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Why did monetary authorities hold large gold reserves under Bretton Woods (1944-1971) when only the US had to? We argue that gold holdings were driven by institutional memory and persistent habits of central bankers. Countries continued to back currency in circulation with gold reserves, following rules of the pre-WWII gold standard. The longer an institution spent in the gold standard (and the older the policymakers), the stronger the correlation between gold reserves and currency. Since dollars and gold were not perfect substitutes, the Bretton Woods system never worked as expected. Even after radical institutional change, history still shapes the decisions of policymakers.

Print version record.

Cover; Contents; I. Introduction; II. Gold and the Bretton Woods System; The Gold Puzzle; Potential Motives for Gold Holding; III. Gold and Currency Under Bretton Woods; The Determinants of Reserves Holdings; Control Variables; Data Sources and Sample; Money rather than Trade; IV. Memory and Gold; Past Exposure to the Gold Standard; Personal Experience vs. Institutional Memory; V. Extensions and Robustness; Alternative Dependent Variables; Reverse Causality and Sterilization; VI. Implications: New Perspectives on the Bretton Woods system; VII. Conclusion; Data appendix; References; Tables

1: Gold and Currency in Circulation2: Memory; 3: Personal Experience and Institutional Memory; 4: Determinants of Non-Gold Reserves and Share of Gold in Total Reserves; Figures; Figure 1: Gold and International Reserves, 1950-1971 (billions of US); Figure 2; Catching-up. The Evolution of cover ratios over time (1950-1970); Figure 3: Number of Years in the Gold Standard vs. Average Age of Central Banks'Governors; Figure 4: Currency-Gold Correlation (1950-1973)