The Bretton-Woods Conference

1. The Bretton-Woods Conference June 1944

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

3. 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

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

5. 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

6. 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.

7. 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

8. 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

9. 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.

10. 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.

11. 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.

12. 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.