In July 1944, politicians, economists and bankers gathered in Bretton Woods, New Hampshire at the Mount Washington Hotel, to establish the post-Second World War international monetary and financial order. The pivotal figures were the famed economist John Maynard Keynes, representing the UK, and Harry Dexter White (seen together in this 1946 file picture with White on the right), representing the USA. White was an economist, a senior US Treasury department official and probably a Soviet spy.
The gold standard was not feasible for the post-war economy. There was insufficient gold to meet the demands of growing international trade and investment. The communist Soviet Union, emerging as a rival to the US in the post-war order, also controlled a sizeable proportion of known gold reserves.
Keynes, who famously described the gold standard as "a barbarous relic", proposed a bold and imaginative solution - a world reserve currency (the "bancor") administered by a global central bank. White, representing the world's richest nation and then the biggest creditor, rejected the proposal: "We have been perfectly adamant on that point. We have taken the position of absolutely no."
The US was now the undisputed pre-eminent economic and military great power. She sought a leading role in global monetary affairs. The British and the French had been devastated by two World Wars. They were unable to compete and needed American money to rebuild their economies. White's view prevailed.
The meeting wanted the advantages of the gold standard without the disadvantages. Bretton Woods established a system of fixed exchange rates using the US dollar as a reserve currency. Countries would establish parity of their national currencies in terms of gold (the "peg") and maintain exchange rates within plus or minus 1% of parity (the "band").
In practice, other countries would peg their currencies to the US dollar as the principal 'reserve currency' and - once convertibility was restored - would buy and sell US dollars to keep market exchange rates within plus or minus 1% of parity. The US dollar, effectively, took over the role that gold had played in the international financial system under the gold standard.
The US dollar was to have a fixed relationship to gold ($35 an ounce). The US government committed to fully convertibility. They would convert dollars into gold at that price. This was the gold standard once removed. The dollar was now "as good as gold". It was more attractive as dollars unlike gold earned interest. The US dollar reigned supreme as the world's currency.
Barbarism - gold - had triumphed. Keynes was defeated. George Bernard Shaw observed: "You have to choose between trusting the natural stability of gold and the... honesty and intelligence of the members of the government … I advise you, as long as the capitalist system lasts, to vote for gold."