The history of Bretton Woods

In 1944, at Bretton Woods, an international conference reorganized the international monetary system. One of the important decisions taken on this occasion was to set a fixed parity between gold and the dollar. The greenback becomes the reference standard in place of the precious metal. This equivalence lasted until August 1971.

When the Bretton Woods conference opened on July 1, 1944, the war was not over but the outcome was no longer in doubt. 730 delegates, representing 44 allied countries, gathered in a hotel in a small town in New Hampshire. The Soviets sent a delegation as in all meetings of the grand alliance.

The goal of this conference is to organize an international monetary system (IMS) strong enough to ensure post-war reconstruction. The crisis of the thirties had shattered the Gold Exchange Standard system, defined at the Genoa conference in 1922.

In fact, the world economy was balkanized around three monetary zones (dollar zone, sterling zone, gold bloc ) whose commercial rivalries had blocked international trade. All participants agree on the principle of a global economy based on free trade and stable exchange rates. Since 1941-1942, teams of economists have been thinking about monetary projects. The English and John Maynard Keynes proposed an international currency detached from national currencies, called Bancor.

The American project wanted to make the dollar the pivot of international settlements. In 1944, the balance of political and economic power was largely in favor of the Americans. The United States owns 70% of the world’s gold stock and had a thriving economy. American Representative Harry Dexter White, Undersecretary of State for the Treasury, imposed his views quite easily.

The dollar became the only currency whose value is defined by a fixed parity with gold in the proportion of $35 for an ounce of gold (approximately 28 g). Other currencies appreciate against the dollar at a stable exchange rate. For example, 1 dollar most often exchanged around 4.50-5.50 French francs. To avoid distortions and imbalances in exchange rates, deficit countries can use two mechanisms: temporary control of exchange rates and capital movements or recourse to a conditional loan to restore their balance.

The body responsible for granting the loan is the IMF (international monetary fund), the second creation of the Bretton Woods agreements. This fund is funded by shares proportional to the size of the country. In exchange, the country receives more or less significant voting rights. The discussion on the allocation of quotas was particularly difficult, with each country wanting to play a major role in the institution.

Thus the French delegate Pierre Mendès-France protested about the fate reserved for France. The United States, for its part, reserves 25% of the votes with a right of veto. The system is completed by a bank: the IBRD, responsible for financing development projects. Discussions on international trade and customs duties were postponed, leading in 1947 to the creation of the GATT.

The application of Bretton Woods System

The Bretton Woods system was not really applied until 1958, after the effects of the Marshall Plan and renewed growth allowed European currencies to become convertible. One of the conditions for the proper functioning of the SMI is that countries accept payments in dollars and that the ratio with the precious metal is maintained.

However, the growing world economy requires dollars and the United States can finance its deficit and the Vietnam War by creating money. In 1967, the countries which had joined forces with the Americans in a gold pool to maintain the gold-dollar parity gave it up. Doubts about the value of the dollar persist and are growing. In August 1971, President Nixon announced the end of the fixed parity which had founded the Bretton Woods system.

An historical and economic report shows rare images of the Bretton Woods conference, shot by film newsreel operators. The original silent images were taken on July 22, 1944, at the time when the heads of each of the national delegations, one after the other, came to sign the agreements. Solemn and classic moment of diplomatic meetings.

It is not certain that at the time the event had much impact in a world still at war. Among the personalities who appear in the image, we can see J.M. Keynes, the English economist and the American Treasury Secretary Henry Morgenthau. A shot also shows the delegate from Nationalist China. This country, with the United States and the United Kingdom, is considered a great power, while France’s place is not yet assured. Pierre Mendès-France, who negotiated for General de Gaulle, only played a minor role. The period images end with a shot of the arms of the international monetary fund, very inspired by those of the United Nations with a globe and an olive branch.

The lack of illustrative images means that the commentary of the journalist specializing in the economy Christian-Marie Monnot must end in front of the camera, which is rare enough to be highlighted. He ends his paper by mentioning 1971 and the end of the convertibility of the dollar into gold, more precisely at the fixed rate of $35 per ounce. You can still buy metal with greenbacks but the price is no longer the same.