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Bretton Woods Conference

The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 allied nations at the Mount Washington Hotel, in Bretton Woods, New Hampshire, United States, to regulate the international monetary and financial order after the conclusion of World War II.[1]

The conference was held from July 1 to 22, 1944. Agreements were signed that, after legislative ratification by member governments, established the International Bank for Reconstruction and Development (IBRD, later part of the World Bank group) and the International Monetary Fund (IMF). This led to what was called the Bretton Woods system for international commercial and financial relations.

An adjustably pegged rate system: Exchange rates were pegged to gold. Governments were only supposed to alter exchange rates to correct a "fundamental disequilibrium".[10]

foreign exchange market

Member countries pledged to make their currencies for trade-related and other current account transactions. There were, however, transitional provisions that allowed for indefinite delay in accepting that obligation, and the IMF agreement explicitly allowed member countries to regulate capital flows.[11] The goal of widespread current account convertibility did not become operative until December 1958, when the currencies of the IMF's Western European members and their colonies became convertible.

convertible

As it was possible that exchange rates thus established might not be favourable to a country's position, governments had the power to revise them by up to 10% from the initially agreed level ("par value") without objection by the IMF. The IMF could concur in or object to changes beyond that level. The IMF could not force a member to undo a change, but could deny the member access to the resources of the IMF.[12]

balance of payments

All member countries were required to subscribe to the IMF's capital. Membership in the IBRD was conditioned on being a member of the IMF. Voting in both institutions was apportioned according to formulas giving greater weight to countries contributing more capital ("quotas").

The Bretton Woods Conference had three main results: (1) Articles of Agreement to create the IMF, whose purpose was to promote stability of exchange rates and financial flows. (2) Articles of Agreement to create the IBRD, whose purpose was to speed reconstruction after the Second World War and to foster economic development, especially through lending to build infrastructure. (3) Other recommendations for international economic cooperation. The Final Act of the conference incorporated these agreements and recommendations.


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:

Encouraging open markets[edit]

The seminal idea behind the Bretton Woods Conference was the notion of open markets. In his closing remarks at the conference, its president, U.S. Treasury Secretary Henry Morgenthau, stated that the establishment of the IMF and the IBRD marked the end of economic 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 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]

The Bank for International Settlements (BIS) became an object of scrutiny when the Norwegian delegation put forth evidence that the BIS was involved in war crimes.


The BIS, formed in 1930, was originally primarily intended to facilitate settling financial obligations arising from the peace treaties that concluded the First 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. President Franklin 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]

Monetary order in a post-war world[edit]

The need for post-war 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. The Bretton Woods system of pegged exchange rates lasted into the early 1970s.

Influence[edit]

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. In particular, since the collapse in the early 1970s of the system of pegged exchange rates agreed to at Bretton Woods there have been a number of Calls for a "New Bretton Woods".

Media related to Bretton Woods Conference at Wikimedia Commons

Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944

Documents relating to the and Bretton Woods Agreement Act, on FRASER

Bretton Woods Conference

Transcripts and other resources for the conference hosted at the Center for Financial Stability