The post WWII international monetary agreement that was developed in 1944 is known as the

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International Monetary Fund (IMF), United Nations (UN) specialized agency, founded at the Bretton Woods Conference in 1944 to secure international monetary cooperation, to stabilize currency exchange rates, and to expand international liquidity (access to hard currencies).

The first half of the 20th century was marked by two world wars that caused enormous physical and economic destruction in Europe and a Great Depression that wrought economic devastation in both Europe and the United States. These events kindled a desire to create a new international monetary system that would stabilize currency exchange rates without backing currencies entirely with gold; to reduce the frequency and severity of balance-of-payments deficits (which occur when more foreign currency leaves a country than enters it); and to eliminate destructive mercantilist trade policies, such as competitive devaluations and foreign exchange restrictions—all while substantially preserving each country’s ability to pursue independent economic policies. Multilateral discussions led to the UN Monetary and Financial Conference in Bretton Woods, New Hampshire, U.S., in July 1944. Delegates representing 44 countries drafted the Articles of Agreement for a proposed International Monetary Fund that would supervise the new international monetary system. The framers of the new Bretton Woods monetary regime hoped to promote world trade, investment, and economic growth by maintaining convertible currencies at stable exchange rates. Countries with temporary, moderate balance-of-payments deficits were expected to finance their deficits by borrowing foreign currencies from the IMF rather than by imposing exchange controls, devaluations, or deflationary economic policies that could spread their economic problems to other countries.

After ratification by 29 countries, the Articles of Agreement entered into force on December 27, 1945. The fund’s board of governors convened the following year in Savannah, Georgia, U.S., to adopt bylaws and to elect the IMF’s first executive directors. The governors decided to locate the organization’s permanent headquarters in Washington, D.C., where its 12 original executive directors first met in May 1946. The IMF’s financial operations began the following year.

The IMF is headed by a board of governors, each of whom represents one of the organization’s approximately 180 member states. The governors, who are usually their countries’ finance ministers or central bank directors, attend annual meetings on IMF issues. The fund’s day-to-day operations are administered by an executive board, which consists of 24 executive directors who meet at least three times a week. Eight directors represent individual countries (China, France, Germany, Japan, Russia, Saudi Arabia, the United Kingdom, and the United States), and the other 16 represent the fund’s remaining members, grouped by world regions. Because it makes most decisions by consensus, the executive board rarely conducts formal voting. The board is chaired by a managing director, who is appointed by the board for a renewable five-year term and supervises the fund’s staff of about 2,700 employees from more than 140 countries. The managing director is usually a European and—by tradition—not an American. The first female managing director, Christine Lagarde of France, was appointed in June 2011.

Each member contributes a sum of money called a quota subscription. Quotas are reviewed every five years and are based on each country’s wealth and economic performance—the richer the country, the larger its quota. The quotas form a pool of loanable funds and determine how much money each member can borrow and how much voting power it will have. For example, the United States’ approximately $83 billion contribution is the most of any IMF member, accounting for approximately 17 percent of total quotas. Accordingly, the United States receives about 17 percent of the total votes on both the board of governors and the executive board. The Group of Eight industrialized nations (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States) controls nearly 50 percent of the fund’s total votes.

Since its creation, the IMF’s principal activities have included stabilizing currency exchange rates, financing the short-term balance-of-payments deficits of member countries, and providing advice and technical assistance to borrowing countries.

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Under the original Articles of Agreement, the IMF supervised a modified gold standard system of pegged, or stable, currency exchange rates. Each member declared a value for its currency relative to the U.S. dollar, and in turn the U.S. Treasury tied the dollar to gold by agreeing to buy and sell gold to other governments at $35 per ounce. A country’s exchange rate could vary only 1 percent above or below its declared value. Seeking to eliminate competitive devaluations, the IMF permitted exchange rate movements greater than 1 percent only for countries in “fundamental balance-of-payments disequilibrium” and only after consultation with, and approval by, the fund. In August 1971 U.S. President Richard Nixon ended this system of pegged exchange rates by refusing to sell gold to other governments at the stipulated price. Since then each member has been permitted to choose the method it uses to determine its exchange rate: a free float, in which the exchange rate for a country’s currency is determined by the supply and demand of that currency on the international currency markets; a managed float, in which a country’s monetary officials will occasionally intervene in international currency markets to buy or sell its currency to influence short-term exchange rates; a pegged exchange arrangement, in which a country’s monetary officials pledge to tie their currency’s exchange rate to another currency or group of currencies; or a fixed exchange arrangement, in which a country’s currency exchange rate is tied to another currency and is unchanging. After losing its authority to regulate currency exchange rates, the IMF shifted its focus to loaning money to developing countries.

The Bretton Woods agreement of 1944 established a new international monetary system. It replaced the gold standard with the U.S. dollar as the global currency. By so doing, it established America as the dominant power in the world economy. After the agreement was signed, America was the only country with the ability to print dollars.

