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The Bretton-Woods Conference. June 1944. Founders. Harry Dexter White - Chief International Economist at the U.S. Treasury John Maynard Keynes – U. K. Treasury Advisor. 44 Delegate Nations.  Australia                    India Belgium                     Iran

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The Bretton-Woods Conference

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The bretton woods conference l.jpg

The Bretton-Woods Conference

June 1944


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Founders

Harry Dexter White -Chief International Economist at the U.S. Treasury

John Maynard Keynes – U. K. Treasury Advisor


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44 Delegate Nations

 Australia                    India

Belgium                     Iran

Bolivia                      Iraq

Brazil                     Liberia

Canada                     Luxembourg

Chile                     Mexico

China                     Netherlands

Colombia                   New Zealand

Costa Rica                 Nicaragua

Cuba                     Norway

Czechoslovakia          Panama

 Dominican Republic   Paraguay

Ecuador                     Peru

Egypt                     Philippines

El Salvador                Poland

Ethiopia                     Union of South Africa

France                     Union of Soviet Socialist Republics (USSR)

Greece                     United Kingdom

Guatemala                United States

Haiti                     Uruguay

Honduras                  Venezuela

Iceland                     Yugoslavia


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Major Accomplishments

  • International Monetary Fund

  • International Bank for Reconstruction and Development

    (focus on IMF)


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Policies of the Depression era

  • High tariff barriers

  • Competitive currency devaluations

  • Discriminatory trading blocs

These policies adopted after WWI created an unstable international environment

Bretton-Woods goal: sustainable peace and

prosperity through economic cooperation


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International Monetary Fund&Monetary Policy

  • 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.

    b) U.S. obligation to redeem foreign accumulation of dollars for gold restricted U.S. monetary growth.


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Creation of 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.

  • If necessary changes in the exchange rate could be made.

  • An adjustable exchange rate was not available to the U.S. dollar


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Convertible Currency

  • Convertible currency - one that may be freely exchanged for foreign currencies.

  • Increased efficiency for multilateral trade.

  • The U.S. and Canada became convertible in 1945

  • Most European Countries waited until 1958, Japan followed in 1964


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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.

  • International trade was conducted in dollar denominations.

  • Foreign central banks held their international reserves in dollar assets.


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Balance of Payment Crises

  • “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.


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  • 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.

  • Money supply would grow to quickly which in turn would push up the price level and disrupt the internal balance.


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Fall of Bretton-Woods

  • Increasing balance of payment crises.

  • 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.

  • Floating exchange rates determined by market trading replaced fixed exchange rates.


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