Bretton Woods Agreement
The Bretton Woods agreement of 1944 established a new global monetary system. It replaced tbe gold standard with tbe United States dollar as tbe global currency. By so doing, it established tbe U.S.A. as tbe dominant power in tbe world economy. After tbe agreement was signed, tbe U.S.A. was tbe only country with tbe ability to print dollars.
The 1944 conference consisted of all of tbe World War II Allied nations and took place in Bretton Woods, New Hampshire, United States of America. Under tbe agreement, all countries promised that their central banks would maintain fixed exchange rates between their currencies and tbe U.S. dollar. If a country's currency value became too weak relative to tbe dollar, tbe bank would buy up its currency in foreign exchange markets.
The IMF and World Bank
The agreement also created tbe World Bank and tbe International Monetary Fund (IMF), both United States-backed organizations which would be based in that country, and which would monitor tbe new system.
The Bretton Woods system could not have worked without tbe IMF. Member countries needed it to bail them out if their currency values got too low. The American-led conference convinced tbe attendees they needed some kind of global central bank they could borrow from if they needed to adjust their currency's value and didn't have tbe funds themselves. Otherwise, they would just slap on trade barriers or raise interest rates.
The attendees nevertheless decided against giving tbe IMF tbe power of a global central bank. Instead, they agreed to contribute to a fixed pool of national currencies and gold to be held by tbe IMF. Each member country of tbe Bretton Woods system was then entitled to borrow what it needed, within tbe limits of its contributions. The IMF was also responsible for enforcing tbe Bretton Woods agreement.
The World Bank was set up to lend to tbe European countries devastated by World War II. The purpose of tbe World Bank later changed to loaning money for economic development projects in emerging market countries.