The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the

gathering of 730 delegatesfrom all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, United States, to regulate the international monetary [1] and financial order after the conclusion of World War II. The conference was held from 1 to 22 July 1944, when the General Agreement on Tariffs and Trade (GATT) was signed and agreements were executed that later established the International Bank for Reconstruction and Development (IBRD, which is part of today's World Bank Group) and theInternational Monetary Fund (IMF).
Contents
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1 Purposes and goals 2 Encouraging open markets 3 The Bank for International Settlements controversy 4 Monetary order in a post-war world 5 Failed proposals

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5.1 International Trade Organization 5.2 International Clearing Union

6 Negotiators 7 Quotes 8 See also 9 References 10 Further reading 11 External links

Purposes and goals[edit]

The Bretton Woods Conference took place in July 1944, but some of its core accords did not become operative until December 1958, when all European currencies became convertible. The IMF was developed as a permanent international body. The summary of agreements states, "The nations should consult and agree on international monetary changes which affect each other. They should outlaw practices which are agreed to be harmful to world prosperity, and they should assist each other to overcome short-term exchange difficulties." The IBRD was created to speed uppost-war reconstruction, to aid political stability, and to foster peace. This was to be fulfilled through the establishment of programs for reconstruction and development. The main terms of this agreement were: Formation of the IMF and the IBRD, which is today part of the World Bank.

Adjustably pegged foreign exchange market rate system: The exchange rates were fixed, with the provision of changing them if necessary. Currencies were required to be convertible for trade related and other current account transactions. The governments, however, had the power to regulate ostentatious capital flows. As it was possible that exchange rates thus established might not be favourable to a country's balance of payments position, the governments had the power to revise them by up to 10%. All member countries were required to subscribe to the IMF's capital.

Encouraging open markets[edit]

The seminal idea behind the Bretton Woods Conference was the notion of open markets. In Henry Morgenthau's farewell remarks at the conference, he stated that the establishment of the IMF and the World Bank marked the end of economic nationalism. This meant countries would maintain their national interest, but trade blocks 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 lower barriers to trade and the movement of capital, in addition to their responsibility to govern the system.

The Bank for International Settlements controversy[edit]

In the last stages of the Second World War, in 1944 at the Bretton Woods Conference, the Bank for International Settlements became the crux of a fight that broke out when the Norwegian delegation put forth evidence that the BIS was guilty of war crimes and put forth a motion to dissolve the bank; the Americans, specifically President Franklin Delano Roosevelt and Henry Morgenthau, supported this motion. This resulted in a fight between, on one side, several European nations, the American and the Norwegian delegation, led by Henry Morgenthau and Harry Dexter White; and on the other side, the British delegation, headed by John Maynard Keynes and Chase Bank representative Dean Acheson, who tried to veto the dissolution of the bank. The problem was that the BIS, formed in 1930, had as the main proponents of its establishment the then Governor of the Bank of England, Montagu Norman, and his colleague Hjalmar Schacht, later Adolf Hitler's economics minister. The Bank was as far as known, originally primarily intended to facilitate money transfers arising from settling an obligation from the peace treaty after WWI. After World War I, the need for the bank was suggested in 1929 by the Young Committee, as a means of transfer for German reparations payments ('see: Treaty of Versailles'). The plan was agreed in August of that year at a conference at the Hague, and a charter for the bank was drafted at the International Bankers Conference at Baden Baden in November. The charter was adopted at a second Hague Conference on January 20, 1930. The Original board of directors of the BIS included two appointees of Hitler, Walther Funk and Emil Puhl, as well as Herman Schmitz the director of IG Farben and Baron von Schroeder the owner of the J.H. Stein Bank, the bank that held the deposits of the Gestapo. As a result of allegations that the BIS had helped the Germans loot assets from occupied countries during World War II, the United Nations Monetary and Financial Conference recommended the "liquidation of the [2] Bank for International Settlements at the earliest possible moment." This dissolution, which was originally proposed by Norway and supported by other European delegates, as well as the United States [3] and Morgenthau and Harry Dexter White, was never accomplished.

In July 1944, Dean Acheson interrupted Keynes in a meeting, fearing that the BIS would be dissolved by President Franklin Delano Roosevelt. Keynes went to Henry Morgenthau to prevent or postpone the dissolution of the BIS, but the next day the dissolution of the BIS was approved. The British delegation did not give up, however, and the dissolution of the bank was still not accomplished when Roosevelt died. In April 1945, the new president Harry S. Truman and the British suspended the dissolution and the decision [4] to liquidate the BIS was officially reversed in 1948.

Monetary order in a post-war world[edit]

The need for postwar Western economic order was resolved with the agreements made on monetary order and open system of trade at the 1944 Bretton Woods Conference. These allowed for the synthesis of Britain's desire for full employment and economic stability and the United States' desire for free trade.

Failed proposals[edit]
International Trade Organization[edit]
The Conference also proposed the creation of an International Trade Organization (ITO) to establish rules and regulations for international trade. The ITO would have complemented the other two Bretton Woods proposed international bodies: the IMF and the World Bank. The ITO charter was agreed on at the U.N. Conference on Trade and Employment (held in Havana, Cuba, in March 1948), but the charter was not ratified by the U.S. Senate. As a result, the ITO never came into existence. However, in 1995, during the Uruguay 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.

