The Bretton Woods Agreement was a landmark agreement signed by 44 countries at the Mount Washington Hotel in Bretton Woods, New Hampshire, in 1944, which established the rules for commercial and financial relations among the world`s major industrial states in the post-World War II era. The agreement established the US dollar as the world`s reserve currency and fixed the exchange rates of other currencies to the dollar, with a margin of only 1% allowed for fluctuations.
However, one country eventually opted out of the Bretton Woods Agreement: France. In 1965, the French government of General Charles de Gaulle decided to withdraw from the agreement, citing concerns over the US dollar`s stability and the US`s ability to maintain its gold reserves. De Gaulle famously referred to the US dollar as “exorbitant privilege” and argued that the Bretton Woods system put European economies at a disadvantage.
France`s withdrawal from the Bretton Woods Agreement had ripple effects across the global economy. Other countries, particularly those in Western Europe, began to question the stability of the US dollar and the Bretton Woods system as a whole. The US government was forced to devalue the dollar in 1971, effectively ending the Bretton Woods system.
Today, the Bretton Woods system is largely seen as a relic of the post-World War II era. However, the agreement`s legacy lives on in the International Monetary Fund (IMF) and the World Bank, both of which were created at the Bretton Woods conference. The IMF and World Bank continue to play vital roles in the global financial system, providing loans and other forms of financial assistance to developing countries and helping to stabilize financial markets during times of crisis.