By: U. S. Treasury Department
Date: February 15, 1945
Source: The Bretton Woods Proposals. Washington, D.C.: U.S. Treasury Department, 1945.
About the Organization: The U. S. Treasury Department issued this booklet to enhance public support for the Bretton Woods Agreements. This was part of the Roosevelt administration's efforts to create a new global order that reflected American economic, military, and political leadership.
The United States took a major step toward creating a truly global economy at the Bretton Woods Monetary Conference in July 1944. Held in rural New Hampshire, this conference helped establish a new world currency-exchange system. This system did not use a strict gold standard, but, rather, a more flexible combination of gold and the American dollar. Delegates also made plans to establish both the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank)—institutions destined to play important roles in international business in the postwar world and promoting American economic dominance.
The United States had emerged as the world's strongest economic power by 1890. Despite this, many Americans were reluctant for the nation to break its traditional policy of isolationism and assume a role of global leadership. In World War I (1914–18), the United States demonstrated a military might that complemented its economic power. However, after that war much of the country wanted the United States to turn away from what they saw as unnecessary entanglement in foreign affairs.
As World War II (1939–45) drew to a victorious conclusion, the strength of the United States was evident. Most Americans reluctantly accepted that the United States would continue in a role of world leadership. The Bretton Woods Agreements of June 1944, coupled with two 1944 conferences at Dumbarton Oaks in Washington, D.C. that laid the foundation for creating of the United Nations in 1945, signified that America would play the decisive role in world affairs. There would be no retreat into a period of isolationism as occurred after World War I.
Although unheralded at the time, the decisions at Bretton Woods and Dumbarton Oaks would have profound implications in the decades to come. The IMF and the World Bank soon became important sources of loans and other funds to the governments of the new nations that were created in the decades after World War II. They did not accomplish this without controversy, as their aid was generally conditional upon the recipients following certain economic policies.
The United States's decision to assume a leading financial role in the world committed the nation, possibly unwittingly, to a policy of free trade. This opened vast new markets for American products, as well as exposing American business to competition with foreign imports. The loss of many manufacturing jobs in the United States over the past half-century can be seen as an unintended consequence of adhering to an increasingly permissive trade policy.
The momentous decision to accept the burdensome role of world leadership embroiled America in the whirlpool of international politics to a larger degree than feared by even the staunchest opponents of globalization at the time. The decisions of 1944 also likely committed the United States in the long run to a new, more-expansive immigration policy, befitting one of the world's two reigning superpowers, that occurred after 1965.
Whatever the wisdom of adopting a long-term policy of globalization, American leaders of 1944 primarily embraced the policy due to their determination to avoid a repetition of World War II and the rise of German Nazism—which they saw as the result of national economic rivalries exacerbated by the Great Depression of the 1930s. American leaders embraced internationalism and free trade as antidotes to the unbroken cycle of international war, especially in Europe. The dismal record of continued worldwide violence since the end of World War II during this supposed new global era proved that the predictions of those favoring globalization were overly optimistic. The heralded arrival of a more peaceful and secure planet did not occur, at least not as envisioned by the 1944 conferences.
Primary Source: The Bretton Woods Proposals [excerpt]
SYNOPSIS: The following excerpt from a U.S. Treasury Department booklet extols the virtues of the recently-negotiated Bretton Woods Agreements, designed to promote a truly global system reflecting American economic, military, and political hegemony. The document provides a revealing glimpse of the internationalist mindset prevalent at that time.
The actual details of a financial and monetary agreement may seem mysterious to the general public. Yet at the heart of it lie the most elementary bread-and-butter realities of daily life. What we havedone here in Bretton Woods is to devise machinery by which men and women everywhere can exchange, on a fair and stable basis, the goods which they produce through their labor. And we have taken the initial step through which the nations of the world will be able to help one another in economic development to their mutual advantage and for the enrichment of all.
—From the address closing the Bretton Woods Conference.
By Henry Morgenthau, Jr.,
Secretary of the Treasury,
President of the Conference.
Bretton Woods is the symbol of a new kind of cooperation. It stands for proposals looking toward cooperation in the solution of international monetary and financial problems. Drafted by representatives of 44 nations in a conference called on the invitation of President Roosevelt at Bretton Woods, New Hampshire, in July 1944, the proposals are the outgrowth of three years of study by the technical staffs of the Treasury, State Department, Board of Governors of the Federal Reserve System, and other agencies of the United States government. For a period of more than a year, informal discussions were held with representatives of other governments associated with us in winning the war.
