July will mark the 60th anniversary of the Bretton Woods conference that did more to shape the world than any other meeting after Versailles. Agreements made at Bretton Woods influence the lives of billions of people. Few, however, know what happened in New Hampshire in July 1944.
Bretton Woods essentially was a meeting of the Allied nations that were winning World War II. The United States and the United Kingdom played the key roles, though another 42 nations sent representatives.
The fact that a conference to deal with post-war economic restructuring occurred months before the surrenders of Germany and Japan indicates how seriously the Allies viewed post-conflict restructuring. Would that the Bush administration had taken similar steps for Iraq.
It also reflected the widely held view that flaws in the peace agreement after World War I and the failure to restart vigorous, pre-1914 international economic flows had contributed to the outbreak of World War II. Fascists such as Mussolini and Hitler, together with Japanese militarists, would not have come to power if the global economy had been healthy.
There were three specific thorny problems to solve at Bretton Woods.
First, the world needed a system of international payments based on something other than gold. The United States held most of the world’s supplies of monetary gold, and it is hard to have a trading game when one player holds all the chips.
Second, it was clear that unprecedented amounts of money would be needed to reconstruct homes, factories and infrastructure. Delegates assumed private capital markets would not fund such enormous efforts since many investors had been burned when several nations defaulted on World War I loans.
The third challenge was to organize a regimen for international trade that would prevent the beggar-thy-neighbor trade wars that spread the Great Depression from major financial centers around the world.
Conferees met the first challenge by designing a system of international payments in which the U.S. dollar was tied to gold at $35 per ounce and then other major currencies were tied to the dollar. An International Monetary Fund was created to help nations that experienced short-term shortages of the foreign currencies they needed to pay for imports under this system.
Reconstruction funding was assigned to a new International Bank for Reconstruction and Development, later known as the World Bank. With the guarantee of member nations, it would raise money cheaply in international capital markets and lend it for post-war reconstruction.
An International Trade Organization, with powers to adjudicate disputes and enforce agreements, would deal with trade questions.
The IBRD and IMF came into being. The tasks for which they were designed had disappeared by 1960 and 1971 respectively. Yet both remain today. The U.S. Senate refused to ratify the ITO and it never came into existence. Yet a similar World Trade Organization today is in many ways more important than the IBRD or IMF. How all this came to be is another story.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.