Bretton Woods Conference

Also called: United Nations Monetary and Financial Conference · Topic: The Making of a Global World · NCERT: Class 10, Ch 3 "The Making of a Global World"

Meaning

The Bretton Woods Conference (officially the United Nations Monetary and Financial Conference) was a meeting of 44 nations held in July 1944 at Bretton Woods, New Hampshire, USA. It set up the rules for the world economy after the Second World War and created the IMF and the World Bank [2][3].

• It matters because it set up a managed world economy. Exchange rates were fixed, the dollar was tied to gold, and governments had the power to keep jobs steady.
• Its main aim was to keep the economy stable and keep full employment in the industrial world. This system lasted until the early 1970s.

Explanation

Background: why a new order was needed

• War ruin. The Second World War lasted six years. The Axis powers (Nazi Germany, Japan, Italy) fought the Allies (Britain, France, the Soviet Union, the US).
• At least 60 million people were killed. That was about 3% of the world's 1939 population.
• More civilians died than soldiers. This had not happened in earlier wars.

• Large parts of Europe and Asia were destroyed, including cities, factories, roads and ports.

• Two powers shaped the rebuilding.

• The US came out as the leader of the Western world. Its land had not been attacked, and its industry was huge.

• The Soviet Union had been a backward farming country. It became a world power during the years when capitalist countries were stuck in the Great Depression.

• Lesson 1: mass production needs mass consumption.

• When factories make goods in huge numbers, many people must be able to buy them.
• People can buy only if their incomes are high and stable. That needs full employment (jobs for everyone, all the time).

• Markets alone cannot promise this, so governments must step in.

• Lesson 2: full employment needs control over flows.

• A government can keep everyone in work only if it can control how goods, capital (money) and labour (people) move across its borders.

The conference and what it created

• Dates and place. The conference sat from 1 July to 22 July 1944 at the Mount Washington Hotel, Bretton Woods. Delegates came from 44 nations [2][3].
• Leading figures. John Maynard Keynes (adviser to the UK Treasury) and Harry Dexter White (US Assistant Secretary of the Treasury) led the planning [2].
• Output. The conference drafted the Articles of Agreement of both the IBRD and the IMF. The IMF Articles were adopted on 22 July 1944, and 29 countries accepted them first [2][3].
• The Bretton Woods twins:

Institution	Job
IMF (International Monetary Fund)	Deal with members' external surpluses and deficits. This means checking whether a country earns more or less from the outside world than it pays out.
IBRD / World Bank (International Bank for Reconstruction and Development)	Pay for post-war reconstruction by lending money to rebuild ruined countries.

• Financial operations began in 1947.
• Who ran it? The Western industrial powers made the decisions. The US held an effective veto, so nothing major could pass against its wishes.

How the Bretton Woods monetary system worked

• Fixed exchange rates. A currency's value could not move freely against other currencies.
• National currencies, such as the Indian rupee, were pegged (fixed at a set rate) to the US dollar.
• The dollar was tied to gold at $35 per ounce. A government holding dollars could ask the US for gold at that price.
• The chain: gold backed the dollar, and the dollar backed every other currency. The whole system rested on US gold.

Results: boom, change and collapse

• Post-war boom, 1950–70:
• World trade grew over 8% a year.
• Incomes grew nearly 5% a year.
• Unemployment stayed under 5% in most industrial countries.

• Technology spread. Developing countries imported industrial plant and equipment from rich countries.

• Poor fit for new nations. The twins were designed for industrial countries. They turned to developing countries only from the late 1950s, after Europe and Japan had been rebuilt.

• Collapse:
• From the 1960s the US spent heavily abroad. Too many dollars were in circulation and too little gold was in US vaults.
• On 15 August 1971, President Richard Nixon suspended the dollar's convertibility into gold (the "closing of the gold window"). A balance-of-payments crisis, linked to spending on the Vietnam War and the Great Society programmes, drove this decision [6].
• The Smithsonian Agreement (17–18 December 1971), signed by the Group of Ten, tried to set new pegged rates. It did not last [6][7].
• By early 1973 the major currencies were floating, which means the market set their value from day to day [6][7].

