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.