1 Bretton Woods

Margaret De Vries
Published Date:
June 1986
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The Bretton Woods Conference of July 1–22, 1944 was one of the most successful conferences of the twentieth century and a landmark in world economic history. Four decades later, economists, historians, and others still marvel at the vision, determination, and idealism of those who created the International Monetary Fund.


The success of the Bretton Woods Conference can be explained “only by the coincidence of the hour and the men,” according to the Fund’s first History.1 The circumstances in which the Conference was held can be regarded as truly extraordinary. It opened on July 1, 1944, only three weeks after the Allied landings in Normandy. As much of the world lay in ruins, monetary experts could not help but be aware of the cataclysmic costs of political and economic nationalism. Against this background, delegates from 45 countries that were allied to win the war were eager to try also to work together to “win the peace.”2 Thus, they had a strong political will to cooperate.

The Conference, moreover, was part of a series of arrangements for the postwar world. Plans for establishing the United Nations were in full swing. There was to be not only the International Monetary Fund for exchange stabilization but also the International Bank for Reconstruction and Development (World Bank) to help finance the rebuilding of war-ravaged economies and the economic growth of the less developed countries. Plans were also discussed for an International Trade Organization (ITO) that would cover trade and be separate from the Fund and the World Bank. (The ITO never materialized; instead the CONTRACTING PARTIES to the General Agreement on Tariffs and Trade (GATT) later assumed most of the functions originally intended for the ITO.) There were proposals, too, for setting up other specialized agencies of the United Nations to deal with specific economic problems, such as the Food and Agriculture Organization (FAO). In the planning of these new international organizations—in many respects of a new world economic order—the United States under the initiative of President Franklin Delano Roosevelt took a leadership role, in contrast to its isolationist stance after World War I. The idea was that by working together to increase world economic welfare, nations would enhance the likelihood of securing political peace.

Another element contributing to the success of Bretton Woods was the desperate condition of the international monetary system at that time. In a state of virtual collapse, it was thus a prime candidate for postwar reconstruction. During the 1920s, the largest industrial nations had tried to restore the gold standard, shattered by World War I. But the exchange rates that were established, particularly for the pound sterling, took insufficient account of the divergent movements of prices and costs that had occurred since 1914. The resulting balance of payments positions of most industrial countries were precarious, and higher levels of domestic unemployment existed than were considered acceptable, especially in the United Kingdom.

Then came the decade of the 1930s and the Great Depression, when there occurred a sharp collapse of commodity prices and the largest shrinkage of world trade that the modern world had known. Industrial and developing countries alike suffered from overwhelming deflationary pressures, and nearly every major country began to seek ways of defending itself against the undercutting of its prices from abroad—some by competitive exchange depreciation, some by introducing flexible exchange rates or multiple rates, and some by direct control of imports and other international transactions. As countries tried to “export their unemployment” to others, “beggar-my-neighbor” policies became the rule. Countries sought solutions independently and individually, many of them progressively introducing exchange controls and import-licensing schemes with a view to limiting imports and payments abroad and several resorting to bilateral agreements through which increased imports were exchanged for increased exports. Then, in 1939, the outbreak of World War II compelled practically all countries to bring their international payments and reserves under strict regulation.

Thus, the classical gold standard had become discredited, identified with domestic deflation and unemployment. Yet, in the absence of the gold standard, international monetary chaos prevailed. Devising new international monetary arrangements presented a special challenge to the authorities of those countries expected to lead the postwar world.

A third element making the Bretton Woods Conference successful was the years of planning that preceded it, especially the plans for the Fund. (The plans for the World Bank were relatively less developed by the time of the Conference.) The “White Plan,” developed in the United States and named after Harry Dexter White, Assistant to the Secretary of the Treasury, had origins dating back to 1940. The “Keynes Plan,” developed in the United Kingdom by John Maynard Keynes, had origins going back at least to the summer of 1941. Furthermore, the ideas encompassed in both plans had precedents in stabilization arrangements tried in the 1930s.

