Rise of the dollar post war

The current banking system could trace its roots back to the Bretton Woods agreement after the war in 1945. With the dust of war settling, an unprecedented raw market of possibilities were opened for inventions of the West to rebuild society.


Unfortunately, these markets are restricted from capital inflows by currency system and trade rules of individual nations. In order to foster greater economic prosperity (for the elitist), a free trade system must be developed with the creation of an international body that facilitates the settlement of payments between countries and provide lending to developing nations. It was with this notion, that the IMF and World Bank was formed.

The IMF was tasked to maintain stability in the international monetary system and enable countries to settle their payments to one another. The World Bank was created to fund the developing economies with a pool of funds contributed by major economies. In order to develop an open market, the currencies would need to be interchangeable with one another. Back then, the gold was the standard used by countries in international trade and currencies were required to be pegged to the gold to ensure interchangeability.

However, the lack of gold reserves (most of it was in Soviet Union) would restrict liquidity and hence the dollar was introduced as the next best option with its peg to gold at $35/ounce, the rising US economy and increased liquidity. This would mean that countries would peg their currencies against the dollar instead. That was the birth of the dollar as the de facto reserve currency of many countries.