The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations that would monitor the new system.

The creation of Bretton Woods resulted in countries pegging their currencies to the U.S. dollar.
In turn, the dollar was pegged to the price of gold, and the U.S. became dominant in the world economy.
The U.S. was the only nation that could print the globally accepted currency, and countries had more flexibility than they did with the old gold standard.
When the dollar ceased to be pegged to the price of gold, it became the monetary standard with other currencies pegging their currencies to it.

The Bretton Woods agreement was created in a 1944 conference of all of the World War II Allied nations. It took place in Bretton Woods, New Hampshire.

Under the agreement, countries promised that their central banks would maintain fixed exchange rates between their currencies and the dollar. If a country's currency value became too weak relative to the dollar, the bank would buy up its currency in foreign exchange markets.

Purchasing currency would lower the supply of the currency and raise its price. If a currency's price became too high, the central bank would print more. This printing production would increase the supply and lower the currency's price.

Members of the Bretton Woods system agreed to avoid trade wars. For example, they wouldn't lower their currencies strictly to increase trade. But they could regulate their currencies under certain conditions. For example, they could take action if foreign direct investment began to destabilize their economies. They could also adjust their currency values to rebuild after a war.

Before Bretton Woods, most countries followed the gold standard. That meant each country guaranteed that it would redeem its currency for its value in gold. After Bretton Woods, each member agreed to redeem its currency for U.S. dollars, not gold.

Why dollars? The United States held three-fourths of the world's supply of gold. No other currency had enough gold to back it as a replacement. The dollar's value was 1/35 of an ounce of gold. Bretton Woods allowed the world to slowly transition from a gold standard to a U.S. dollar standard.

Over time, the dollar became a substitute for gold. As a result, the value of the dollar began to increase relative to other currencies.

The transition created more demand for dollars, even though its worth in gold remained the same. This discrepancy in value planted the seed for the collapse of the Bretton Woods system three decades later.

Until World War I, most countries were on the gold standard. However, they cut the tie to gold so they could print the currency needed to pay for their war costs. This inflow of currency caused hyperinflation, as the supply of money overwhelmed the demand. After the war, countries returned to the safety of the gold standard.

Hyperinflation caused the value of money to fall so dramatically that, in some cases, people needed wheelbarrows full of cash just to buy a loaf of bread.

All went well until the Great Depression. After the 1929 stock market crash, investors switched to commodities trading. It drove up the price of gold, resulting in people redeeming their dollars for gold. The Federal Reserve made things worse by defending the nation's gold reserve by raising interest rates.

The Bretton Woods system gave nations more flexibility than strict adherence to the gold standard. It also provided less volatility than a currency system with no standard at all. A member country still retained the ability to alter its currency's value, if needed, to correct a "fundamental disequilibrium" in its current account balance, the Federal Reserve noted.

The Bretton Woods system could not have worked without the IMF. Member countries needed it to bail them out if their currency values got too low. They'd need a kind of global central bank they could borrow from if they needed to adjust their currency's value and didn't have the funds themselves. Otherwise, they would just slap on trade barriers or raise interest rates.

The Bretton Woods countries decided against giving the IMF the power of a global central bank. Instead, they agreed to contribute to a fixed pool of national currencies and gold to be held by the IMF. Each member country of the Bretton Woods system was then entitled to borrow what it needed, within the limits of its contributions. The IMF was also responsible for enforcing the Bretton Woods agreement.

The IMF was not designed to print money and influence economies with monetary policies.

The World Bank, despite its name, was not the world's central bank. At the time of the Bretton Woods agreement, the World Bank was set up to lend to the European countries devastated by World War II. The purpose of the World Bank changed to loaning money to economic development projects in emerging market countries.

In 1971, the United States suffered from massive stagflation—a combination of inflation and recession, which causes unemployment and low economic growth.

In response to a dangerous dip in value caused by too much currency in circulation, President Nixon started to deflate the dollar's value in gold. Nixon devalued the dollar to 1/38 of an ounce of gold, and then to 1/42 of an ounce.

The devaluation plan backfired. It created a run on the U.S. gold reserves at Fort Knox as people redeemed their quickly devaluing dollars for gold. In 1971, Nixon unhooked the value of the dollar from gold altogether. Without price controls, gold quickly shot up to $120 per ounce in the free market, ending the Bretton Woods system.

The Bretton Woods Agreement was a 1944 meeting of the Allied nations, in which the nations agreed to peg their currencies to the dollar while the dollar was pegged to gold. The agreement went into effect in 1958 but lasted less than 20 years.

The gold standard was a currency measurement system in place in the United States up until the 1970s in which the value of the dollar was tied to gold. At the time of the Bretton Woods Agreement, one dollar was worth 1/35 of an ounce of gold.