The Keynes Plan called for an International Currency (or Clearing) Union, which was to keep banking accounts for central banks in exactly the same way as central banks in each country kept accounts for commercial banks. These accounts were to be denominated in an international currency to be known as “bancor.” Bancor was to be defined in terms of gold, but the Union could alter its value. Member countries could obtain bancor in exchange for gold but could not obtain gold in exchange for bancor. Exchange rates were to be fixed in terms of bancor and were not to be changed without the permission of a Governing Board. Within limits, member countries could run debit balances with the Union, such balances taking the form of overdrafts rather than specific loans.

The White Plan covered what became both the Fund and the World Bank. A number of purposes for the Fund were listed, including stabilizing countries’ exchange rates, encouraging the flow of productive capital among countries, facilitating the settlement and servicing of international debts, lessening balance of payment disequilibria, and reducing exchange controls, bilateral arrangements, and trade barriers. Unlike Keynes’s Clearing Union, the institution envisioned by the White Plan was a contributory one, with members making subscriptions, partly in gold and the remainder in national currencies, totaling “at least $5 billion.” Any member might purchase from the Fund the currency of any other member within certain predetermined limits. All members of the United Nations could join, provided they were committed both to eliminating controls over foreign exchange transactions (except for those approved by the Fund) and to establishing fixed exchange rates, to be altered only with the consent of the Fund when essential to correct a “fundamental disequilibrium.” The Fund was to be managed by a Board of Executive Directors.

Both the Keynes and White Plans went through a number of drafts before they were made public early in 1942. In the next year the plans were debated publicly, especially among economists, bankers, and businessmen in the United States. Keynes and White and their respective colleagues exchanged views on their own plans, and other plans—including those put forward by the French and the Canadian authorities—were reviewed. The debate in the United States centered not on the relative merits of internationalism or isolationism, as it had in 1919 and 1920, but on the relative advantages of specific modes of international cooperation. Should there be a highly structured world economy with intergovernmental mechanisms (such as the Fund) and rules regulating currencies, investments, and trade, as favored by Keynesian economists and others sympathetic to governmental management? Or should automatic market forces dominate, with limited government interference and no international organizations, as favored by more traditional economists and by bankers and businessmen?

In the course of 1943, U.S. officials also consulted representatives from a number of countries, many of whom proposed specific changes in the draft plans. From September 15 through October 9, 1943, as part of a broader series of meetings covering also proposals for postwar international investment, commodity policy, and commercial policy, nine meetings on the monetary plans were held in Washington between a U.S. group, headed by White, and a British delegation, headed by Keynes, to discuss some 14 points on which U.S. and U.K. officials differed. The outcome was the “Joint Statement by Experts on the Establishment of an International Monetary Fund.” Even this Joint Statement went through several drafts before the final text was produced in 1944.

Planning for the Conference was then intensified. To inform the delegates of the intricate technical issues that would dominate the discussions of Bretton Woods, background memoranda were circulated on such potentially controversial topics as the allocation of quotas in the Fund, gold contributions, access to the Fund’s resources, voting structure, and management. Then, prior to the full-scale conference at Bretton Woods, a limited group of countries received invitations to send representatives to a preliminary drafting conference at Atlantic City, New Jersey, in the second half of June 1944. Besides the United States, 16 countries were represented—Australia, Belgium, Brazil, Canada, Chile, China, Cuba, Czechoslovakia, France, Greece, India, Mexico, the Netherlands, Norway, the U.S.S.R., and the United Kingdom.

These preparations were especially impressive considering that all the drafting and redrafting, the exchanges of views, and the meetings of national representatives took place when officials were preoccupied with World War II, when transmission of written and oral communication was difficult, and when international travel was slow and hazardous.


Those delegates who had been attending the Atlantic City Conference boarded a special train from Atlantic City on Friday, June 30, for the all-night trip to the remote village of Bretton Woods in the White Mountains of northern New Hampshire. Others left on a special train from Washington. Even as the train wound its way through New Jersey and the New England countryside, two lawyers from the U.S. delegation undertook to transform the documents resulting from the Atlantic City Conference (where some 70 amendments to the Joint Statement had been proposed) into the basic material for the next stage.