As part of the economic foundation for a peaceful and prosperous world, the Bretton Woods proposals call for the establishment of two international institutions, the International Monetary Fund and the International Bank for Reconstruction and Development. Although related in purpose, these institutions will perform quite different functions. The Fund will be concerned with the maintenance of orderly currency practices as they relate to international trade, while the Bank will facilitate the making of long-term international investments for productive purposes.
Acceptance of the proposals by the United States will require Congressional action.
The International Monetary Fund What the Fund Will Do
The fundamental purpose of the International Monetary Fund is to promote the balanced growth of international trade. It will do this in three ways. First, it will stabilize the value of all currencies in terms of each other. Second, it will progressively remove barriers against making payments across boundary lines. Third, it will provide a supplementary source of foreign exchange to which a member country may apply for the assistance necessary to enable it to maintain stable and unrestricted exchange relationships with other members.…
Cooperation vs. Isolation
The essence of the proposed International Monetary Fund is that it would substitute order and stability for the dog-eat-dog attitude that has in the past characterized international currency practices. Order and stability in exchange policies are objectives that can be attained not by a single country working alone but only by the united action of all of the 44 countries represented at Bretton Woods. Upon the attainment of these objectives hinges the realization of the ultimate goals of national policy—high levels of employment, rising standards of living, and economic development. In the shrunken world of tomorrow prosperity, like political security, lies not in isolation but in cooperation and mutual understanding.
The International Bank for Reconstruction and Development What the Bank Will Do
The International Bank for Reconstruction and Development, like the International Monetary Fund, recognizes the need for worldwide cooperation in monetary and financial matters. Both aim at the balanced growth of trade as a means of achieving high levels of employment and rising standards of living. Each, however, will have its own separate function. The Fund will be concerned with orderly, stable exchange rates and freedom in exchange transactions; the Bank will be concerned with long-range productive international investment.
The Bank, therefore, will fill important needs in the postwar economies of all the 44 countries that assisted in preparing the Bretton Woods proposals.
Factories, dams, power plants, transportation systems, and public buildings in the countries ravaged by war have been shelled, bombed, and pillaged. Foreign capital will be needed to help replace this wealth. While it is fully recognized that the major portion of the reconstruction burden must be borne by the affected countries themselves, yet for many "seed corn" items of capital equipment they must look to their more fortunate neighbors.…
The Bank's Guarantee
The Bank is not intended to supplant but to supplement the private capital market. Loans will be made, as they have been in the past, by private lenders who see an opportunity to make an advantageous investment in a foreign country. The Bank will support and encourage these loans through the usual investment channels.…
Direct and guaranteed loans will for the most part be additional loans, over and above the private loans that would ordinarily be made, and will serve directly to increase the volume of international trade.…
Membership in the Bank, in the first instance, is to be limited to countries that participated in the Bretton Woods conference and become members of the International Monetary Fund. Other countries may become members after they have been admitted to the Fund. Membership has been tied in this way because both institutions are designed to solve closely related problems. A country's adherence to the Fund will mean greater currency stability and the progressive removal of exchange restrictions, which will in turn reduce the risks of long-term investment. Furthermore, it is believed that only those nations that have demonstrated their willingness to cooperate in the improvement of basic world trade conditions should be permitted to participate in the operations of the International Bank for Reconstruction and Development.…
What the Bank Means to the United States
… The plans are based on the conviction that stability and security in financial and commercial relationships will remove some of the important causes of war and at the same time help to open the way for increased trade and prosperity throughout the world.
The United States now, as never before, occupies a key position in world affairs. Whether we cooperate in maintaining the peace as we have in waging war will to a considerable extent shape the course of history for generations to come. Our acceptance and support of the Bretton Woods proposals, therefore, will be taken as a happy augury. It will mean to the rest of the world that instead of choosing economic isolation, which would inevitably lead to political isolation, we have determined to do our part toward the attainment of world peace and prosperity.
Schild, Georg. Bretton Woods and Dumbarton Oaks: American Economic and Political Postwar Planning in the Summer of 1944. New York: St. Martin's Press, 1995.
Van Dormael, Armand. Bretton Woods: Birth of a Monetary System. New York: Holmes & Meier Publishers, 1978.
The International Monetary Fund Home Page. Available online at http://www.imf.org/ (accessed April 21, 2003).
The World Bank Group. Available online at http://www.worldbank.org/ (accessed April 21, 2003).