"For the first years after World War II, Bretton Woods (named for the New Hampshire resort where delegates from 44 Allied nations met in 1944) worked perfectly. Japan and Europe were still rebuilding, and foreigners were eager for dollars they could spend on American cars, steel, and machinery. Even as they accumulated currency reserves, America’s trading partners were content to park them in interest-bearing dollars rather than in inert metal. And since the U.S. owned over half the world’s official gold reserves—574 million ounces at the end of World War II—the system seemed secure.
But from 1950 to 1969, as Germany and Japan recovered, the U.S. share of the world’s economic output fell decisively, from 35 percent to 27 percent. Other nations had less need for dollars and more for deutsche marks, yen, and francs. Also, U.S. spending on Vietnam and domestic programs flooded the world with dollars. Bit by bit, America’s allies began to ask for gold.
The official charged with monitoring gold and other international exchanges was the Undersecretary for Monetary Affairs, a gruff, 6-foot, 7-inch banker named Paul Volcker. He had been worried about the gold market for quite some time. Although the U.S. fixed the official gold price, a market existed in London, in which, in effect, companies sold metal to jewelers and dentists, with central banks sopping up the surplus. Generally, the banks kept the price near to $35. One day in 1960, when Volcker was working at Chase Manhattan, someone burst into his office with news: Gold was at $40. Volcker couldn’t believe it. The price receded, but it was a worrisome foretaste. Jitters in the gold market were an early symptom of domestic inflation".............READ MORE
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