The Bretton Woods Conference

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3/15/2010 3/15/2010

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_{e Bretton}

_{Woods Conference}

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2.1..1. ThTh_e_e _I_I_{nternational Economic System}_{nternational Economic System} A

Aftfteer World War I most countrir World War I most countriees wants wanteed to r d to r eeturn to tturn to thehe old financial sold financial seecurity andcurity and stabl

stableesituation of pr situation of pr ee--war timwar timees as soon as possibls as soon as possiblee. Discussions about a r . Discussions about a r eeturn to tturn to thehe gold standard b

gold standard beegan and by 1926 all lgan and by 1926 all leeadingading eeconomiconomieess hhad r ad r ee-e-establisstablishehed td thehesystsysteem,m, according to w

according to whhicichh eveevery nation¶s circulating monry nation¶s circulating moneeyy hhad to bad to bee back back eed by r d by r eesseer r veves s of of gold and for

gold and for eeign curr ign curr eencinciees to a cs to a ceertainrtain exextteent. But snt. But seveeveral mistak ral mistak ees in impls in impleemmeentingnting tthehe gold standard (mainly tgold standard (mainly thhat a wat a weeak ak eenneed Gr d Gr eeat Britainat Britain hhad to tak ad to tak ee tthehe lleeading partading part and t

and thhat a numbat a numbeer of main curr r of main curr eencinciees ws wheher r ee oovever r --or undor undeer r vvalualueed) ld) leed to a collapsd to a collapsee of of tthehe eeconomic and financial r conomic and financial r eelations, plations, peeaking in taking in theheGr Gr eeat at DDee pr pr eession in 1929. Ession in 1929. Eveveryry singl

singlee country tricountry trieed to incr d to incr eeasasee tthehe compcompeetitititivevenneess of itsss of its exex port products in ord port products in ordeer tor to r

r eeducducee its paymits paymeent balancnt balancee ddeeficit by dficit by deeflating its curr flating its curr eency.ncy. Th

This stratis strateegy only lgy only leed to succd to succeess as long as a country was dss as long as a country was deeflating fastflating fasteer and mor r and mor ee strongly t

strongly thhan all otan all otheher nations.r nations. ThThis fact r is fact r eesultsulteed in an intd in an inteernational drnational deeflationflation comp

compeetition ttition thhat causat causeed mass und mass uneemploymmploymeent, bankruptcy of nt, bankruptcy of eentnteerprisrprisees, ts, thehefailing of failing of cr

cr eedit institutions, as wdit institutions, as weell asll ashhypypeer inflations in tr inflations in thehecountricountriees concs conceernrneed.d.

1 1 http://topics.nytimes.com/top/reference/timestopics/subjects/b/bretton_woods_system/index.html?inline= http://topics.nytimes.com/top/reference/timestopics/subjects/b/bretton_woods_system/index.html?inline= nyt-classifier nyt-classifier

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In t

In thehe1930s s1930s seveeveral conf ral conf eer r eencncees ds deealing witaling withhttheheworld monworld moneetary probltary probleems causms causeed byd by tthehe

Gr

Gr eeat at DDee pr pr eessionssion hhadad eendndeed in failur d in failur ee. But aft. But afteer World War II tr World War II thehe nneeeed for ad for a stabilising syst

stabilising systeem m tthhat at aavvoidoideed d tthehe mistak mistak ees, s, wwhhicichh hhad ad bbeeeen madn madee eearliarlieer, r, bbeecamcamee ev

evidideent. Plans wnt. Plans weer r ee madmadee for an innofor an innovvatiativeve monmoneetary systtary systeem and a supm and a supeer r vvisingising institution to monitor all actions.

institution to monitor all actions. First n

First neegotiations took placgotiations took placeeundundeer wartimr wartimeeconditions.conditions.