International Clearing Union[edit]

Main article: International Clearing Union

John Maynard Keynes (right) represented the UK at the conference, andHarry Dexter White represented the US.

John Maynard Keynes proposed the ICU as a way to regulate the balance of trade. His concern was that countries with a trade 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 than half 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 America 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 he proposed an International Stabilisation Fund (now the IMF), which would place the burden of maintaining the balance of trade on the deficit nations, and imposing no limit on the surplus that rich countries could accumulate. White also proposed creation of the IBRD (now part of the World Bank) which would provide capital for economic reconstruction after the war.

The Bretton Woods system was a remarkable achievement of global coordination. It established the U.S. dollar as the global currency, taking the world off of the gold standard. It created theWorld Bank and the International Monetary Fund (IMF) as the two global organizations to help monitor the new system. In effect, since the U.S. was the only country with the ability to print dollars, it established America as the major power behind these two organizations, and the global economy. The Bretton Woods Agreement: Under the Bretton Woods agreement, countries promised that their central banks would maintainfixed exchange rates between their currencies and the dollar. How exactly would they do this? If their currency's value became too low relative to the dollar, they would buy up their currency in foreign exchange markets. This would decrease the supply, which would automatically raise the price. If their currency became too high, they'd print more of their currency, increasing the supply and automatically lowering its price.

Members of the Bretton Woods system also agreed to avoid any trade warfare, such as lowering their currencies strictly to increase trade. However, they could regulate their currencies if foreign direct investment began to stream into their countries in such a way to destabilize their economies. They could also adjust their currency values to rebuild after a war. How the Bretton Woods Agreement Replaced the Gold Standard: Prior to Bretton Woods, the world had followed the gold standard. This meant each country guaranteed that its currency would be redeemed by its value in gold. After Bretton Woods, each member agreed to redeem its currency for dollars, not gold. Why dollars? The U.S. held three-fourths of the world's supply of gold. The dollar's value was set at 1/35 of an ounce of gold, so in a way the world was still on somewhat of a gold standard. However, for all intents and purposes, the dollar had now become a substitute for gold. As a result, the value of the dollar began to increase relative to other currencies, since there was now more of a demand for it -- even though its worth in gold remained the same. This discrepancy in value planted the seed for the collapse of the Bretton Woods system three decades later. Why the Bretton Woods System Was Needed: Until World War I, most countries were on the gold standard. However, they went off so they could print the currency needed to pay for their war costs. This caused hyperinflation, as thesupply of money overwhelmed the demand. The value of money fell so dramatically that, in some cases, people needed wheelbarrows full of cash just to buy a loaf of bread. After the war, countries returned to the safety of the gold standard. All went well until the Great Depression. After the1929 stock market crash, investors switched to trading in currencies and commodities. This drove up the price of gold, resulting in people redeeming their dollars for gold. The Federal Reserve made things worse by defending the nation's gold reserve by raising interest rates. It's no wonder that, as World War II wound down, countries were ready to abandon a pure gold standard. The Bretton Woods system gave countries more flexibility than a strict adherence to the gold standard, but less volatility than no standard at all. A member country still retained the ability to alter its currency's value if needed to correct a "fundamental disequilibrium" in its current account balance. (Source: Benjamin Cohen, Bretton Woods; Time A Brief History of Bretton Woods) Role of the IMF and World Bank: The Bretton Woods system could not have been put into place without the IMF. That's because member countries needed a mechanism to bail them out if their currency values got too low. They'd need a kind of global central bank they could borrow from in case they needed to adjust their currency's value, and didn't have the funds themselves. Otherwise, they would just slap on trade barriers or raise interest rates.

The Bretton Woods countries decided against giving the IMF the power of a global central bank, to print money as needed. Instead, they agreed to contribute to a fixed pool of national currencies and gold to be held by the IMF. Each member of the

Bretton Woods system was then entitle to borrow what it needed, within the limits of its contributions. The IMF was also responsible for enforcing the Bretton Woods agreement.

The World Bank, despite its name, was not the world's central bank. At the time of the Bretton Woods agreement, the World Bank was set up to lend to the European countries devastated by World War II. Now the purpose of the World Bank is to loan money to economic development projects in emerging market countries. The Collapse of the Bretton Woods System: In 1971, the U.S. was suffering from massive stagflation -- a deadly combination of inflationand recession. This was partly a result of the dollar's role as a global currency. In response, President Nixon started to deflate the dollar's value in gold. The dollar was repriced to 1/38 of an ounce of gold, then 1/42 of an ounce. However, the plan backfired. It created a run on the U.S. gold reserves at Fort Knox as people redeemed their quickly devaluing dollars for gold. In 1973, Nixon unhooked the value of gold from altogether. Without price controls, gold quickly shot up to $120 per ounce in the free market. The Bretton woods system was over. (Source: Time, Fuss Over Dollar Devaluation, October 4, 1971)

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