Bretton Wood Conference

Bretton Wood Conference


Basics and Background
  • The United Nations Monetary and Financial Conference (1944), commonly known as Bretton Wood conference, was held in Bretton Woods, New Hampshire, USA to regulate the international monetary and financial order after the conclusion of World War II.
  • The conference resulted in the agreements to set up the International Bank for Reconstruction and Development (IBRD) popularly known as World Bank and the International Monetary Fund (IMF).The IMF was set up to foster monetary stability at global level.
  • The IBRD was created to speed up post-war reconstruction. The two institutions are known as the Bretton Woods twins.


  • Articles of Agreement to create the IMF, whose purpose was to promote stability of exchange rates and financial flows.
  • Articles of Agreement to create the IBRD (later World Bank), whose purpose was to speed reconstruction after the Second World War and to foster economic development, especially through lending to build infrastructure.
  • Other recommendations for international economic cooperation.


Final Act

Within the Final Act, the most important part in the eyes of the conference participants and for the later operation of the world economy was the IMF agreement. Its major features were:

  • Foreign Exchange Market Rate System: Exchange rates were pegged to gold. Governments were only supposed to alter exchange rates to correct a “fundamental disequilibrium.”
  • Member countries pledged to make their Currencies Convertiblefor trade-related and other current account transactions. The goal of widespread Current Account Convertibility did not become operative until December 1958, when the currencies of the IMF’s Western European members and their colonies became convertible.
  • As it was possible that exchange rates thus established might not be favourable to a country’s Balance of Payments position, governments had the power to revise them by up to 10% from the initially agreed level (“par value”) without objection by the IMF. The IMF could concur in or object to changes beyond that level. The IMF could not force a member to undo a change, but could deny the member access to the resources of the IMF.
  • All member countries were required to subscribe to the IMF’s capital. Membership in the IBRD was conditioned on being a member of the IMF. Voting in both institutions was apportioned according to formulas giving greater weight to countries contributing more capital (“quotas“).


Encouraging Open Market
  • The seminal idea behind the Bretton Woods Conference was the notion of “open markets”.
  • This meant countries would maintain their national interest, but trade blocs and economic spheres of influence would no longer be their means.
  • The second idea behind the Bretton Woods Conference was joint management of the Western political-economic order, meaning that the foremost industrial democratic nations must lower barriers to tradeand the movement of capital, in addition to their responsibility to govern the system.


Structure of the Conference
  • The conference conducted its major work through three “commissions.”
    • Commission I dealt with the IMF and was chaired by Harry Dexter White
    • Commission II dealt with the IBRD and was chaired by John Maynard Keynes.
    • Commission III dealt with “other means of international financial cooperation” and was chaired by Eduardo Suárez,


Post-World War Monetary Order
  • The need for post-war Western economic order was resolved with the agreements made on monetary orderand open system of trade at the Bretton Woods Conference (1944).
  • These allowed for the synthesis of Britain’s desire for full employment and economic stability and the United States’ desire for free trade.
  • The Bretton Woods system of pegged exchange rates lasted into the early 1970s.


  • The International Monetary Fund, a UN specialised agency, was established under the Bretton Woods Agreement in 1944 along with the World Bank. It has 187 members (2011).
  • It is headquartered in Washington and its Managing Director is Christine Lagarde. It started functioning in 1947.


IMF objectives
  • To promote international monetary cooperation
  • To facilitate balanced growth of international trade for the economic growth of all member countries
  • To promote exchange rate stability; maintain orderly exchange rate arrangements; and to avoid competitive exchange rate revaluation
  • To help members in times of balance of payments crisis.


  • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies- dollar, euro, yen and pound. SDRS can be exchanged for national currencies.
  • SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs.


World Bank Group and World Bank
  • The World Bank Group (WBG) is a family of five international organizations that gives loans, generally to poor and LDC countries. The Bank came into existence in 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary and Financial Conference (1944).
  • It is responsible for the preparation of the “World Development Report”. Commencing operations in 1946, it began operations for post-war reconstruction. Its current role is different as it focuses on lending to and develop the poor countries and help fight poverty in all its facets.
  • The Group’s headquarters are in Washington. It is an international organization owned by member governments; although it makes profits, these profits are used to support continued efforts in poverty escalation.
  • Technically the World Bank is part of the United Nations system, but its governance structure is different: each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries but there are also additional votes which depend on financial contributions to the organization.


Agencies of World Bank
  • International Bank for Reconstruction and Development (IBRD)
  • International Development Association (IDA)
  • International Finance Corporation (IFC)
  • Multilateral Investment Guarantee Agency (MIGA)
  • International Centre for Settlement of Investment Disputes (ICSID)