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2..₂₂.. ThTh_{e Conference}_{e Conference} Br

Br eetton Woods r tton Woods r eef f eers to trs to thehe intinteernational monrnational moneetary systtary systeem adoptm adopteed in July 1944 td in July 1944 thhatat eestablisstablishehed ruld rulees for r s for r ee building t building thehe postpost--war war eeconomic ordconomic ordeer.r. TheThe scsceenario discussnario discusseedd he

her r eeis wis whehen World War is still not on World War is still not ovever; dr; deespitspitee of tof thehessee730 d730 deelleegatgatees from 44s from 44 AAllillieedd nations att

nations atteendndeed d tthehe conf conf eer r eencncee at at tthehe Mount WasMount Washhington Hotington Hoteel in Br l in Br eetton Woods,tton Woods, N.H., to cr

N.H., to cr eeatatee a a nneew monw moneetary structur tary structur ee for tfor thehe financial and commfinancial and commeercial r rcial r eelationslations among t

among theheworld¶s lworld¶s leeadingadingeeconomiconomiees.s.TheThe goal was to agoal was to avvoid a r oid a r ee play of t play of thehe eeconomicconomic disast

disasteers of trs of thehe1930s.1930s. Jo

Johhn Maynard K n Maynard K eeynynees s wwhho stato stateed: ³ Wd: ³ Wee, , tthehe ddeelleegatgatees of ts of thhis Conf is Conf eer r eencncee, , Mr Mr Pr

Pr eesidsideent,nt, hhaaveve bbeeeen trying to accomplisn trying to accomplishh somsomeetthhingingvevery difficult to accomplisry difficult to accomplishh.[...].[...] It

It hhas as bbeeeen our task to find a common mn our task to find a common meeasur asur ee, a common standard, a common rul, a common standard, a common rulee acc

accee ptabl ptableetoto eeacachh and not irksomand not irksomee to any.´to any.´22 ThThis statis stateemmeent outlinnt outlinees ts thehe difficulty of difficulty of cr

cr eeating a systating a systeem tm thhatat eveevery nation could accry nation could accee pt. pt.

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2.3..3. ThTh_e_eTwTw_{o ideas}_{o ideas} The

The idideeas of Joas of Johhn Maynard K n Maynard K eeynynees and Harry Ds and Harry Dexextteer r WWhhititee hhaaveve bbeeeen n ddeescribscribeed d asas ve

very diff ry diff eer r eent fromnt from eeacachh ototheher on sr on seveeveral occasions but in fact tral occasions but in fact theher r ee ar ar ee exextraordinarytraordinary similariti

similaritiees.s. AAccording to tccording to theheWWhhititeeplan, a Bank for R plan, a Bank for R eeconstruction (today tconstruction (today theheWorldWorld Bank) and an Int

Bank) and an Inteernational Stabilisation Fund srnational Stabilisation Fund shhould bould bee eestablisstablishehed.d.TheThe K K eeynynees plans plan call

calleed for td for thehesamsamee.. The

The only diff only diff eer r eencncee was twas thhat at K K eeynynees wants wanteed d toto vevest st tthehe IMF witIMF withh possibilitipossibilitiees s toto cr

cr eeatatee monmoneey (a fact ty (a fact thhat canat can eeasily basily bee undundeerstood in trstood in thehe background of Gr background of Gr eeatat Britain¶s suff

Britain¶s suff eering from tring from thehe ddeeflation policiflation policiees in ts in thehe IntInteer r --War pWar peeriod) and witriod) and withh tthehe aut

authhority to tak ority to tak ee actions on a mucactions on a muchh larglargeer scalr scalee. In cas. In casee of balancof balancee of paymof paymeentsnts imbalanc

imbalancees s JoJohhn Maynard K n Maynard K eeynynees s r r eecommcommeendndeed d tthhat botat bothh sidsidees, s, ddee btors and btors and cr

cr eeditors, sditors, shhould could chhangangee ttheheir policiir policiees. Countris. Countriees wits withh paympaymeent surplusnt surplusees s sshhouldould incr

incr eeasasee ttheheir imports from tir imports from thehe ddeeficit countrificit countriees and ts and theher r ee by cr by cr eeatatee a for a for eeign tradign tradee

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syst

systeem´ in tm´ in teerms of U.S. dollars or gold.rms of U.S. dollars or gold.

