Based partly on the ideas of British economist John Maynard Keynes, Bretton Woods was established in 1945 with the intention of ensuring the sort of international economic and monetary stability that had been so lacking in the pre-war years.

In a nutshell, the world's big economies pegged their currencies to the US dollar, while the United States underpinned the system's credibility by guaranteeing to convert the US dollar reserves held by leading central banks into gold at the fixed price of US$35 an ounce.

By and large the agreement appeared to work well for its first 20 or so years, despite a number of hiccups including successive devaluations of the British pound.

But by 1971 it was fast becoming apparent that Bretton Woods' lack of exchange rate flexibility was a major handicap.

In particular, the rapid development of Japan's economy had not been reflected by any appreciation of the yen, which was still trading at its post-war rate of 360 yen to the US dollar, a level US officials believed left the Japanese currency 20 per cent undervalued against the US dollar.

By the late 1960s America's resulting loss of competitiveness compared with Japan - and also Germany - had pushed the US trade balance into deficit.

At the same time, the stock of US dollar reserves held by foreign central banks was quickly outgrowing America's dwindling gold reserves. By 1971, foreign central banks were sitting on US$25 billion in US dollar reserves, while the US held just US$11 billion worth of gold in the vaults of Fort Knox.

To make matters worse, the Vietnam war had exacted a grievous cost on the US economy, leaving President Richard Nixon facing a hefty public debt burden, rising inflation, a slump in growth and stubbornly high unemployment.

With his popularity dwindling ahead of the following year's presidential election, Nixon decided to take radical action to boost US growth - and his prospects at the ballot box.

To restore US industrial competitiveness and create jobs, he resolved that America's trading partners would have to revalue their currencies upward against the US dollar (and gold) and open their markets to US products.

The trouble was that Japan, Germany and the rest had little incentive to revalue, so Nixon decided to provide them with one.

In August 1971 he shocked the world with a Sunday evening TV address in which he suspended the US dollar's convertibility against gold and, in defiance of all international trade rules, imposed a temporary 10 per cent tax surcharge on imports of manufactured goods into the US.

Nixon's gambit worked. Not only did the penalty on foreign imports prove wildly popular at home, the promise of its removal gave America's trading partners a powerful reason to revalue their currencies against the US dollar.

The negotiations dragged on for several months, but finally in December Germany agreed to revalue its currency by 14 per cent and Japan by 17 per cent. In return, the US scrapped its import surcharge.

Nixon went on to win the 1972 election, partly on the perceived strength of his economic management. The Bretton Woods system limped on for another year and a half before disintegrating entirely.

Today, all this might sound like ancient history. But in 2011 as in 1971, America is facing heavy debts run up by fighting foreign wars, lacklustre growth, and high unemployment. What's more, the US economy is saddled with a seemingly chronic trade deficit with China, whose currency many in America believe to be undervalued by at least 20 per cent.

With an election coming up next year, US politicians are once again calling for the imposition of punitive border taxes on imports from countries with undervalued currencies.

So far most observers dismiss these calls as mere electoral posturing, insisting there is little prospect of any real protectionist action by the US administration to force a Chinese revaluation.

But there is a slim chance their confidence is misplaced. After all, if it worked in 1971 ...