Not all the major battles in World War II were in Europe or the Pacific. Some involved intense negotiations between the Allied nations – negotiations on what the post-war world would look like economically. The most significant was the secret Bretton Woods Conference of 1944. It was a gathering of delegates from 44 nations from around the world. They met in July in remote Bretton Woods, New Hampshire in the U.S. Just a month earlier D-Day, the Allied Invasion of Normandy had taken place. The Nazis were finally starting to retreat from France after 4 years of brutal occupation. In the Pacific, the Allies were slowly island-hopping towards Imperial Japan.
It was time to make plans for what the world would look like once Hitler and Hirohito were defeated. At Bretton Woods, representatives would agree upon desperately-needed international financial rules for the post-war era. Their two chief accomplishments would change the world’s finances for decades. They created both the International Monetary Fund and The World Bank. No small feat for 44 nations at one secret, 3-week long conference. Think about such a global compromise ever being reached today. So how did it come about?
There were some serious lessons learned by world leaders from the years between World War I and WWII, in particular, the Great Depression. President Franklin D. Roosevelt and Prime Minister Winston Churchill believed that free trade would promote both international prosperity AND peace. The policies adopted by governments to combat the Great Depression of the 1930’s – high tariffs, competitive currencies, restrictive trading policies – created an unstable international atmosphere that only worsened the situation.
Many leaders felt the Great Depression led to tensions that created the second World War.
This bad experience led the leaders of the 1940’s to realize that economic cooperation, not competition, was the way to achieve both prosperity AND peace. The US and UK saw the opportunity for a new international system that would draw on those lessons and provide for postwar reconstruction. They wanted a new system that would avoid the rigid global economy, but also address the lack of cooperation between countries. It would be an unprecedented cooperative effort.
The Atlantic Charter, issued by Roosevelt and Churchill at the Atlantic Conference in 1941, was the spark for the Bretton Conference. They expressed a commitment to economic collaboration between ALL nations. Washington and London agreed to begin talks aimed at achieving these international economic goals. From 1942 to 1944, international financial experts held dozens of multilateral meetings in order to agree upon a common approach.
Three long years of planning and meetings preceded Bretton Woods and laid the foundation for the conference’s success. The initial proposals were greatly influenced by the early plans of the US and UK. But other countries also presented proposals containing their own vision for an international economy. A preliminary meeting was held in Atlantic City, New Jersey in June 1944.
The conference was formally known as the United Nations Monetary and Financial Conference.
It convened on July 1, 1944. 730 Delegates descended upon the secluded Mount Washington Hotel in Bretton Woods, New Hampshire, including dozens of translators. The massive Mount Washington Hotel was a luxury retreat for the wealthy from the city heat of summer. As the meeting was secret, the entire hotel was booked. The owners were paid $300,000 for the loss of business and promised a daily room rate of $18 per person.
The 44 nations attending: Australia, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Cuba, Czechoslovakia, Dominican Republic, Ecuador, Egypt, El Salvador, Ethiopia, France, Greece, Guatemala, Haiti, Honduras, Iceland, India (British colony), Iran, Iraq, Liberia, Luxembourg, Mexico, Netherlands, New Zealand, Nicaragua, Norway, Panama, Paraguay, Peru, Philippines, Poland, South Africa, Soviet Union, United Kingdom, United States, Uruguay, Venezuela, and Yugoslavia.
The Bretton Woods delegates envisioned an international monetary system that would ensure stable exchange rates, prevent competitive devaluations, and promote economic growth. Although everyone agreed on those lofty goals, plans to implement them differed greatly. To reach a joint agreement would have been an impossible task were it not for those 3 years of painstaking preparation.
Their purpose was simple but daunting – to agree on a system of economic order and international cooperation. One that would both help European and Pacific countries recover from the war’s devastation AND foster long-term global financial growth. The success or failure of Bretton Woods was largely dependent on the British-American negotiators.
The British representative was the prominent economist and advisor to the British Treasury John Maynard Keynes. The U.S. representative was Harry Dexter White, the chief international economist at the Treasury Department. They would become the primary designers of the new system. Given U.S. military dominance during the war, White was able to exercise a powerful influence.
U.S. Treasury Secretary Henry Morgenthau served as conference president. The conference was divided into 3 commissions. Harry White chaired Commission I to to deal with the monetary fund. John Keynes chaired Commission II to deal with the world bank. Commission III dealt with international financial cooperation and was chaired by Eduardo Suárez, Mexico’s Minister of Finance. Each commission had a number of committees and subcommittees.
Keynes predicted that the U.S. would fall into another Great Depression after the war.
He was acutely concerned about the global postwar economy. Keynes called for the creation of a large institution with the resources and authority to step in when global imbalances occur. He proposed a global central bank called the Clearing Union. This bank would issue a new international currency, the “bancor,” which would be used to settle international imbalances.
White’s plan was one of more limited powers and resources. He proposed a new monetary institution called the Stabilization Fund. Rather than issue a new currency, it would be funded with a finite pool of currencies and gold that would effectively limit the supply of reserve credit. Keynes wanted unlimited access to the fund. White wanted the rights to draw on the fund to be linked to contributions.
The Bretton Woods Conference attempted to resolve these dueling conflicts. The disadvantages of either floating or fixed exchange rates were avoided by ‘pegging‘ each currency against gold. Dollars were fixed in value against gold and were the only currency directly convertible into gold. (So not long after WWII, the dollar became the dominant world currency.)
After three weeks of intense discussion, negotiation and compromise, the conference ended on July 22, 1944. The delegates signed the Final Act of the United Nations Monetary and Financial Conference. The final plan mostly resembled the White plan, with concessions made to the Keynes plan. The 730 delegates agreed to establish two new institutions. It included a charter outlining both the International Monetary Fund (IMF) and the Articles of Agreement for the International Bank for Reconstruction and Development (World Bank).
The IMF would monitor a system of exchange rates centered on the U.S. dollar and gold, lend reserve currencies to nations with deficits and contribute to the expansion of world trade. The IBRD was to be responsible for providing financial assistance for the reconstruction of war-ravaged nations and the economic development of less developed countries.
A year later, in July 1945, the U.S. Congress passed the Bretton Woods Agreements Act, authorizing U.S. entry into the IMF and IBRD. World War II ended that same summer. The IMF and IBRD Articles of Agreement were ratified six month later in December 1945, when representatives from 21 countries met in Washington, D.C. to become the IMF’s and World Bank’s first members.
In 1958, the Bretton Woods System became fully functional as global currencies became convertible. Countries settled international balances in dollars, and U.S. dollars were convertible to gold. The United States had the responsibility of keeping the price of gold fixed and had to adjust the supply of dollars to maintain confidence in gold.
Today, the IMF and World Bank have 190 member nations.
The Soviet Union had signed the Bretton Woods Final Act. But after WWII, as the Cold War began to bubble, Premier Josef Stalin decided not to ratify it, stating that the Intl. Monetary Fund and World Bank were simply “branches of American Wall Street.“ The USSR never joined the IMF and IBRD, though interestingly its successor, the Russian Federation, did in 1992.
So there you have it, the foundations of our current globally-dependent economy were laid by 44 nations at a secret conference in New Hampshire at the close of World War II.