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2.4..4. ThTh_{e dominant role of t}_{e dominant role of t}hh_{e USA}_{e USA} The

The USUSAA hhas as bbeeeen and still is tn and still is thehe dominating powdominating poweer of tr of thehe Br Br eetton Woods systtton Woods systeem.m. A

Aftfteer World War II tr World War II thehe UnitUniteed Statd Statees was ts was thehe country witcountry withh tthehe biggbiggeestst eeconomicconomic pot

poteential.ntial.TheThe U.S. dollar was tU.S. dollar was thehecurr curr eency witncy withh tthehemost purcmost purchhasing powasing poweer and it wasr and it was ttheheonly curr only curr eency tncy thhat was back at was back eed by gold.d by gold. AAdditionally, all Europdditionally, all Europeean nations tan nations thhatat hhadad b

beeeen n ininvvololveved in World War II wd in World War II weer r ee hhigighhly in dly in dee bt and transf bt and transf eerr rr eed largd largee amounts of amounts of gold into t

gold into theheUnitUniteed Statd Statees, a fact ts, a fact thhat contributat contributeed to td to thehesupr supr eemacy of tmacy of thehe USUSAA.. ThThus,us, ttheheU.S. dollar was strongly appr U.S. dollar was strongly appr eeciatciateed in td in theher r eest of tst of theheworld and tworld and theher r eefor for ee bbeecamcamee tthehe k k eey curr y curr eency of tncy of thehe Br Br eetton Woods systtton Woods systeem.m. TheThe heheadadqquartuarteers of trs of thehe two maintwo main institutions (t

institutions (thehe IMF and tIMF and thehe World Bank) ar World Bank) ar ee situatsituateed in Wasd in Washhington D.C.ington D.C. TheThe dominant rol

dominant rolee of of tthehe USUSAA alr alr eeady bady beecamcamee appar appar eent nt wwhehen n tthehe AAmmeerican idrican ideeas of tas of thehe Br

Br eetton Woods systtton Woods systeem gainm gaineed mor d mor eeaccaccee ptanc ptanceetthhan tan thhososee of Gr of Gr eeat Britain.at Britain. TheThe plansplans of

of tthehe BritisBritishh eeconomist Joconomist Johhn Maynard K n Maynard K eeynynees s wweer r ee r r ejeejectcteed and td and thehe modmodeel of tl of thehe

A

Ammeericanricaneeconomist Wconomist Whhititeewas fawas favvour our eed.d. Som

Somee ddeelleegatgatees grumbls grumbleed td thhat at ttheheUnitUniteed Statd Statees was using its ns was using its neew supw supeerpowrpoweer statusr status to pus

to pushh its own intits own inteer r eests ² lik sts ² lik ee global fr global fr eeee tradtradee ² and t² and thhat it was slow toat it was slow to compromis

compromisee.. AAt t ononee point, tpoint, thehe BritisBritishh r r ee pr pr eesseentatintativeve, , tthehe eeconomist Joconomist Johhn Maynardn Maynard K

K eeynynees, wrots, wrotee tthhat at tthehe AAmmeericans ³plainly intricans ³plainly inteend to forcnd to forcee ttheheir own concir own concee ptions ptions tthhrougroughh, , r r eegardlgardleess of tss of thehe r r eest of us.´ (st of us.´ (TheThe SoSovviieet Union was at tt Union was at thehe conf conf eer r eencncee butbut r

r eefusfuseed tod to j join toin theheI.M.F.)I.M.F.) But t

But theheallialliees ns neeeeddeedd AAmmeericanricanhehelp to r lp to r ee build t build theheir war ir war --raravvagageedd eeconomiconomiees, and ws, and whhatat eemmeergrgeed was a consd was a conseensus among tnsus among thehem tm thhat would last until 1971.at would last until 1971.

