The US’s unilateral termination of the dollar’s convertibility to gold in 1971 marked the end of the Bretton Woods system, which had, since the end of World War II, been a system of fixed exchange rates. This move sent shockwaves around the globe, disrupting the monetary stability that the post-war world had enjoyed.

For India, like other nations, this unexpected shift led to a transition from a fixed exchange rate regime to a floating exchange rate regime by 1973. This period in India’s economic history was characterized by high inflation and slow growth, as the country struggled to adapt to the new monetary reality. The end of Bretton Woods also led to increased volatility in international financial markets, putting additional pressure on India’s balance of payments, and uncertainty in the international monetary environment, which was exacerbated by the 1973 oil crisis. This era thus brought significant challenges for the Indian economy.

The end of the Bretton Woods system marked a turning point in India’s economic policy, one that would set the stage for the economic reforms decades later. It foreshadowed a shift from a closed, state-controlled economy toward a more open and market-driven one.