The site of Bretton Woods was chosen because U.S. Secretary of the Treasury Henry Morgenthau, Jr., wanted the Conference held at a resort hotel and the U.S. Senator from New Hampshire urged use of the Mount Washington. The hotel, named for the nearby highest mountain peak in New England, is still standing and was refurbished in the early 1980s. A large Y-shaped late nineteenth century Victorian style stone-and-frame hotel amid thousands of acres of mountains and streams, it is virtually the only structure in the village of Bretton Woods. Closed for two years during World War II, the Mount Washington was being prepared for reopening when it was taken over for the Conference; the much-needed renovations were not wholly completed by the time the delegates began to arrive. Insufficient office space, inadequate accommodations, rusty plumbing, and an inexperienced staff were supplemented by Boy Scout messengers and military personnel. But the scenery was magnificent, the recreational facilities were excellent, and the hotel was separated from the road by a river crossed by a single bridge—a feature that readily permitted the proceedings to be safeguarded against intrusion. As it turned out, not all the 730 persons who attended—a number about three times as large as had originally been expected—could be accommodated at the Mount Washington. Other hotels, up to five miles away, had to be used to house the overflow.

The delegates worked incredibly hard. Commission I on the Fund was headed by White, while Keynes headed Commission II on the World Bank. Since the White Plan rather than the Keynes Plan was to be the basis of the Fund’s Articles, this division of responsibility seemed best. Commission III on Other Means of International Financial Cooperation was headed by Eduardo Suarez, Minister of Finance of Mexico. Plenary sessions went on all day as the nature of the provisions to be included in the Articles of Agreement of the Fund and the Bank were debated. In addition, many—probably the great majority—of the controversies that emerged were dealt with in informal negotiations. To a large extent, these took place within the various drafting committees, but, as at all such conferences, the representatives of the two countries most concerned often thrashed out their differences bilaterally. This was particularly true of negotiations between the representatives of the United States and the United Kingdom.

The delegates were hard pressed to complete their work, since their scheduled stay at the hotel was to end on Wednesday, July 19. The Hot Springs Conference in 1943, from which emerged the Food and Agriculture Organization (FAO), had lasted only ten days, and it had been thought that twice this length of time would suffice for Bretton Woods. Hence the Conference had been expected to last a little less than three weeks. As things turned out, however, there was so much to do and so little time that for a while it seemed the Conference would adjourn without completing plans for the World Bank. In the end, the Conference organizers were able to delay adjournment until Saturday, July 22, and the delegates left the hotel on the following day. The negotiation of the extension of time was not without difficulty, as the hotel management had to postpone the arrival of many guests who had reserved accommodations from July 20.

How overwhelming the task of the negotiators proved to be has been graphically described by Keynes. As quoted in the Fund’s History, 1945–65, he wrote: “It is as though…one had to accomplish the preliminary work of many interdepartmental and Cabinet committees, the job of the…draftsmen, and the passage…of two intricate legislative measures of large dimensions, all this carried on in committees and commissions numbering anything up to 200 persons in rooms with bad acoustics, shouting through microphones, many of those present…with an imperfect knowledge of English, each wanting to get something on the record which would look well in the press down at home, and… the Russians only understanding what was afoot with the utmost difficulty…. We have all of us worked every minute of our waking hours…all of us…are all in.”3

The delegates were determined to be successful. They viewed their agreement on plans for international economic cooperation after World War II as an essential show of strength necessary to build a better, peaceful, and more prosperous world once World War II had ended.


