Front Matter

Front Matter

Harold James
Published Date:
June 1996
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This comprehensive account of the management of the international monetary system from the 1944 Bretton Woods conference to the present day documents the structure and movements of the world economy during a period of dramatic change. Commissioned by the International Monetary Fund to mark its fiftieth anniversary, the work is nevertheless a fully independent one: written by an outside historian with full access to IMF archives and staff, and reviewed by an independent editorial committee. An objective study of issues and events that are often controversial, the book skillfully interweaves the history of the IMF with that of world economic developments after the Second World War.

The International Monetary Fund was created at Bretton Woods, but almost immediately the rivalry between the Soviet Union and the West split the industrialized world into two economic camps. As a result the IMF’s role underwent significant changes in the immediate post-war years. Harold James analyzes the system during a period of relative stability until 1971, when the United States abandoned fixed exchange rates. Since that time countries have experienced radical fluctuations in the values of their currencies and the IMF has contended with the consequences.

James brings to this history a unique breadth of knowledge and mastery of both economic theory and archival sources. In a well-paced and smoothly flowing narrative, key themes emerge, including the IMF’s increasing surveillance role in global capital markets and its responsiveness in ensuring international monetary stability. Recent political changes make it possible to bring to light the Fund’s work promoting liberalization in planned economies. James also reveals how intellectual changes have led to increasing consensus in the world about what constitutes good economic policy. The gold standard and the dollar standard, he concludes, have been replaced by a new “information standard” under which accurate economic information is crucial to continuing prosperity.

A story of continuity as well as change, International Monetary Cooperation Since Bretton Woods offers enduring lessons about international economic coordination. It will be of strong interest to all those concerned with the future, as well as the past, of the world economy.

About the Author

Harold James is Professor of History at Princeton University, where he has taught since 1986. He was previously a Fellow of Peterhouse, Cambridge. He is the author of The Reichsbank and Public Finance in Germany (1985), The German Slump: Politics and Economics 1924-1936 (1986), A German Identity 1770-1990 (1989), and a co-author of a history of Deutsche Bank (1995), as well as editor of The Role of Banks in the Interwar Economy (1991). He has written numerous articles on topics in international economic history.

International Monetary Cooperation Since Bretton Woods

Permission to reproduce the artwork listed below is gratefully acknowledged:

Chapter 1. Drawing by David Low; © Evening Standard/Solo Syndication Limited 1932.

Chapter 2. Drawing by David Low;© Evening Standard/Solo Syndication Limited 1944.

Chapter 3. Drawing by David Low; © Evening Standard/Solo Syndication Limited 1948.

Chapter 4. Drawing by© H.E. Köhler 1961; originally appeared in Der Spiegel.

Chapter 5. Drawing by © Dobal; originally appeared in Chain, Buenos Aires.

Chapter 6. Drawing by Michael Heath; ©Times Newspapers Limited 1970.

Chapter 7. Drawing by Serrano: from the Wall Street Journal 1969, Permission, Cartoon Features Syndicate.

Chapter 8. Drawing by© Fritz Wolf 1971; originally appeared in Neue Osnabrücker Zeitung.

Chapter 9. Drawing by Alan Dunn; © 1971 The New Yorker Magazine Inc.

Chapter 10. Drawing by © David Langdon 1976; originally appeared in Punch.

Chapter 11. Drawing by Weber; © The New Yorker Magazine Inc.

Chapter 12. © Diario El Comercio, Lima, 1986. Drawing by © Nerilicón 1987; originally appeared in El Universal, Mexico City, 1989.

Chapter 13. Drawing by Gamble; © The Nashville Banner 1977. Drawing by © Pancho; originally appeared in Le Monde.

Chapter 14. Drawing by Máximo; © El País, Madrid.

Chapter 15. Drawing by © Mario; originally appeared in Economic Times, New Delhi.

Chapter 16. Drawing by Guzina; originally appeared in Novosti, Belgrade. Drawing by Leon; © Jamaica Record. Figure 16-1 from Peter B. Kenen, ed., Understanding Interdependence: The Macroeconomics of the Open Economy, Princeton University Press, 1995.

Chapter 17. © Evening Standard/Solo Syndication Ltd.

Copyright © 1996 by International Monetary Fund

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Library of Congress Cataloging-in Publication Data

James, Harold.

International monetary cooperation since Bretton Woods / Harold James.

p. cm. Includes bibliographical references and index.

ISBN 9781475506969 (hardcover)

1. International finance. 2. Monetary policy—International cooperation. 3. Financial institutions.

International. I. title.

