TheBretton Woods Conference, formally known as theUnited Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 allied nations at theMount Washington Hotel, inBretton Woods, New Hampshire, United States, to regulate what would be theinternational monetary and financial order after the conclusion ofWorld War II.[1]
The conference was held from July 1 to 22, 1944. Agreements were signed that, after legislative ratification by member governments, established theInternational Bank for Reconstruction and Development (IBRD, later part of theWorld Bank Group) and theInternational Monetary Fund (IMF). This led to what was called theBretton Woods system for international commercial and financial relations.
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Multilateral economic cooperation among countries was crucial for the post-war world economies. Countries sought to establish an international monetary and financial system that fostered collaboration and growth among the participating countries.[2] They wanted to avoid the complications, faced during theinterwar period, due to leaving thegold standard, theGreat Depression, and trade wars that spread the depression globally.[3] There would be a need for an entity that fostered equilibrium inexchange rates and preventedcompetitive devaluations while ensuring domestic policy autonomy for high employment and real income.[4]
Additionally, countries were concerned with crisis like the one suffered by Germany in the 1920s. TheVersailles treaty imposedreparations on the country for the damages it caused inWorld War I, andhyperinflation greatly affected the German economy. Prices rose 41 percent per day.[5] In the autumn of 1923, 1 Dollar was worth about 4 trillion Marks, forcing the population to barter.[6] Germany's subsequent economic turmoil led to its financial collapse and eventually to the rise ofNazism andWorld War II, aligning with some of John Maynard Keynes's concerns inThe Economic Consequences of the Peace, published in 1919. Thus, to prevent a new crisis in the post-war world, the world economies deemed it imperative to establish a system that fostered international economic cooperation.[7] However, the U.S. and the U.K., the most influential parties in the conference, had not decided whether such a system was in their national best interests.
Early in World War II,John Maynard Keynes of theBritish Treasury andHarry Dexter White of theUnited States Treasury Department independently began to develop ideas about the financial order of the postwar world. (See below for Keynes's proposal for anInternational Clearing Union.) After negotiation between officials of the United States and the United Kingdom and consultation with some otherAllies, a "Joint Statement by Experts on the Establishment of an International Monetary Fund", was published simultaneously in a number of Allied countries on April 21, 1944.[8] On May 25, 1944, the U.S. government invited the Allied countries to send representatives to an international monetary conference "for the purpose of formulating definite proposals for an International Monetary Fund and possibly a Bank for Reconstruction and Development. IBRD."[9] (The word "International" was added to the Bank's title late in the Bretton Woods Conference.) The United States also invited a smaller group of countries to send experts to a preliminary conference inAtlantic City, New Jersey, to develop draft proposals for the Bretton Woods conference. The Atlantic City conference was held from June 15–30, 1944.
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The Bretton Woods Conference had three main results:
Within the Final Act, the most important part in the eyes of the conference participants and for the later operation of the world economy was the IMF agreement. Its major features were:
The seminal idea behind the Bretton Woods Conference was the notion ofopen markets. In his closing remarks at the conference, its president, U.S. Treasury SecretaryHenry Morgenthau, stated that the establishment of the IMF and the IBRD marked the end ofeconomic nationalism. This meant countries would maintain their national interest, but trade blocs and economic spheres of influence would no longer be their means. The second idea behind the Bretton Woods Conference was joint management of the Western political-economic order, meaning that the foremost industrial democratic nations must lowerbarriers to trade and themovement of capital, in addition to their responsibility to govern the system.
The highest body of the Bretton Woods Conference was the plenary session, which met only in the first and last days of the conference and existed mainly to confirm decisions reached by the lower bodies.[13]
The conference conducted its major work through three "commissions". Commission I dealt with the IMF and was chaired byHarry Dexter White, Assistant to the Secretary of the U.S. Treasury and the chief American negotiator at the conference. Commission II dealt with the IBRD and was chaired byJohn Maynard Keynes, economic adviser to the British Chancellor of the Exchequer and the chief British negotiator at the conference. Commission III dealt with "other means of international financial cooperation" and was chaired byEduardo Suárez, Mexico's Minister of Finance and the leader of the Mexican delegation. It was a venue for ideas that did not fall under the other two commissions.
Each commission had a number of committees, and some committees had subcommittees. Every country at the conference was entitled to send delegates to all meetings of the commissions and the "standing committees", but other committees and subcommittees had restricted membership, to allow them to work more efficiently. Except when registering final approval or disapproval of proposals, the work of the conference generally proceeded by negotiation and informal consensus rather than by formal voting. When voting occurred, each country had one vote.
The main goal of the conference was to achieve an agreement on the IMF. Enough consensus existed that the conference was also able to achieve an agreement on the IBRD. Doing so required extending the conference from its original closing date of July 19, 1944 to July 22. Because the United States was the world's largest economy at the time, and the main prospective source of funds for the IMF and IBRD, the U.S. delegation had the largest influence on the proposals agreed to at Bretton Woods.
