Gold Standard vs Bretton Woods System

One system pegs to metal, the other pegs to a currency that pegs to metal

The structural difference is a layer. Under the classic gold standard, each participating currency was a direct claim on gold at a fixed official price, and holders could convert notes into metal. The exchange rate between any two currencies then followed arithmetically from their two gold prices, because both sides of the quote were denominated in the same metal. The postwar system inserted a middle layer. Most currencies pegged to the dollar, only the dollar was convertible into gold, and that conversion right belonged to foreign central banks rather than to the public, which is why the arrangement is properly called a gold-exchange standard. Two consequences follow at once. The reserve asset for most countries became a foreign currency instead of metal, so world reserves could expand without a single ounce being mined. And the obligation to hold gold convertibility fell on one country, while every other country's obligation was simply to keep its rate against the dollar inside a narrow band. Neither feature has any analogue in the classic system, and together they explain the different ways the two regimes failed.

The adjustment mechanism, not the peg, is what a question usually turns on

Both regimes are fixed exchange rates, so a foreign exchange graph treats them identically. A central bank facing downward pressure on its currency buys its own currency with reserves, and the curve shifting is the same in either case. The difference appears when the question asks what happens next. The classic mechanism is automatic. Suppose a country ships out 30 units of gold reserves to settle a deficit. With a money multiplier of 4, the money supply contracts by 120, domestic prices fall, exports become cheaper, imports become dearer, and the deficit corrects itself with no decision taken by anyone. The postwar design deliberately weakened that chain. Capital controls, plus the option to sterilize by buying 30 units of domestic bonds to offset the reserve loss, let the money supply stay flat so domestic policy could target employment instead. The deficit then does not self-correct, reserves keep draining, and adjustment eventually arrives as a negotiated devaluation rather than as deflation. Automatic and painful versus discretionary and postponed is the cleanest way to hold the pair apart.

Each system carries a flaw the other structurally cannot have

A pure gold standard ties the growth of world money to the pace of gold mining. If output grows faster than the metal stock, the price level has to fall, and because wages adjust slowly, that deflation lands partly on output and employment. The flaw is a quantity problem. A reserve-currency system has the opposite flaw, and it is a confidence problem. As trade grows, other countries want to accumulate more of the reserve currency, and the only way they can is for the reserve country to send more of it abroad than it takes back in. The longer that runs, the larger the stock of foreign claims relative to the gold behind them, and the weaker the promise to convert looks. Solving either half worsens the other: stop supplying liquidity and trade is squeezed, keep supplying it and the promise to convert eventually looks impossible to honor. That trade-off has a name, the Triffin dilemma, and it can exist only because the postwar design asked a single national currency to serve as everyone's reserve.

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