Transcript The Bretton-Woods Conference

The Bretton-Woods
Conference
June 1944
Founders
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Harry Dexter White Chief International
Economist at the U.S.
Treasury
John Maynard
Keynes – U. K.
Treasury Advisor
44 Delegate Nations
Australia
Belgium
Bolivia
Brazil
Canada
Chile
China
Colombia
Costa Rica
Cuba
Czechoslovakia
Dominican Republic
Ecuador
Egypt
El Salvador
Ethiopia
France
(USSR)
Greece
Guatemala
Haiti
Honduras
Iceland
India
Iran
Iraq
Liberia
Luxembourg
Mexico
Netherlands
New Zealand
Nicaragua
Norway
Panama
Paraguay
Peru
Philippines
Poland
Union of South Africa
Union of Soviet Socialist Republics
United Kingdom
United States
Uruguay
Venezuela
Yugoslavia
Major Accomplishments
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International Monetary Fund
International Bank for Reconstruction
and Development
(focus on IMF)
Policies of the Depression era
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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
International Monetary Fund
&
Monetary Policy
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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.
Creation of the Fund
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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
Convertible Currency
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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
World Currency
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It’s ease of conversion and the
prominence given to it from the BrettonWoods 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.
Balance of Payment Crises
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“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.
Fall of Bretton-Woods
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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.