“This Conference at Bretton Woods, representing nearly all the peoples of the world, has considered matters of international money and finance which are important for peace and prosperity. The Conference has agreed on the problems needing attention, the measures which should be taken, and the forms of international cooperation or organization which are required. The agreements reached on these large and complex matters are without precedent in the history of international economic relations.” 1
The Bretton Woods conference established two entities: the International Monetary Fund (IMF) and the International Bank For Reconstruction and Development (World Bank).
Officially, the conference is known as the United Nations Monetary and Financial Conference. The conference was held at the Mount Washington Hotel in Bretton Woods, PA between July 1 and July 22, 1944. Before that conference, there was a preliminary conference in Atlantic City the previous June.
One of the most famous quotes, from Arthur De Souza of Brazil, who chaired the Committee on Organization And Management Of The Fund, states a lofty goal: “…a single idea that happiness be distributed throughout the face of the Earth.”2
An idyllic setting. Lofty Goals. The idea of sharing happiness, reconstructing economies after the massive destruction of WWII and stabilizing currency, combined with the impressive name of an idyllic setting made the IMF and World Bank into a great romance with international economics.
The World Bank was founded in 1945 under the conclusion that international trade affects the standard of life of people. The ability to freely exchange money and to trade is essential to the stability of nations, as restrictions and difficulties with trade and monetary exchange has led to instability and war. The World Bank was for long term loans
The International Bank For Reconstruction (IBFR) was established in 1946 and was based on the idea that an international bank which gave loans that provided capital and which would increase the productivity of the borrowing countries. The IBFR was for short term loans to repair imbalances in international payments and to maintain fixed exchange rates with the US dollar replacing gold as the standard of international exchange.
A third plan, the General Agreement On Tarriffs and Trade (GATT) was initiated in 1947. This agreement involved overseeing the elimination of trade barriers.
The loans were to be from normal channels, with the IMF and the borrower sharing the guarantee of the loan. Special consideration was to be given to countries that had suffered the damages from enemy occupations and hostilities.
The success of the agreements from the Bretton Woods Conference was in a stranglehold from the complexities and differing experiences of the participating countries. Europe was split between Red Army occupation and the desire to join the free countries of the developed world. Britain was in dispute with Greece and losing their power in India. The African and other colonies were on the brink of using the European troubles to free themselves from the yoke of European oppression and domination. The US was introducing the Truman Doctrine and the Marshall plan. Russia was doing quite well without participation while other countries were in instability and turmoil.
The collapse of the plan to let the US dollar be a form of stabilizing began in 1968 through 1973. The Bretton-Woods and other plans ushered in an era of stability, good employment and production and peace, which led to well controlled inflation, but a glut of US dollars in the world economy. The US began to operate in a deficit because the US did not own enough gold to back the currency, even though the US owned most of the world’s gold supply.
Three stages of collapse followed: first, the freeze on gold in 1928 stopped the world banks from buying gold or selling their dollars. Second, the US devalued the dollar in 1971. Third, in 1973, gold was unlinked from the dollar and allowed to float freely.
By the 1980s, the net results of the agreements from the Bretton Woods conference include: countries that could not manage their own exchange rates; paper money, credit and fictitious capital constitute far more of the economies than the wealth of nations, making speculators and investors allegedly more powerful than governments and discouraging any effort to “break the bank”.
Now, the World Bank, but mostly GATT and the IMF are still heavy players in the international markets, but in a way that is far from contributing to the lofty goals of allowing governments to manage their own economies under an umbrella of international agreements that introduce and maintain stability.
There is great disagreement that the World Bank, GATT and the IMF truly distribute happiness throughout the face of the Earth.
1. Book Department, Army Information School, Carlisle Barracks, PA, May 1946
2. World Bank, “The Bretton Woods Institutions Turn 60”, 2004
An Encyclopedia Of Marxism, “Glossary Of Events: Bretton Woods”