HG3881.J33 1996




Printing (last digit): 9 8 7 6 5 4 3 2 1

Printed in the United States of America on acid-free paper


This study on postwar international monetary cooperation was commissioned in March 1992 as part of the International Monetary Fund’s commemoration of the fiftieth anniversary of the Bretton Woods conference. It represents part of the Fund’s continuing effort, as an institution, to present to a diverse audience its purposes and its role in fostering world economic cooperation, and is intended to provide laymen, as well as policymakers and the academic and financial communities, a sounder and deeper understanding of the institution’s rich experience with promoting a stable international monetary system and balanced economic growth, assisting member countries facing balance of payments problems, supporting their economic adjustment and reform efforts, and serving as the world’s financial safety net of last resort over the past five decades.

A committee of senior Fund staff members selected Professor Harold James of Princeton University, a specialist in twentieth century international economic and financial history, from among a number of eminent economic historians to author this work. In undertaking this task, Professor James had full access to the Fund’s archives, staff, and management, and has interviewed Governors of the Fund, members of the Executive Board, and former staff members who played a key role in the institution’s history.

At the outset, an editorial panel was created to act as advisor to the author, review the manuscript, and make the determination with regard to publication. The panel not only served to distance the Fund from the supervision of the project, thereby ensuring the author’s complete independence, it also helped to reconcile the conflicting considerations of independent objective scholarship and the need to protect the confidentiality in the Fund’s relations with its members. This feature of the project, together with the independence of its author, distinguish it from the Fund’s official history, which is authored by members of its staff; the latter “history written from the inside” chronicles the activities of the Executive Board, as well as the work of the Board of Governors and the staff.1

In advancing this project and bringing the study to publication, the advice and expertise of the editorial panel were invaluable. Its members—themselves recognized for their scholarship and independence—reflect the wide geographical distribution of the Fund’s membership: The Honorable Alhaji Abubakar Alhaji of Nigeria, Mr. Abdul Latif Al-Harnad of Kuwait, Professor Giuliano Amato of Italy, Professor Roberto Cortés Conde of Argentina, Professor Charles P. Kindleberger and Professor Anne Krueger of the United States, Mr. Shijuro Ogata of Japan, Dr. I.G. Patel of India, and Professor Baron Herman van der Wee of Belgium. I join them in commending this work for its impressive scholarship and skillful interweaving of the history of the Fund with a history of world economic and financial developments after the Second World War. The Secretary of the Fund and Counsellor, Mr. Leo Van Houtven, had overall responsibility for the project, assisted by Ms. Susan Yeager. Several senior staff members also lent their support and expertise, including Mr. Sterie T. Beza, Mr. Jack Boorman, Mr. James M. Boughton, Mr. Manuel Guitián, Mr. Joseph Lang, Mr. Michael Mussa, and Mr. David Williams. This work is, of course, the personal responsibility of its author, and no statement or opinions expressed should be understood as committing the Fund in any way.

Professor James has contributed importantly to our understanding of the Fund’s role in international cooperation over a half century of unprecedented change in the world economy and of the fundamental challenges facing the institution today. Looking ahead, key themes of this study—strengthening the Fund’s surveillance role in a world of global capital markets and improving its ability to respond quickly to ensure the stability of the international monetary system—will remain at the center of the Fund’s work. Having attained the truly universal character envisioned by its founders, the Fund will continue to bring the Bretton Woods principles to bear on the challenges and opportunities that arise, adapting its policies as well as its financial instruments to meet the changing needs of its member countries, even as it is being called upon to play a greater role as the central institution of international monetary cooperation.

Michel Camdessus

Managing Director

International Monetary Fund


The first volumes, The International Monetary Fund 1945–1965: Twenty Year of International Monetary Cooperation (1960), prepared by J. Keith Horsefield and others, were followed by two sequels, The International Monetary Fund 1966–1971: The System Under Stress (1976) and The International Monetary Fund, 1972–1978: Cooperation on Trial (1985), both authored hy Margaret Garritsen de Vries. The third sequel, covering the period 1979 through the 1980s, is currently under preparation by James M. Boughton, the Hisrorian of the Fund.


I have tried to write, in consultation with an editorial panel composed of distinguished outside observers, with the full cooperation of the International Monetary Fund and its staff, and with access to the archives of the Fund as well as to some governmental archives, as objective as possible an account of the management of the international monetary system since the Bretton Woods conference. The IMF’s commitment to support this undertaking refutes the accusations and attacks that are sometimes made against the allegedly secretive operation of an incommunicative institution. The world economy has clearly changed very dramatically over this time period: as a result of capital movements of a type and on a scale completely unanticipated at Bretton Woods, which have been the source of much economic dynamism as well as of occasional disturbance; and as a consequence of changing preferences about the operation of the monetary system—in the movement from an excessively inflexible fixed rate system to floating, and then in the gradual disenchantment with floating.