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3. _D_D

_{evelopment at t}

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_{e Bretton Woods}

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3.1.

3.1. Under t Under t hh_{e agreement at Bretton Woods}_{e agreement at Bretton Woods}_:: ² Countri

² Countriees s wweer r ee to maintain anto maintain an exchange rateexchange rate in in wwhhicichh tthehe vvalualuees of ts of theheir ir curr

curr eencinciees could fluctuats could fluctuatee only witonly withhin a narrow rangin a narrow rangee around a fiaround a fixexedd vvalualuee basbaseed d onon gold. Gold's

gold. Gold's vvalualuee was swas seet in tt in teerms of trms of theheU.S. dollar.U.S. dollar. ²

² TTwo organizations wwo organizations weer r eesseet up tot up tohehelp golp govevern trn theheintinteernational monrnational moneetary systtary systeem:m:  the International Monetary Fundthe International Monetary Fund wwhhicichh would addr would addr eess ss tteemporarymporary

imbalanc

imbalancees of payms of paymeentsnts

 the International Bank for Reconstruction and Developmentthe International Bank for Reconstruction and Development, w, whhicichh is nowis now tthehecchhiieef agf ageency of tncy of theheWorld Bank World Bank _Group._Group.

3.2.

3.2. PPurpose of urpose of IMFIMF44:: The

Thepurpospurposees of ts of theheIMF ar IMF ar ee:: 

 TTo promoto promotee intinteernational monrnational moneetary cooptary coopeeration byration by eestablisstablishhing a globaling a global monitoring ag

monitoring ageency tncy thhat supat supeer r vvisisees, consults, and collaborats, consults, and collaboratees on mons on moneetarytary probl

probleems.ms. 

 TTo facilitato facilitatee world tradworld tradee exex pansion and t pansion and theher r ee by contribut by contributees to ts to thehe promotionpromotion and maint

and mainteenancnanceeof of hhigighhlleveevels of ls of eemploymmploymeent and r nt and r eeal incomal incomee.. 

 TToo eensur nsur eess exexcchhangangee ratrateestability to astability to avvoid compoid compeetitititiveve exexcchhangangeeddee pr pr eeciation.ciation. 

 TToo eeliminatliminatees for s for eeignignexexcchhangangeer r eestrictions.strictions. 

 TTo assist in cr o assist in cr eeating systating systeems of paymms of paymeent for multilatnt for multilateeral tradral tradee.. 3.3.

3.3. PPurpose of World Bank urpose of World Bank 55:: The

Thegoals of World Bank ar goals of World Bank ar ee:: 

 TTo improo improvevetthehelilivving standards.ing standards. 

 toto eeliminatliminateettheheworst forms of poworst forms of poveverty.rty. 

 TTo support to support theher r eestructuring procstructuring proceess of ss of eeconomiconomiees.s. 

 TTo proo provvidideecapital for producticapital for productiveveininvevestmstmeents.nts. 

 TToo eencouragncouragees for s for eeign dir ign dir eect inct invevestmstmeent by making guarantnt by making guaranteeees or accs or accee pting pting partn

partneersrshhips witips withh ininvevestors.stors. 

 TTo o k k eeee p paym p paymeents in dnts in deveeveloping countriloping countriees balancs balanceed and fostd and fosteers intrs inteernationalrnational trad

tradee. It is acti. It is activevein mor in mor eetthhan 100 dan 100 deveevelopinglopingeeconomiconomiees.s. 

 TTo off o off eer financial sr financial seer r vvicicees, analytical, ads, analytical, advvisory, and capacity building.isory, and capacity building.