Time, place and evidence

• Period: the closing phase of the Second World War, 1–22 July 1944. The system it built ran from 1947 until its collapse in 1971–73.
• Place: the Mount Washington Hotel, Bretton Woods, New Hampshire, USA [2][3].
• Key people: John Maynard Keynes (UK) and Harry Dexter White (US) [2]. Richard Nixon ended dollar–gold convertibility in 1971 [6].
• Evidence:
• The Articles of Agreement of the IMF, adopted 22 July 1944, are the founding legal text [3].
• The World Bank's archive on Bretton Woods records the conference and the IBRD's founding [2].
• IMF historical records describe the 1971 break [6].
• NCERT Class 10, Ch 3 "The Making of a Global World" is the main textbook account.

Don't confuse with

• Bretton Woods twins vs Bretton Woods system. The twins are the two institutions, the IMF and the World Bank. The system is the monetary rule of fixed rates pegged to the dollar, with the dollar fixed to gold at $35/ounce.
• IMF vs IBRD (World Bank). The IMF handles countries' external surpluses and deficits. The IBRD lent money for post-war reconstruction.
• Smithsonian Agreement (December 1971). It was not part of Bretton Woods. It was a failed attempt by the Group of Ten to rescue pegged rates after Nixon closed the gold window [6][7].
• G-77 / NIEO. These were not part of the 1944 order. They were the developing countries' challenge to it. The G-77 was formed in 1964 at UNCTAD I, Geneva, and the NIEO Declaration was UN resolution 3201 (S-VI), 1 May 1974 [4][5].

Prelims Hooks

• The United Nations Monetary and Financial Conference was held at Bretton Woods, New Hampshire, USA, from 1–22 July 1944, with 44 nations at the Mount Washington Hotel [2][3].
• Keynes (UK Treasury adviser) and Harry Dexter White (US Treasury) were the leading figures [2].
• The IMF Articles of Agreement were adopted on 22 July 1944 and first accepted by 29 countries [2][3].
• The Bretton Woods twins are the IMF and IBRD (World Bank). They began financial operations in 1947, and the US held an effective veto.
• Trap: currencies were pegged to the dollar, not directly to gold. Only the dollar was fixed to gold, at $35 per ounce.
• Chronology: Bretton Woods (1944) → twins operate (1947) → gold window closed (15 August 1971) → Smithsonian Agreement (December 1971) → floating rates (early 1973) [6][7].

Mains Points

• A managed order built on the lessons of the 1930s.
• The planners believed that markets alone could not give full employment.
• So Bretton Woods used fixed rates, controls over money flows, and an IMF to watch countries' balances.

• The 1950–70 boom (trade growth over 8%, unemployment under 5%) is the strongest case for state-managed capitalism. The collapse of 1971–73 is the strongest case against it.

• Built by and for the West.

• Western industrial powers made the decisions, and the US held a veto. The twins were designed for industrial reconstruction, not development.
• Newly free Asian and African nations remained poor and short of resources, while ex-colonial powers still controlled vital minerals and land.

• This gap led to the G-77 (1964) and the demand for an NIEO (1974). These were attempts to complete decolonisation on the economic side [4][5].

• The fall of Bretton Woods reshaped the world economy.

• US overseas spending weakened the dollar's link to gold, which led to floating rates [6].
• From the mid-1970s, developing countries had to borrow from Western commercial banks. This led to debt crises in Africa and Latin America.
• MNCs (multinational corporations, firms that produce in several countries at once) moved production to low-wage Asia. This helped the rise of China, India and Brazil.

Related concepts

• Bretton Woods system
• International Monetary Fund
• World Bank
• Fixed exchange rate
• Marshall Plan
• General Agreement on Tariffs and Trade
• Multinational corporation
• Group of 77
• New International Economic Order
• Floating exchange rate

Read more

• Rebuilding the world economy: Bretton Woods to globalisation