The task of the historian is not always an easy one. It involves seeing both sides of arguments and examining why necessarily it was that a particular course was taken, even if the outcome was less than satisfactory or the consequences deleterious. There is even something that can be learned from this type of analysis. The task of this historian was made easier by three circumstances, which could be described in turn as political, intellectual, and institutional.

As a result of the dramatic and recent political changes in the world, it is possible to tell a part of the story that only a few years ago would necessarily have had to be left shrouded in a veil of discretion in order to protect those involved in the intricate process of working for better economic policies and also better politics: the story of how the Fund worked in planned economies to introduce and promote liberalization. I was particularly struck when I found a cable to the Managing Director in the IMF archives from the Brussels office of the then underground Polish trade union organization Solidarity in the mid-1980s urging membership of the Fund as a vehicle for building a better country.

As a result of intellectual changes, it is possible to identify an increasing consensus about what constitutes good economic policy—even if politicians in practice do not often live up to their new ideas. At the time of Bretton Woods there was no such agreement, and instead different countries wished to pursue liberal solutions, or Keynesianism, or central planning, or indicative planning. The new consensus about the advantages of an open and fiscally responsible economy has made the task of the Fund more important; it also makes the task of its historian easier, and perhaps even less contentious.

Institutionally I have incurred major debts. I could not have written this history without the constant advice and assistance of Mr. Joseph Lang and Mr. Leo Van Houtven; nor without the formidable administrative skills of Mrs. Felicity Maroney and Ms. Marta Vindiola, and the help of Mrs. Kehinde Mbanefo and Miss Norma Samson in the IMF archives. Mr. Ian McDonald of the IMF Editorial Division and Mr. Herbert Addison and Mr. Kenneth MacCleod of Oxford University Press provided editorial advice, and Mrs. Esha Ray of the IMF Editorial Division skillfully and meticulously undertook the task of editing the manuscript for publication and coordinating its production. In Princeton, I was greatly assisted by Dr. Rami Amir in statistical work, and by Ms. Eva Giloi and Ms. Kara Stibora in the checking of references. Mrs. Peggy Reilly did some typing work.

A number of people in the IMF have been especially thoughtful in talking about aspects of the Fund’s history. They include Mr. Mark Allen, Mr. Shailendra J. Anjaria, Mr. Sterie Beza, Mr. John Boorman, Mr. James Boughton, Mr. Christian Brachet, Mr. Jean Foglizzo, Mr. Manuel Guitián, Mr. Michael Mussa, Mr. Prabhakar Narvekar, Mr. David Williams, and Ms. Susan Yeager. Among the former IMF officials I have spoken to, Mr. David Finch, Sir Joseph Gold, Mr. Jacques Polak, and Sir Alan Whittome have been especially helpful. I have also benefited greatly from speaking with Mr. Montek Singh Ahluwalia, Mr. James A. Baker III, Professor Leszek Balcerowicz, Mr. Andrew Crockett, Mr. William Dale, Mr. Charles Dallara, Mr. Jacques de Larosière, Baron de Strycker, Dr. Wim Duisenberg, Baron Jean Godeaux, Professor Charles Goodhart, Dr. Wilfried Guth, Mr. Etienne Gutt, Dr. Toyoo Gyohten, Lord Healey, Dr. Dieter Hiss, Professor Antoni Kamiński, Mr. Yusuke Kashiwagi, Mr. Bogdan Kosinski, Mr. Krzystof Krowacki, Dr. Marian Krzak, Professor Alexandre Lamfalussy, Dr. Dieter Lindenlaub, Sir Geoffrey Littler, Mr. Miguel Mancera, Sir Jeremy Morse, Mr. Maidavolu Narasimham, Professor Jerzy Osiatynski, Mr. Claude Pierre-Brossolette, Dr. Karl Otto Pöhl, Mr. Takeshi Ohta, Mr. Mieczyslaw Rakowski, Professor Stanislaw Raczkowski, Lord Richardson of Duntisbourne, Dr. Wolfgang Rieke, Mr. Luis Angel Rojo, the late Professor Karl Schiller, Dr. Gunther Schleiminger, Professor Helmut Schlesinger, the late Dr. Horst Schulmann, the late Mr. Pierre-Paul Schweitzer, Dr. Arjun K. Sengupta, Dr. Jesús Silva Herzog, Professor Beryl Sprinkel, Mr. Jacques van Ypersele de Strihou, Professor Manuel Varela, Professor Paul Volcker, Mr. Mikio Wakatsuki, Professor Johannes Witteveen, Mr. Koji Yamazaki, Dr. Johannes Zijlstra, and Professor Xenophon Zolotas.

