World Bank

Also called: International Bank for Reconstruction and Development, IBRD · Topic: The Making of a Global World · NCERT: Class 10, Ch 3 "The Making of a Global World"

Meaning

The World Bank, formally the International Bank for Reconstruction and Development (IBRD), is an international lending body. It was created at the Bretton Woods conference of July 1944 to lend money to rebuild countries wrecked by the Second World War. From the late 1950s it turned to lending to developing countries.

It matters because, with the IMF, it formed the Bretton Woods twins. These two bodies were at the centre of the world economy after 1945. Their record shows how power over money stayed with the rich Western countries even after the colonies became free.

Explanation

Background: why a "reconstruction bank" was needed

• The war caused huge destruction.
• The Second World War ran for six years. The Axis powers (Germany, Japan, Italy) fought the Allies (Britain, France, the Soviet Union, the US).
• At least 60 million people were killed, about 3% of the world's 1939 population. More civilians died than soldiers.

• Large parts of Europe and Asia were flattened: cities, factories, roads and ports.

• Rebuilding needed money and planning. No single war-ruined country could pay for it alone.

• Planners had learnt two lessons from the 1920s–30s:
• Lesson 1: mass production needs mass consumption. People need high, stable incomes, which means full employment. Markets alone cannot promise this, so governments must step in.

• Lesson 2: full employment needs control. Governments must be able to control the movement of goods, capital (money) and labour (people) across their borders.

• So the post-war world was meant to be a managed system, not a pure free market. The World Bank was one of its pillars.

Birth and design at Bretton Woods

• The conference. It was the United Nations Monetary and Financial Conference, held at Bretton Woods, New Hampshire, USA. Delegates from 44 nations met at the Mount Washington Hotel from 1 to 22 July 1944 [2][3].
• The main thinkers were John Maynard Keynes, adviser to the UK Treasury, and Harry Dexter White, US Assistant Secretary of the Treasury [2].
• The outcome. The conference wrote the Articles of Agreement (the founding rules) of both the IBRD and the IMF [2][3].
• The division of work:

Institution	Job
IBRD / World Bank	Lend money for post-war reconstruction, that is, to rebuild ruined countries
IMF	Deal with members' external surpluses and deficits, that is, whether a country earns more or less from abroad than it pays out

• Financial operations began in 1947.
• Who ran it?
• The Western industrial powers controlled decision-making.
• The US held an effective veto, so no major decision could pass against it.

How its role changed over time

• 1947 to the 1950s: reconstruction. The Bank's first task was rebuilding war-damaged economies, mainly in Europe.
• The world around it was a fixed-rate system.
• Under the Bretton Woods monetary system, currencies such as the Indian rupee were pegged to the US dollar.
• The dollar was fixed to gold at $35 per ounce.

• This stable setting helped the post-war boom (1950–70). World trade grew over 8% a year, incomes grew nearly 5% a year, and unemployment stayed under 5% in most industrial countries.

• From the late 1950s: a turn to developing countries.

• By then Europe and Japan had been rebuilt.
• Many new nations in Asia and Africa had become free and were poor and short of resources after colonial rule.

• The World Bank and IMF now turned their attention to these developing countries.

• The design did not fit them.

• The twins had been built for industrial countries, not for development.
• Ex-colonial powers still controlled vital resources such as minerals and land, and Western corporations got cheap rights to them.

Results and later problems

• The demand for a fairer system. Poor countries felt left out. They formed the G-77 on 15 June 1964 at the first UNCTAD in Geneva [4][5].
• They asked for a New International Economic Order (NIEO): control over their own natural resources, more development aid, fairer prices for raw materials and better access to Western markets.

• The UN adopted the NIEO Declaration as resolution 3201 (S-VI) on 1 May 1974 [6].

• The Bretton Woods monetary order collapsed.

• On 15 August 1971 President Richard Nixon stopped turning dollars into gold [7].

• The Smithsonian Agreement (17–18 December 1971) failed, and by early 1973 the major currencies were floating [7][8].

• Debt crises followed.

• From the mid-1970s, developing countries could no longer get cheap official loans. They had to borrow from Western commercial banks and private lenders.
• This led to periodic debt crises and deeper poverty, worst in Africa and Latin America.

Time, place and evidence

• When: Planned in July 1944, before the war ended. Financial operations began in 1947. It turned to developing countries from the late 1950s.
• Where: Founded at Bretton Woods, New Hampshire, USA, at the Mount Washington Hotel [2][3].
• Who:
• John Maynard Keynes (UK) and Harry Dexter White (US) were the leading minds [2].
• Delegates came from 44 nations [2][3].

• In practice the US led, holding an effective veto.

• How we know:

• The Articles of Agreement of the IBRD and the IMF are the founding legal texts [2][3]. The IMF Articles were adopted on 22 July 1944 and first accepted by 29 countries [3].
• The World Bank's own archive records its birth at Bretton Woods [2].
• NCERT Class 10, Ch 3 "The Making of a Global World" is the main textbook source.

Don't confuse with

• IMF (International Monetary Fund): the other Bretton Woods twin. The IMF handles a country's external surpluses and deficits (balance of payments). The World Bank lends for reconstruction and development.
• Bretton Woods system: this is the monetary system of fixed exchange rates, with currencies pegged to the dollar and the dollar to gold at $35 an ounce. The system collapsed in 1971–73. The World Bank is an institution that kept working after that collapse.
• G-77 / UNCTAD: the G-77 (1964) was a group of developing countries formed at UNCTAD I to challenge a world order run by the West. It was not a lending body like the World Bank.
• Western commercial banks: these were private lenders. Developing countries turned to them from the mid-1970s, and that borrowing led to debt crises. The World Bank is an official, inter-government lender.

Prelims Hooks

• The IBRD (World Bank) and the IMF were both created at the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, USA, 1–22 July 1944, attended by 44 nations [2][3].
• Bretton Woods twins = IMF + World Bank. World Bank: post-war reconstruction. IMF: external surpluses and deficits. Trap: the IMF is not the reconstruction lender.
• The leading figures at Bretton Woods were John Maynard Keynes (UK Treasury) and Harry Dexter White (US Treasury) [2].
• Financial operations of the twins began in 1947. The US held an effective veto in decision-making.
• The twins turned to developing countries from the late 1950s, after Europe and Japan were rebuilt.
• Chronology: Bretton Woods (1944) → operations begin (1947) → G-77 (1964) → Nixon ends dollar–gold convertibility (1971) → floating rates (1973) → NIEO resolution 3201 (1974) [4][6][7][8].

Mains Points

• A body built for the rich world. The World Bank was designed to rebuild industrial countries after the war. Western powers controlled it and the US had a veto. When it turned to developing countries from the late 1950s, the new nations got loans but no real share of power. That is why the G-77 (1964) and the NIEO (1974) demanded a fairer order. Both can be read as an attempt to finish decolonisation on the economic side [4][6].
• Part of a managed post-war order. The World Bank, the IMF and fixed exchange rates came from lessons of the Great Depression: governments, not markets alone, must secure full employment. The 1950–70 boom (trade growth over 8%, unemployment under 5%) shows this order worked for a time. But after the collapse of 1971–73 and the shift to private bank lending from the mid-1970s, developing countries in Africa and Latin America fell into debt crises [7][8].
• Continuity and change. The institution lasted, but its purpose changed. It began as a reconstruction bank for Europe and became a development lender for the Global South. That shift reflects the bigger changes of the 20th century: war, decolonisation and later globalisation.

Related concepts

• Bretton Woods Conference
• Bretton Woods system
• International Monetary Fund
• 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