4 4 www.imf.org www.imf.org 5 5 www.worldbank.org www.worldbank.org

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tthhososee exextteernalrnal eeconomiconomiees.s. TToo eensur nsur ee intinteernational lirnational liqquidity tuidity thehe USUSAA wweer r ee forcforceed d toto run d

run deeficits in tficits in theheir balancir balancee of paymof paymeents, otnts, otheherwisrwisee a world inflation woulda world inflation wouldhhaavevebbeeeenn caus

causeed. Howd. Howeveever, in tr, in thehe 1960s t1960s thehey ran ay ran a vevery inflationary policy and limitry inflationary policy and limiteed d tthehe con

convevertibility of trtibility of thehe U.S. dollar bU.S. dollar beecauscausee tthehe r r eesseer r veves s wweer r ee insufficiinsufficieent to mnt to meeeet t tthehe d

deemand for tmand for theheir curr ir curr eency.ncy. TheThe ototheher r mmeembmbeer countrir countriees ws weer r ee not willing to accnot willing to accee pt t pt thehe h

higighh inflation ratinflation ratees ts thhat tat thehepar par vvalualueesystsysteem wouldm would hhaavevecauscauseed and ³td and ³thehedollar dollar eendndeedd up b

up beeing wing weeak and unwantak and unwanteed,d, j just as pr ust as pr eedictdicteed by Gr d by Gr eesshham¶s law: Bad monam¶s law: Bad moneey driy drivevess out good mon

out good moneey.´y.´88TheThe systsysteem of Br m of Br eetton Woods collapstton Woods collapseed.d.

A

Anotnotheher fundamr fundameental problntal probleem was tm was theheddeelaylayeed add ad j justmustmeent of tnt of theheparitiparitiees to cs to chhangangees ins in tthehe eeconomicconomic eennvvironmironmeent of tnt of thehe countricountriees. It was always a gr s. It was always a gr eeat political risk for aat political risk for a go

govevernmrnmeent to adnt to ad j just tust theheparity and ³parity and ³eeacachh cchhangangee in tin thehepar par vvalualuee of a maof a ma j jor curr or curr eencyncy tteendndeed to bd to beecomcomee a crisis for ta crisis for thehe wwhhololee systsysteem.´m.´99 ThThis is lleed to a lack of trust andd to a lack of trust and

d

deestabilising spstabilising speeculations.culations. In Marc

In Marchh 1973 t1973 thehepar par vvalualuee systsysteem was abandonm was abandoneed and td and thehemmeembmbeer countrir countriees agr s agr eeeedd on p

on peermitting diff rmitting diff eer r eent kinds of ways for dnt kinds of ways for deetteermining trmining thehe exexcchhangangee vvalualueeof a nation¶sof a nation¶s mon

moneey.y. TheThe IMF r IMF r eqequir uir eed d tthhat at tthehe countricountriees no longs no longeer basr baseed d tthhisis vvalualuee on gold andon gold and tthhat it was common knowlat it was common knowleedgdgee hhowow eeacachh nation dnation deetteerminrmineed its curr d its curr eency¶sncy¶s vvalualuee.. T

Today many largoday many largee ddeveeveloplopeed countrid countriees allow ts allow theheir curr ir curr eencinciees to float fr s to float fr eeeely, wly, whhicichh m

meeans tans thhat only supply and dat only supply and deemand at tmand at thehe mark mark eet t ddeetteerminrminee wwhhat it is wortat it is worthh. Som. Somee nations try to influ

nations try to influeencncee tthhis procis proceess by buying and sss by buying and seelling tlling theheir own curr ir own curr eency.ncy. AAnotnotheher r m

meetthhod is to pod is to peeg g tthe vhe valualuee of of tthehe monmoneey to ony to onee of of tthehe main curr main curr eencinciees.s. AAftfteer r tthhisis r

r eeform tform thehe systsysteem of Br m of Br eetton Woods was mor tton Woods was mor ee about ³informationabout ³information exexcchhangangee andand consultation, conditional policy und

consultation, conditional policy undeerstandings, trstandings, thhan about rulan about rulee basbaseed guarantd guaranteeees.´s.´1010

In

In tthehe yyeears of floatingars of floating exexcchhangangee ratratees s tthehe lleveevel of coopl of coopeerationration vvariarieed witd withh tthehe eeconomic and political dconomic and political deveevelopmlopmeents.nts.

