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British prosperity did not hold under the fluctuation after the First World War. Other emerging nations entered the competition with and tried to catch up with British. The pound was forced to devalue and dropped from the gold standard in 1931, signaling the sea-change of international landscape. At this time, the Great Depression caused directly by the Wall Street Crash in 1929 had already occurred. Observing the overheated market speculations and following bubble burst, which lead to the outbreak of the Second World War, leading nations reached the agreement over restructuring some form of global financial mechanism for the postwar era. In 1944, the new international financial regime was established in Bretton Woods Conference in New Hampshire. Here they adopted the fixed exchange rate system anchored by the gold-backed dollar.


Now that the US replaced the British Empire as most influential world economic power, the US dollar was pegged to gold at the rate of thirty five dollar per ounce. Investors and merchants provided the dollar sufficient confidence so that it could obtain the status as reserve currency. Accordingly, other currencies were pegged to the dollar in the fixed exchange system and each currency could devalue if it was regarded to be necessary, though floating exchange rates on a daily basis like today was not chosen at this point By the 1970s, growing economic turmoil was triggered, for instance, by the rising oil price gave great pressure on the dollar. The dollar abandoned the gold standard, for it was no more the equivalent to gold. In the aftermath of “closing the gold window,” the dollar plummeted sharply, paving the way of the new era of floating exchange rates worldwide.