The manuscript was read with great care by an editorial board composed of the Honorable Alhaji Abubakar Alhaji, Mr. Abdul Latif Al-Hamad, Professor Giuliano Amato, Professor Roberto Cortes Conde, Professor Charles P. Kindleberger, Professor Anne Krueger, Mr. Shijuro Ogata, Dr. I.G. Patel, and Baron Herman van der Wee. They made numerous suggestions, both in writing and in a meeting in Washington in September 1994; the work reflects many of their suggestions and comments. In addition, the following read the entire manuscript and made extremely helpful comments: my academic mentor, Professor Knut Borchardt of the University of Munich, and Professors Barry Eichengreen of Berkeley and Peter Kenen of Princeton, Their help and advice was essential in the development of the argument, as well as in numerous more detailed observations. In addition, my father, Dr. Leslie James, read the manuscript very thoughtfully shortly before he was incapacitated by a severe stroke; and my wife, Marzenna Kowalik James, read, commented, and provided unceasing inspiration and support.

Much of the history is about change; but running through the Fund’s history is also a remarkable core of continuity. I should like to draw on two episodes in the history as a prophetic illustration of developments that lay in the future. ln 1948, the U.S. Executive Director, then probably the most powerful man in the Fund, said that “the advisory and consultative powers of the Fund will in time come to be regarded as far more important than its financial lending powers.” In 1959, the Managing Director, now without doubt the most powerful man in the Fund, told a Spanish audience in a television interview at the conclusion of a Fund-supported program that was to prove remarkably successful in beginning the liberalization of the previously sealed and autarkic Spanish economy: “I must emphasize that such programs can only succeed if there is the will to succeed in the countries themselves…. The Fund does not impose conditions on countries; they themselves freely have come to the conclusion that the measures they arrange to take—even when they are sometimes harsh—are in the best interests of their own countries.” I was struck when I found this passage by the similarity in the message to that presented by the IMF’s current Managing Director, Mr. Michel Camdessus, in an interview about the Russian program with Izvestiya in 1993—“If a program were to be imposed from the outside, its chances to be fulfilled, to be implemented, would be minimal.” These continuities are evidence of the way in which the legacy of Bretton Woods has been used productively, in making the world both more prosperous and more stable.


Harold James




Asian Pacific Economic Cooperation


Association of South-East Asian Nations


Bank for International Settlements


Committee of Twenty


Central African Monetary Area (from March 16, 1974, Central African Economic and Monetary Community)


Common Agricultural Policy


Communauté Financière Africaine


Clearing House Interbank Payments System


Council for Mutual Economic Assistance (COMECON)


composite (or collective) reserve unit


domestic credit expansion


European Bank for Reconstruction and Development


European Community (from November 1, 1993, European Union)


Economic Cooperation Administration


Economic and Financial Council of Ministers


Economic Community of West African States


European currency unit


European Economic Community


extended Fund facility


European Free Trade Association


European Monetary Institute


European Monetary System


European Payments Union


exchange rate mechanism


European Recovery Program


enhanced structural adjustment facility


European System of Central Banks


Group of Five


Group of Seven


Group of Ten


Group of Twenty-Four


General Arrangements to Borrow


General Agreement on Tariffs and Trade


gross domestic product


German Democratic Republic


gross national product


International Bank for Reconstruction and Development (World Bank)


International Development Association


International Monetary Fund


International Trade Organization


Latin American Free Trade Association


London interbank offered rate


Multilateral Exchange Rate Model


most favored nation


Ministry of International Trade and Industry (Japan)


multiyear rescheduling agreement


National Advisory Council on International Monetary and Financial Problems


North Atlantic Treaty Organization


net material product


Organization of African Unity


Organization for Economic Cooperation and Development


Organization for European Economic Cooperation


Organization of Petroleum Exporting Countries


policy framework paper


Programa Inmediato de Reordenación


structural adjustment facility


structural adjustment loan(s)


special drawing right


Socialist Unity Party (German Democratic Republic)


severely indebted low-income country(ies)


United Nations


United Nations Conference on Trade and Development


United Nations Children’s Fund


voluntary export restraint(s)


Very Short-Term Financing


West African Monetary Union (from January 10, 1994, West African Economic and Monetary Union)


Working Party No. 3

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