Lord Keynes, the Principal Author of Bretton Woods, Boasted That They Set Up “the Exact Opposite of a Gold Standard” (They Set Up a “Gold-Exchange” Standard)

Let us, at the cost of repetition, remind ourselves of what really went wrong. The Bretton Woods agreements never seriously considered the return of each signatory nation to a gold standard. Lord Keynes, their principal author, even boasted that they set up “the exact opposite of a gold standard.” In any case, what Bretton Woods really set up was what used to be called a “gold-exchange” standard. Every other country in the scheme undertook simply to keep its own currency unit convertible into dollars. The United States alone undertook (on the demand of foreign central banks) to keep its own currency unit directly convertible into gold.

Neither the politicians of foreign countries, nor unfortunately of our own, realized the awesome responsibility that this scheme put on the American banking and currency authorities to refrain from excessive credit expansion. The result was that when President Nixon closed the American gold window on August 15, 1971, our gold reserves amounted to only about 2 per cent of our outstanding currency and demand and time bank deposits ($10,132 million of gold vs. $454,500 million of M2). In other words, there was only $2.23 in gold to redeem every $100 of paper promises. But this takes no account of outstanding “Eurodollars,” or even of the outstanding currency and bank deposits of all the foreign signatories to Bretton Woods. The ultimate gold reserves on which the conversion burden could legally fall under the system must have been only some small fraction of 1 per cent of the total paper obligations against them. Even if the American Congress, and our own banking and currency authorities, had acted far more responsibly, the original Bretton Woods system was inherently impossible to maintain.

—Henry Hazlitt, introduction to From Bretton Woods to World Inflation: A Study of Causes and Consequences (Chicago: Regnery Gateway, 1984), 11-12.