Bretton Woods Agreement

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Bretton Woods Agreement

An agreement signed by the original United Nations members in 1944 that established the International Monetary Fund (IMF) and the post-World War II international monetary system of fixed exchange rates.

Bretton Woods Agreement

An international agreement on monetary and currency policy for the period following World War II. Initially crafted in 1944 while the war was ongoing, it came into effect the following year. Among other things, the Bretton Woods Agreement created the International Monetary Fund and the International Bank for Reconstruction and Development. The latter organization was created to finance post-war reconstruction, while the IMF was intended to stabilize exchanges rates between currencies and to serve as a country's lender of last resort.

A key component of the Bretton Woods Agreement was the requirement that all countries peg their currencies to a certain amount of gold. In practice, most currencies were pegged to the U.S. dollar, which was itself pegged to gold. This helped the IMF accomplish its stated goals to stabilize currencies that had experienced a large amount of wartime inflation. The Agreement worked relatively well until the United States unilaterally depegged from gold in 1971. See also: Keynesian economics, Nixon shock.