The dollar was the cornerstone of the international monetary order following World War II. Fixed to gold at $35 per ounce, it was the reference point to which all other currencies were pegged. Because the currencies of Europe were not fully convertible for current account transactions until the late 1950s, most international transactions were settled in dollars.1 The [1]

growth of world trade and the reliance on the dollar meant that the dollar was in high demand—but for years it was also in short supply. Following World War II, Europe was in the midst of a consumption and investment frenzy. Still recovering from the destruction of the war, these countries were in desperate need of dollars to import food and capital equipment.[2] The IMF played a modest part in filling the dollar gap through its lending. The United States also responded by providing funds directly to Europe via foreign aid. The Anglo-American Loan Program and Marshall Plan were developed as a means to address the shortage by providing dollars to a recovering Europe.[3] However, by the late 1950s, the global dollar shortage transitioned into a global oversupply of dollars that threatened the stability of the dollar and the US gold stock.

  • [1] Britain’s pound sterling still had an important role, albeit a declining one and restrictedmainly to the so-called sterling area.
  • [2] De Vries 1987, p. 13.
  • [3] Helleiner 1994, pp. 58-62.
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