TheBank for International Settlements (BIS) became an object of scrutiny when theNorwegian delegation put forth evidence that the BIS was involved inwar crimes.
The BIS, formed in 1930, was originally primarily intended to facilitate settling financial obligations arising from the peace treaties that concluded theFirst World War. During the Second World War, it helped the Germans transfer assets from occupied countries. Moreover, now that IMF was to be established, the BIS seemed to be superfluous. Commission III of the Bretton Woods Conference, therefore, considered Norway's proposal for "liquidation of the Bank for International Settlements at the earliest possible moment."[14] The proposal passed Commission III without objection[15] and was adopted as part of the Final Act of the conference.
Momentum for dissolving the BIS faded after U.S. PresidentFranklin Roosevelt died in April 1945. Under his successor,Harry S. Truman, the top U.S. officials most critical of the BIS left office, and by 1948 the liquidation had been put aside.[16]
The need for post-war Western economic order was resolved with the agreements made onmonetary order and open system of trade at the 1944 Bretton Woods Conference. These allowed for the synthesis of Britain's desire forfull employment and economic stability and the United States' desire forfree trade. TheBretton Woods system of pegged exchange rates lasted into the early 1970s.[citation needed]
The Bretton Woods Conference recommended that participating governments reach agreement to reduce obstacles to international trade.[17] The recommendation was later embodied in the proposedInternational Trade Organization (ITO) to establish rules and regulations forinternational trade. The ITO would have complemented the IMF and IBRD. The ITO charter was agreed on at the U.N. Conference on Trade and Employment (held inHavana, Cuba, in March 1948), but the charter was notratified by theU.S. Senate. As a result, the ITO never came into existence. The less ambitiousGeneral Agreement on Tariffs and Trade (GATT) was adopted in its place. However, in 1995, theUruguay Round of GATT negotiations established theWorld Trade Organization (WTO) as the replacement body for GATT. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them.
John Maynard Keynes first proposed the ICU in 1941, as a way to regulate the balance of trade. His concern was that countries with atrade deficit would be unable to climb out of it, paying ever more interest to service their ever-greater debt, and therefore stifling global growth. The ICU would effectively be a bank with its own currency (the "bancor"), exchangeable with national currencies at a fixed rate. It would be the unit for accounting between nations, so their trade deficits or surpluses could be measured by it.
On top of that, each country would have an overdraft facility in its "bancor" account with the ICU. Keynes proposed having a maximum overdraft of half the average trade size over five years. If a country went over that, it would be charged interest, obliging a country to reduce its currency value and prevent capital exports. But countries with trade surpluses would also be charged interest at 10% if their surplus was more thanhalf the size of their permitted overdraft, obliging them to increase their currency values and export more capital. If at the year's end, their credit exceeded the maximum (half the size of the overdraft in surplus), the surplus would be confiscated.
Lionel Robbins reported that "it would be difficult to exaggerate the electrifying effect on thought throughout the whole relevant apparatus of government ... nothing so imaginative and so ambitious had ever been discussed". However,Harry Dexter White, representing the United States, which was the world's biggest creditor, said "We have been perfectly adamant on that point. We have taken the position of absolutely no."
Instead, White proposed an International Stabilization Fund, which would place the burden of maintaining the balance of trade on the deficit nations, and impose no limit on the surplus that rich countries could accumulate. White also proposed the creation of the IBRD (now part of theWorld Bank) which would provide capital foreconomic reconstruction after the war. The IMF as agreed to at Bretton Woods was much closer to White's proposal than to Keynes's.
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The Articles of Agreement for the IMF and IBRD signed at Bretton Woods did not come into force until ratified by countries with at least 80 percent of the capital subscriptions ("quotas"). The threshold was reached on December 27, 1945.
The institutions were formally organized at an inaugural meeting inSavannah, Georgia, on March 8–18, 1946.[19] Notably absent from Savannah was theUSSR, which had signed the Bretton Woods Final Act but had then decided not to ratify it, rejecting the inclusion of the dollar alongside gold and citing that the institutions they had created were "branches of Wall Street".[20] The USSR never joined the IMF and IBRD, though its successor theRussian Federation did in 1992.Australia andNew Zealand were likewise absent from formal participation at Savannah (Australia sent observers), though they joined the IMF and IBRD later.
At the conference,gross domestic product was adopted as the primary measure of country's economies.[21]
Because of its success in founding two international organizations that have had long and influential lives, the Bretton Woods Conference is sometimes cited as an example worthy of imitation.[by whom?] In particular, since thecollapse in the early 1970s of the system of pegged exchange rates agreed to at Bretton Woods there have been a number ofCalls for a "New Bretton Woods".
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