12 - The Bretton Woods era and the re-emergence of global finance, 1945–1973

Summary

The Bretton Woods Conference in 1944 was an ambitious initiative by the US to reshape the post-war international economy in ways that would avoid the confusion and obvious mistakes that had been made after the First World War. This time, instead of withdrawing into isolation from the problems of post-war adjustments and inadvertently making them worse by setting unrealistic goals, the Roosevelt administration was determined to maintain in peacetime the leadership it had acquired during the war. A piece of doggerel on a scrap of paper found after one of the meetings, “Said Lord Halifax to Lord Keynes, they have the money bags, but we have the brains!” expressed another view. From the British perspective, the US would benefit from the imperial experience of the mother country on how to use its economic hegemony constructively. For Keynes, this meant providing international liquidity in a structured way rather than the ad hoc procedures that had eventually been cobbled together after the First World War. But even that fragile structure had then led to five good years of international prosperity, so it seemed worth constructing something similar but sooner and more solidly.

In Keynes' view, countries could commit to fixed exchange rates with each other by buying into the capital stock of an international bank, set up to issue its own currency, the bancor, which would have a fixed value in terms of gold. Each country with accounts denominated in bancor could use them to settle international accounts with each other. (Readers of Chapter 3 will recall how the Wisselbank in Amsterdam created just such a system for financing European international trade in the seventeenth and eighteenth centuries with its schellingen banco defined in terms of silver and gold.) The US negotiators in Washington from the Treasury were suitably impressed by this vision (Harry Dexter White, Assistant Secretary of the Treasury, had written his PhD thesis on the French experience with the gold standard in the nineteenth century), but they insisted that the US, which necessarily would be the largest shareholder with the largest existing stock of gold on hand and with the US dollar still fixed at $35.00 per ounce of gold, would have to keep control of the purse strings.