golden window": central banks of other countries could no longer exchange their dollars for gold. The decision, which went down in history as a "Nixon shock", destroyed the foundation of the post-war world monetary and financial system. By March 1973 The Bretton Woods system finally ceased to exist.

With its disintegration, all world currencies became fiat currencies, that is, not secured by either gold or other assets. They are now secured by trust in the policy of national central banks, confidence in the preservation of the purchasing power of currencies.

At the same time, the exchange rate of many currencies has become floating.

Fiat money
With the collapse of the Bretton Woods Agreement, currencies became fiat currencies (Latin fiat means "decree, decree"), that is, not secured by gold or other goods: their kind of security is now trust in the policy pursued by the authorities of a particular country - the belief that money can be exchanged for something valuable. "The key factor in the success of the gold standard was the credible compliance with the principles of convertibility of national currencies into gold. A key success factor for a floating exchange rate is the credible compliance of central banks with the principles of commitment to the low inflation target,"

Contrary to expectations, the new system that replaced Bretton Woods not only did not deprive the dollar of world domination, but also, paradoxically, strengthened its status as a reserve currency, for which it is often called Bretton Woods II.

However, the digitalization of currencies can radically change the configuration of the global financial system…