The world monetary order, from gold to the dollar
What money is and How banks create money looked inside one country. But a Brazilian firm buying German machines with a loan priced in dollars uses three moneys at once. This post follows the wiring between them: the international monetary order, and how it has been rebuilt roughly once a lifetime.
.-~~~~~~~~~-.
.-~ $ ¥ ~-.
.' € ____ £ '.
/ .-~~ ~~-. \
| CHF / W O R L D \ INR|
| | L E D G E R | |
\ \ ~~~~ / /
'. '-.______.-' .'
'-. RUB BRL .-'
'-~~~~~~~-'
many currencies, one question:
"what do we settle in when we disagree?"Era 1: the classical gold standard (about 1870-1914)
Major currencies were defined as a weight of gold. A pound sterling was a fixed amount of gold, and so was a dollar, so their exchange rate was fixed too. London was the financial centre, and sterling bills were the way world trade was paid.
- Strength: stable exchange rates and long-run price stability. Trade and investment flowed across borders.
- Weakness: a country losing gold had to shrink its money supply, which meant falling wages and rising unemployment, with little room to respond. The system worked while governments were able, or willing, to impose that pain.
The First World War broke it. Countries printed money to fight. Attempts to restore gold in the 1920s, with the wrong exchange rates and little cooperation, helped spread the Great Depression. Countries that left gold earliest tended to recover earliest.
1870 ====== GOLD STANDARD ====== 1914 ~~ war ~~ 1925 = gold again =
1929-1936 xx collapse xx
\__ the Depression spreads __/Era 2: Bretton Woods (1944-1971)
In July 1944, delegates from 44 Allied nations met at Bretton Woods, New Hampshire, to design a system that would avoid the 1930s. John Maynard Keynes (UK) and Harry Dexter White (US) led the design. The result:
+------------------+
| GOLD $35/oz | convertible only for
+--------+---------+ foreign central banks
|
+--------v---------+
| US DOLLAR | the anchor
+--------+---------+
fixed but adjustable rates (pegs)
+-----------+---------+---------+-----------+
| | | |
[ DM ] [ FF ] [ £ ] [ ¥ ] ...
watched over by the IMF; rebuilding funded by the World Bank- Other currencies were pegged to the dollar, and the dollar to gold at $35 an ounce.
- The IMF lent to countries with temporary payment problems. The World Bank (originally for reconstruction) financed development.
- Capital movements were widely controlled, so countries could set their own interest rates.
The design had a built-in tension, later named the Triffin dilemma. The world needed more dollars as trade grew, which meant the US had to run deficits. But the more dollars piled up abroad, the less believable it became that each one could be turned into gold. By the late 1960s foreign dollar holdings far exceeded US gold reserves.
The break: 15 August 1971
On 15 August 1971 President Nixon announced that the US would stop converting dollars into gold for foreign governments, "temporarily". It was never restored. After a short attempt to fix new rates (the Smithsonian Agreement), the major currencies were floating by 1973.
before 1971: $ ---> Au a dollar is a claim on gold
after 1971: $ ---> $ a dollar is a claim on the US economy,
its laws and its marketsEra 3: floating rates and the dollar system (1973-today)
What came next was less a designed system than a set of habits that hardened. Exchange rates are mostly set by markets, though many countries still manage or peg their currency. And the dollar stayed at the centre, in some ways more than before.
- Oil and commodities are mostly priced and paid in dollars. The "petrodollar" arrangements with Gulf producers in the 1970s helped, and petrodollars were recycled into US assets.
- Reserves: central banks hold foreign currency to defend their own. According to IMF COFER data, the dollar's share of identified reserves fell from about 70% around 2000 to roughly 56-58% in 2025-26. That is still more than twice the euro.
- Trading: in the BIS survey of April 2025, the dollar was on one side of about 89% of all foreign-exchange trades, out of a daily turnover of roughly $9.6 trillion.
- Debt: a large share of cross-border loans and bonds is in dollars, so a stronger dollar squeezes borrowers worldwide.
The French minister Valéry Giscard d'Estaing called this the dollar's "exorbitant privilege": the US can borrow cheaply in its own currency, and the world absorbs its deficits. The other side is an obligation. When markets panic, the world runs to the dollar, and the US Federal Reserve has repeatedly acted as a global lender of last resort through swap lines with other central banks (2008, 2020).
a crisis anywhere --> everyone wants dollars --> dollar rises
| |
v v
dollar debts get heavier Fed swap lines calm the panicThe plumbing: messages, clearing and sanctions
Money moves between countries through correspondent banks. Banks hold accounts at each other and send payment instructions, most of them over SWIFT, a Belgian cooperative messaging network. SWIFT does not move money itself. It carries the messages that tell banks to debit and credit.
Because so much of the world settles in dollars through US banks, access to this plumbing became a tool of foreign policy. Russia's partial exclusion from SWIFT and the freezing of its central-bank reserves in 2022 were a turning point. Some countries began asking whether their reserves were truly theirs.
The current debate: multipolar money?
This is where reasonable people disagree most. The positions, as their defenders would put them:
"De-dollarisation is under way." Central banks have bought gold at record pace since 2022. China built its own payment network (CIPS) and settles more trade in renminbi. BRICS members discuss settling trade in local currencies. Sanctions have taught the world to diversify, and the US debt burden will slowly erode trust.
"The dollar is still the only real option." A reserve currency needs deep, open, liquid bond markets, free movement of capital, and courts that investors trust. The euro has no single safe bond. The renminbi is held back by capital controls. Gold pays no interest and can't be used for most payments. On the numbers, the dollar's share of trading and debt has barely moved.
"A slow drift, not a switch." Many economists expect a gradual shift: a slowly shrinking dollar share, more regional currencies, more gold, and new digital payment rails, with the dollar still first for decades. Sterling's handover to the dollar took roughly from the 1910s to the 1950s.
1870 ------ 1914 ---- 1944 -------- 1971 -------- 2008 ---- 2022 --- ?
£ + gold war $ + gold $ floats crisis sanctions
[classical] [chaos] [Bretton W.] [dollar system] [multipolar?]Summary
Every world monetary order answers the same three questions:
- What is the anchor? Gold, a dominant currency, or nothing.
- Who adjusts when imbalances build up? The deficit country, the surplus country, or the market.
- Who stands behind the system in a panic? Someone has to be the lender of last resort.
Since 1971 the answers have been the dollar, mostly the market, and the US Federal Reserve. Whether those answers hold in the coming decades is one of the defining questions of our time. That is also where the next post starts: Zeitgeist: reading the spirit of an age.