In July 1944, a significant conference took place at the Mount Washington Hotel in Bretton Woods, New Hampshire. This gathering, known as the Bretton Woods Conference, brought together 730 delegates from 44 Allied nations. The participants included financiers, economists, and politicians. Initially called the United Nations Monetary and Financial Conference, it is now known as the Bretton Woods Conference.
During that meeting, two international agencies were created:
- The International Monetary Fund (IMF)
- The World Bank
The World Bank was intended to make loans to war-torn and underdeveloped nations so they could build stronger economies. The IMF was supposed to promote monetary cooperation between nations by maintaining fixed exchange rates between their currencies. This was achieved by terminating the use of gold as the basis of international currency exchange and replacing it with politically manipulated paper standards. In other words, it allowed governments to escape the discipline of gold so they could create money out of nothing without paying the penalty of having the currency drop in value on world markets.
Before this conference, currencies were exchanged in terms of their gold value, an arrangement known as the gold exchange standard. Under this system, currency could be exchanged for gold. The exchange value of various currencies, most of which were not backed by gold, was determined by what they could buy in the open market. Their value, therefore, was set by supply and demand. Politicians and bankers despised this arrangement because it was beyond their ability to manipulate.
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