The Bretton-Woods Conference June 1944

Founders Harry Dexter White - Chief International Economist at the U.S. Treasury Harry Dexter White - Chief International Economist at the U.S. Treasury John Maynard Keynes – U. K. Treasury Advisor John Maynard Keynes – U. K. Treasury Advisor

44 Delegate Nations Australia India Australia India Belgium Iran Belgium Iran Bolivia Iraq Bolivia Iraq Brazil Liberia Brazil Liberia Canada Luxembourg Canada Luxembourg Chile Mexico Chile Mexico China Netherlands China Netherlands Colombia New Zealand Colombia New Zealand Costa Rica Nicaragua Costa Rica Nicaragua Cuba Norway Cuba Norway Czechoslovakia Panama Czechoslovakia Panama Dominican Republic Paraguay Dominican Republic Paraguay Ecuador Peru Ecuador Peru Egypt Philippines Egypt Philippines El Salvador Poland El Salvador Poland Ethiopia Union of South Africa Ethiopia Union of South Africa France Union of Soviet Socialist Republics (USSR) France Union of Soviet Socialist Republics (USSR) Greece United Kingdom Greece United Kingdom Guatemala United States Guatemala United States Haiti Uruguay Haiti Uruguay Honduras Venezuela Honduras Venezuela Iceland Yugoslavia Iceland Yugoslavia

Major Accomplishments International Monetary Fund International Monetary Fund International Bank for Reconstruction and Development International Bank for Reconstruction and Development (focus on IMF)

Policies of the Depression era High tariff barriers High tariff barriers Competitive currency devaluations Competitive currency devaluations Discriminatory trading blocs Discriminatory trading blocs These policies adopted after WWI created an unstable international environment Bretton-Woods goal: sustainable peace and prosperity through economic cooperation

International Monetary Fund & Monetary Policy Fixed exchange rates (The U.S. dollar tied to gold at $35 an ounce) Fixed exchange rates (The U.S. dollar tied to gold at $35 an ounce) 1) Restrained monetary expansion a) Loss of international reserves by foreign banks meant banks would be unable to maintain the fixed dollar exchange rate. a) Loss of international reserves by foreign banks meant banks would be unable to maintain the fixed dollar exchange rate. b) U.S. obligation to redeem foreign accumulation of dollars for gold restricted U.S. monetary growth. b) U.S. obligation to redeem foreign accumulation of dollars for gold restricted U.S. monetary growth.

Creation of the Fund Member countries contributed there currencies and gold to the fund. Member countries contributed there currencies and gold to the fund. From this the IMF could lend to countries experiencing balance of payment difficulties (short-term) avoiding currency devaluation. From this the IMF could lend to countries experiencing balance of payment difficulties (short-term) avoiding currency devaluation. If necessary changes in the exchange rate could be made. If necessary changes in the exchange rate could be made. An adjustable exchange rate was not available to the U.S. dollar An adjustable exchange rate was not available to the U.S. dollar

Convertible Currency Convertible currency - one that may be freely exchanged for foreign currencies. Convertible currency - one that may be freely exchanged for foreign currencies. Increased efficiency for multilateral trade. Increased efficiency for multilateral trade. The U.S. and Canada became convertible in 1945 The U.S. and Canada became convertible in 1945 Most European Countries waited until 1958, Japan followed in 1964 Most European Countries waited until 1958, Japan followed in 1964

World Currency It’s ease of conversion and the prominence given to it from the Bretton- Woods agreement quickly gave rise to the U.S. dollar as the world reserve currency. It’s ease of conversion and the prominence given to it from the Bretton- Woods agreement quickly gave rise to the U.S. dollar as the world reserve currency. International trade was conducted in dollar denominations. International trade was conducted in dollar denominations. Foreign central banks held their international reserves in dollar assets. Foreign central banks held their international reserves in dollar assets.

Balance of Payment Crises “Fundamental Disequilibrium” was thought to exist when a country maintained a continuing current account deficit. “Fundamental Disequilibrium” was thought to exist when a country maintained a continuing current account deficit. This may lead to a devaluation of the currency. Anyone holding this currency would incur a loss equal to the amount of the exchange rate change. This may lead to a devaluation of the currency. Anyone holding this currency would incur a loss equal to the amount of the exchange rate change.

Large current account surpluses made countries candidates for revaluation. Large current account surpluses made countries candidates for revaluation. Selling local currency in the foreign exchange market with the intent of slowing appreciation resulted in large official reserves. Selling local currency in the foreign exchange market with the intent of slowing appreciation resulted in large official reserves. Money supply would grow to quickly which in turn would push up the price level and disrupt the internal balance. Money supply would grow to quickly which in turn would push up the price level and disrupt the internal balance.

Fall of Bretton-Woods Increasing balance of payment crises. Increasing balance of payment crises. U.S. currency pressure brought about partly from cost of Vietnam War and a growing trade deficit. U.S. currency pressure brought about partly from cost of Vietnam War and a growing trade deficit. President Nixon issued an executive order in 1971 eliminating the gold standard and devaluing the dollar. President Nixon issued an executive order in 1971 eliminating the gold standard and devaluing the dollar. Floating exchange rates determined by market trading replaced fixed exchange rates. Floating exchange rates determined by market trading replaced fixed exchange rates.