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For d

For deecadcadees, tts, hehe dollar dollar hhas as bbeeeen n tthehe world's most widworld's most wideely usly useed curr d curr eency. Manyncy. Many go

govevernmrnmeentsnts hhold a largold a largee portion of tportion of theheir ir r r eesseer r veves in dollars. Cruds in dollars. Crudee oil and manyoil and many

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commoditi

commoditiees s ar ar ee pricpriceed in dollars. Busind in dollars. Busineess ss ddeeals around tals around thehe world ar world ar ee dondonee inin dollars. But t

dollars. But thehefinancial crisisfinancial crisis hhasas hhigighhliglighhtteeddhhowowAAmmeerica'srica'seeconomic problconomic probleems canms can wr

wr eeak ak hhaavvoc on nations around toc on nations around theheworld.world. `

` TheThe ww_{orld financial crisis}_{orld financial crisis}_{, larg}_{, larg}_ee_{ly a r}_{ly a r}_ee_{sult of}_{sult of}_ex_ex_cc_ee_ssi_ssi_ve_ve_risk_risk_--_{taking and faulty}_{taking and faulty} risk manag

risk manageemmeent practicnt practicees in ts in thehe financial mark financial mark eets,ts, hhasas hhigighhliglighhtteed d tthehe imm

immeediatdiatee nneeeed for compr d for compr eheehensinsiveve r r eeforms to tforms to thehe exexisting globalisting global eeconomicconomic and financial

and financial strustructur ctur ee.. `

` TheThe sub-loan crisissub-loan crisis in in tthehe UnitUniteed Statd Statees lls eed to td to thehe collapscollapsee of of tthehe worldworld eeconomy andconomy andhhas brougas broughht an immt an immeeasurablasurableeloss to tloss to thehe eentir ntir eeworld.world.

Restructuring

Restructuringttheheanacanachhronistic Br ronistic Br eetton Woods systtton Woods systeem nm neeeeds tds thehesseeactiactivvitiitiees:s: `

` r r e-exe-examining r amining r eesseer r vevecurr curr eencinciees,s, `

` ddeealing witaling withh growing public dgrowing public dee bt and t bt and thehe symbiotic r symbiotic r eelationslationshhip of tip of thehe statstatee wit

withhfinancfinanceecapital,capital, `

` r r eegulating stock mark gulating stock mark eets,ts, hehedgdgeefunds, and banks to afunds, and banks to avvoid futur oid futur eedisastdisasteers, andrs, and `

` DDeealing witaling withhttheheWorldWorldTTradradeeOrganization.Organization. Z

Z_{hou Xiaochuan}_{hou Xiaochuan}_,_{, go}_go_ve_ve_{rnor of C}_{rnor of C}_h_h_{ina's c}_{ina's c}_ee_{ntral bank,}_{ntral bank,} _h_h_{as propos}_{as propos}_ee_d_{d cr}_cr_ee_{ating as}_{ating as} part of r

part of r eeform in tform in theheintinteernational monrnational moneetary systtary systeem.m. ³Cr

³Cr eeatateea curr a curr eency madncy madee up of a bask up of a bask eet of global curr t of global curr eencinciees and controlls and controlleed byd by tthehe IntInteernational Monrnational Moneetary Fund. Call for atary Fund. Call for a global currencyglobal currency to to r r ee plac placee tthehe dominant dollar´

The Bretton Woods Conference

Contents

Contents

_{e Bretton}

_{e Bretton}

_{Woods Conference}

_{Woods Conference}

_{evelopment at t}

_{evelopment at t}

_{e Bretton Woods}

_{e Bretton Woods}

_elevance

_elevance

_oday

_oday