Context. Surveys of binary populations in the solar neighbourhood have discovered that the periods of G-and M-type stars are log-normally distributed in the range 0.1−10 11 days. However, observations of young binary populations in various star-forming regions have instead inferred a log-uniform distribution. Some process(es) must clearly be responsible for this change in the period distribution over time. Most stars form in star clusters, so it is here that the(se) process(es) take place. Aims. In dense young clusters, two important dynamical processes occur: i) the gas-induced orbital decay of embedded binary systems and ii) the destruction of soft binaries in three-body interactions. The emphasis in this work is on orbital decay as its influence on the binary distribution in clustered environments has largely been neglected so far. Methods. We performed Monte Carlo simulations of binary populations to model the process of orbital decay due to friction between the gas and binary stars. In addition, the destruction of soft binaries in young dense star clusters was simulated using N-body modelling of binary populations. Results. It is known that the cluster dynamics destroy the number of wide binaries, but leave short-period binaries basically undisturbed. Here we demonstrate that this result is also valid for an initially log-uniform period binary distribution. In contrast, the process of orbital decay significantly reduces the number and changes the properties of short-period binaries, leaving wide binaries largely uneffected. Until now, it has been unclear whether the short period distribution of the field has remained unaltered since its formation. We show here, that if any alteration took place, then orbital decay is a prime candidate for this task. In combination, the dynamics of these two processes, convert even an initial log-uniform distribution into a log-normal period distribution. The probability is 94% that the evolved period distribution and the observed period distribution have been sampled from the same parent distribution. Conclusions. Our results provide a new picture for the development of the field binary population: binaries can be formed as a result of the star-formation process in star clusters with periods that are sampled from the log-uniform distribution. As the cluster evolves, short-period binaries merge to form single stars by means of gas-induced orbital decay, while the dynamical evolution in the cluster destroys wide binaries. The combination of these two equally important processes reshapes an initial log-uniform period distribution to the log-normal period distribution that is observed in the field.