Despite the successful drafting of Articles for the Fund and the World Bank, the arrangements agreed to at Bretton Woods were consciously viewed as experimental. No one was certain how they would work in practice. Creation of the International Monetary Fund itself was, as described in History, 1945–65, “a supreme act of faith.”4 Nor did the negotiators intend the Bretton Woods system to be rigid. Rather, the system was intended to give countries more freedom than did the gold standard to pursue their macroeconomic policies, mainly monetary and fiscal policies, so that they could reach their domestic goals, particularly the goal of attaining and maintaining domestic full employment. The U.K. authorities especially wanted to reduce balance of payments constraints on their contemplated full employment policies. Hence, they favored an international monetary system that would permit national authorities to change exchange rates to correct an imbalance in a country’s external payments without the need for policies that excessively deflated domestic economies.

Several ways were established to cope with balance of payments disequilibria. In the event of a “fundamental disequilibrium,” there could be changes in exchange rates. For temporary disequilibria—and to ease the execution of policy for balance of payments adjustment that might otherwise be very painful domestically—members would have recourse to financing through the Fund. In the event of capital flight, they could resort to controls on capital movements. As necessary, other controls—such as exchange restrictions or even barriers to imports—could be used, but only with the approval of the Fund (in the case of payments restrictions) or of an organization with jurisdiction in the trade field (in the case of import restrictions).

What was really new was that exchange rates were to be agreed upon in conjunction with other nations, under the direction of the Fund. International cooperation and consultation were to be substituted for unilateral action. As some observers have commented, the significant advance of Bretton Woods consisted of the surrender by nations of some of their sovereignty, especially with regard to exchange rates, in return for the benefits of membership in the Fund. The system of par values that was arranged was as much an attempt to make exchange rate changes subject to international agreement as an attempt to institute fixed exchange rates. Indeed, it was intended that should a balance of payments deficit prove serious and persistent, a country could, subject to international approval, choose devaluation over deflation.

Two other ingredients contributed to the success of the Bretton Woods Conference. First, there was a large area of agreement as to the broad objectives of economic policy and the types of policies needed to achieve them. On the domestic side, the objective was full utilization of domestic resources, including labor; it was understood that if necessary, governments could use macroeconomic policies to achieve full employment. On the international side, the objective was a large world market to which all countries would have equal access; to achieve this objective, policies of free trade, multilateral payments, and stable exchange rates were to be pursued. Second, at Bretton Woods, the representatives of the United States and the United Kingdom dominated the negotiations. The United States, as the largest world economy, played the leading role. The U.S. and U.K. representatives were eager to work out any differences in view between them. Moreover, there was a small team of negotiators, and two strong technicians, White and Keynes, were in a position to make compromises and concessions that would hold. Participants from other countries willingly accepted the leadership of the two dominant countries.

In sum, the unique circumstances, the years of planning, and the unusually strong motivation of the people involved combined to immortalize the name “Bretton Woods” in the financial world.

Note: This article was written in July 1984 on the occasion of the fortieth anniversary of the Bretton Woods Conference and published earlier in a slightly different form in IMF Survey (Washington), Vol. 13 (July 2, 1984), pp. 193–97.

The International Monetary Fund, 1945–1965: Twenty Years of International Monetary Cooperation, Vol. I, Chronicle, by J. Keith Horsefield; Vol. II, Analysis, by Margaret G. de Vries and J. Keith Horsefield with the collaboration of Joseph Gold, Mary H. Gumbart, Gertrud Lovasy, and Emil G. Spitzer and edited by J. Keith Horsefield; Vol. Ill, Documents, edited by J. Keith Horsefield (Washington, 1969). (Hereinafter cited as History, 1945–65.) See Vol. I, p. 3.

Australia, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Cuba, Czechoslovakia, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador, Ethiopia, France, Greece, Guatemala, Haiti, Honduras, Iceland, India, the Islamic Republic of Iran, Iraq, Liberia, Luxembourg, Mexico, the Netherlands, New Zealand, Nicaragua, Norway, Panama, Paraguay, Peru, the Philippines, Poland, South Africa, U.S.S.R., the United Kingdom, the United States, Uruguay, Venezuela, and Yugoslavia.

Vol. 1, p. 92.

Ibid., p. 3.

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