Bretton Woods Conference

While the Second World War was still being fought, delegates from the Allied nations met at the Mount Washington Hotel in Bretton Woods, New Hampshire, to design the money and finance of the post-war world. Officially the United Nations Monetary and Financial Conference, the meeting at Bretton Woods ran from 1 to 22 July 1944 and brought together 730 delegates from 44 countries. It created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, the core of today's World Bank, and set up a system of fixed exchange rates that lasted until the early 1970s.

The planners wanted to avoid repeating the economic disasters that had followed the First World War. In the 1920s Germany, burdened with reparations under the Treaty of Versailles, suffered hyperinflation so extreme that by autumn 1923 a single dollar bought about 4 trillion marks. In the 1930s the Great Depression, the abandonment of the gold standard and a wave of trade wars and competitive devaluations had spread hardship across the world. Germany's economic collapse was also seen as having opened the way to the rise of Nazism.

Two men shaped the plans. John Maynard Keynes of the British Treasury proposed an International Clearing Union with its own unit of account, the "bancor", which would have penalised countries running large trade surpluses as well as those with deficits. Harry Dexter White of the US Treasury proposed a stabilisation fund that put the burden of adjustment mainly on deficit countries. As the world's largest creditor, the United States rejected Keynes's scheme, and the IMF that emerged followed White's design much more closely. A joint statement by experts was published in April 1944, and a preparatory meeting in Atlantic City in June drafted proposals.

The conference worked through three commissions. White chaired the one on the IMF, Keynes the one on the bank, and Mexico's finance minister Eduardo Suárez a third on other forms of co-operation. Each country had one vote, but with the United States the largest economy and the main source of funds, its delegation had the greatest influence. The meeting was extended from 19 to 22 July so that agreement on the bank could also be reached. In his closing remarks the conference president, US Treasury Secretary Henry Morgenthau, declared that the new institutions marked the end of economic nationalism.

Member currencies were pegged at fixed rates, and the dollar was tied to gold at 35 dollars an ounce, making it the anchor of the system. Countries could change their exchange rate only to correct a "fundamental disequilibrium". Members paid capital into the IMF, which could lend to countries with balance of payments problems, and voting power reflected the size of each country's contribution. The conference also called for the liquidation of the Bank for International Settlements, accused of helping Germany move assets from occupied countries, but the plan had been put aside by 1948.

The agreements came into force on 27 December 1945, and the two institutions were formally launched at Savannah, Georgia, in March 1946. The Soviet Union had signed the Final Act but declined to ratify it and never joined. A proposed International Trade Organization failed when the US Senate would not ratify its charter, and the more modest General Agreement on Tariffs and Trade took its place. The fixed-rate system came under growing strain, and on 15 August 1971 the United States ended the conversion of dollars into gold, effectively bringing it to an end. The IMF and the World Bank remain central to the world economy.

Our 1945 map shows the world as the war ended and the new institutions were about to take shape.