From Safe Haven / By: Richard Mills / April 20, 2012
In July 1944, delegates from 44 nations met at Bretton Woods, New Hampshire – the United Nations Monetary and Financial Conference – and agreed to “peg” their currencies to the U.S. dollar, the only currency strong enough to meet the rising demands for international currency transactions.
Member nations were required to establish a parity of their national currencies in terms of the US dollar, the “peg”, and to maintain exchange rates within plus or minus one percent of parity, the “band.”
What made the dollar so attractive to use as an international currency was each US dollar was based on 1/35th of an ounce of gold, and the gold was to held in the US Treasury. The value of gold being fixed by law at 35 US dollars an ounce made the value of each dollar very stable.
The US dollar, at the time, was considered better then gold for many reasons:
The strength of the U.S. economy
The fixed relationship of the dollar to gold at $35 an ounce
The commitment of the U.S. government to convert dollars into gold at that price
The dollar earned interest
The dollar was more flexible than gold
There’s a lesson not learned that reverberates throughout monetary history; when government, any government, comes under financial pressure they cannot resist printing money and debasing their currency to pay for debts.
Lets fast forward a few decades…