Bretton Woods Conference

The Bretton Woods Conference established in 1944 the gold standard upon which the leading economic nations, and particularly the United States, would base their financial relations and monetary systems. 44 Allied nations sent delegates to the Mount Washington Hotel in Bretton Woods, New Hampshire, under the auspices of the United Nations, to discuss and sign the Bretton Woods Agreements in July 1944. These agreements established the International Monetary Fund (IMF), which still exists, and the International Bank for Reconstruction and Development (IBRD), which is now part of the World Bank Group.

The essential agreement was to establish a gold standard for the world's leading currencies. Each industrialized nation would adopt a monetary policy to maintain the exchange rate of its currency within a fixed value relative to gold, plus or minus one percent. The role of the IMF was to handle temporary imbalances of payments between nations.

Petrodollar

When the United States left its gold monetary standard in 1971 by ending the convertibility from dollars to gold, the U.S. sold dollars needed for international transactions by issuing Treasury debt, which is a universally fungible international medium of exchange. Oil is the world’s most valued internationally-traded commodity, and virtually all transactions for oil globally were conducted in dollars until late 2022 Saudi Arabia began accepting Chinese yuan. Previously, all nations needed dollars to engage in international commerce and purchase oil. This gave the U.S. an “exorbitant privilege” in that it could unlimited stream of Treasury debt to the world. One of the consequences of this arrangement is that it has allowed the U.S. to spend far beyond its means, by 2022 running up $32 trillion of debt since 1980, when its national debt stood at a mere $1 trillion.

When the Federal Reserve raised interest rates to take care of U.S. needs, it made capital flow out of other countries, and the exchange rate of their currencies fall, forcing inflation on them. Not a single country in the world was left untouched. Many countries did not want be held hostage to the implicit and explicit negative consequences of dollar hegemony, and wanted to remove the “exorbitant privilege” that they believed the U.S. abused to their individual and collective detriment.

The BRICS group, led by Russia and China began building an international finance and trading system that doe not rely on dollars, that uses countries’ local currencies, gold, oil, or other assets to trade. The U.S. abuse of economic sanctions to blackmail and punish countries that did not bend to American will added to the impetus.