In the 19th and early 20th centuries, gold played a key role in international financial transactions. The gold standard has been used to support currencies; The international value of the currency has been determined by its stable relationship with gold; Gold has been used to settle international accounts. The gold standard maintained fixed exchange rates, which were considered desirable, as they reduced the risk associated with trade with other countries. These new forms of monetary interdependence have enabled huge flows of capital. During the Bretton Woods era, countries were reluctant to formally change exchange rates even in the event of structural noise. As these changes had a direct impact on certain national economic groups, they were considered political risks for heads of state or government. As a result, official exchange rates often became unrealistic for the market, which was a virtually risk-free temptation for speculators. They could move from a weak currency to a strong currency, hoping to reap benefits in the event of an appreciation. However, if the monetary authorities were able to avoid a revaluation, they could return to other currencies without loss. The combination of risk-free speculation and the availability of huge sums of money has been very destabilizing. The Bretton Woods system was put in place as a more stable replacement for the gold standard under which all currencies were converted to gold.
Under the new agreement, the dollar was the standard for international transactions, which were valued at one ounce of gold. The fact that the United States held a large portion of the world`s gold reserves allowed the dollar to play its new role as a standard currency on which the stock markets were based. It was not until 1958 that the Bretton Woods system became fully operational. After their implementation, the provisions required that the U.S. dollar be pepped to the value of gold. In addition, all other currencies in the system have been indexed to the value of the U.S. dollar. The exchange rate at the time set the price of gold at $35 per ounce.
In short, the combination of these three political conditions – the concentration of power, common interest and come groups of ideas, and the hegemony of the United States – has given the political capacity to fulfill the mission of managing the international economy. (a) A voluntary foreign loan withholding program was adopted in 1965 (Canada and developing countries were excluded). It was replaced in 1968 by mandatory investment controls, which were abolished in 1975. When Nixon explained the temporary end of convertibility, followed by the total collapse of the link between the dollar and gold, the free market became the determinant of gold prices that rose rapidly.