This essay will assess the performance of the Bretton Wood system which was first established in 1944 by 730 delegates from all 44 Allied nations who gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, and began an international control of global monetary relations between nations. The essay will show that the system has been relatively successful and contributed towards the development of global free trade amongst nations and helped prevent the kind of economic disasters such as the Great Depression of the 1930s, which was felt to have been one of the causes of World War 11. However, the essay will also argue that criticism of the Bretton Woods as merely the vehicle for US hegemony over the international economy is also justified.
The Bretton Woods System began in 1944 with the United Nations Monetary and Financial Conference, and established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). In the new agreement on the monetary system there was an obligation for each country to adopt economic policies that maintained the exchange rate of its currency within a fixed value�plus or minus one percent�in terms of gold and for the IMF to help support countries suffering temporary imbalances of payments (Markwell, 2006).
The Bretton Woods agreement came near the end of a World War that had devastated the globe and many thought that the war itself was partly a result of the economic policies of the pre-war years. In the 1930s the United States preferred policies of isolationism that led them to demand repayment of Allied war debts from World War 1 and caused countries to independently set economic conditions for global trade that cause deflationary problems that aggravated the decline of world trade, led to mass unemployment and negatively affected the majority of the economies of the developed world. The most serious outcome was the decline in the international flow of capital and the retarding of development of international investment. The War left the main economies aware that peace could only be maintained if countries cooperated and efficiently managed the value and exchange rates of currencies. As Cordell Hull (US Secretary of State) said 'trade dovetailed with peace ...if we could get a freer flow of trade... so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace' (Hull, 1948, p.81)
Keynesian economic theory was now the dominant foundation of most countries economic policy-making and this promoted a greater role for government in trade with national politics based on governments assuming a responsibility towards all their citizens. The War also left countries feeling a clear need for economic cooperation and peace to be maintained through trade and that trade to be structured by an international monetary system based on free markets (Markwell, 2006). However, it was the plan of Harry Dexter White from the US Treasury, rather than Keynes's own plan that was the main framework for the Bretton system, and this showed from the outset that the dominant nation in the system would be the USA, leading to accusations that the Bretton system is little more than an economic vehicle for American hegemony (Strange, 1996)
The first goal of the new approach to global trade was post-war reconstruction of the devastated economies of Europe and Asia. The Bretton Woods system , as the 'first example of a fully negotiated monetary order intended to govern currency relations among sovereign states" (Cohen, 2009, p.1). However, the reality was that Europe and large parts of Asia were in virtual economic collapse due to the World War and the creation of the International Monetary Fund (IMF) needed to also be supported by an International Bank for Reconstruction and Development, now known as the World Bank (WB).The system was designed to regulate 'the par value exchange rates and lend reserve currencies to nations with trade deficits' thus enabling them with international assistance to re-build their economies and later to help finance the poor or developing countries with their reconstruction projects (Stephey, 2008, p.1)
If we examine how nations did recover from the War and the impressive development in the 1950s and 1960s of countries like Germany and Japan, then our assessment of this period of the Bretton Woods, aligned with the Marshal Plan for reconstruction, must agree that Bretton was a positive influence and relatively of some success. The Great Depression in the 1930s was due to the lack of a leading, dominant state to play an hegemonic role in the international economy. In Bretton Woods institutions the US dollar was the dominant currency and became the extension of American hegemony to the international economy (Stephey, 2008, p.2). However, as Susan Strange noted, any multilateral institution might become merely the "instruments of the structural strategy and foreign policy of the dominant state", and for many critics of the IMF and the World Bank, the problem is the dominance through these institutions of the majority of the globes nations by a very few powerful nations led by the US (Strange, 1996).
The IMF is seen as a multilateral institution that lends money to governments to stabilize currencies and maintain order in international financial markets. However, its lending carries stringent loan conditions that many see as contributing to worsening conditions for the majority of citizens in the countries that are least able to compete with the economic might of developed countries (Strange, 1996).
The IMF is supposed to focus on creating 'a stable climate for international trade by harmonising its members' monetary policies, and maintaining exchange stability' (Bretton Woods Project, 2005). It can 'provide temporary financial assistance to countries encountering difficulties with their balance of payments' and it is based on consensual decision-making with the aim of 'helping' countries whose economies are under-developed or in crisis (Bretton Woods Project, 2005). However, to assess the success of this one has to evaluate the degree of 'fairness' in IMF/World Bank strategies and many critics, like Strange (1996) and Mazzei (2007) are highly critical of the true purpose of the Bretton Woods System. For example, Mazzei (2007) finds that it is the 'poor countries that actually finance the World Bank and not the other way around' (p.2). Mazzei notes how 'that for 20 years poor countries have financed the World Bank, while it is rich countries that contribute only 1/4 of total fund' and yet it is them who hold 3/4 of the votes (p.2).
The first major point of concern for the global economy was in 1971 when the US used its power over the global economy through the Bretton Woods system to protect its own interests against those of the rest of the world. The United States unilaterally terminated convertibility of the dollar to gold. The US could now unilaterally control the global economy by insisting that the United States dollar became the sole backing of currencies and a reserve currency for all the member states (Strange, 1996, p.20). This actually led to the virtual collapse of the Bretton Woods System in the 1970s and plunged the world into economic decline while it fought to adjust to the changes brought about by US policies (Strange, 1996; Cohen, 2009, Calleo and Rowland, 1973). The US ended the tying of the Dollar to the Gold Standard and left it and other global currencies to float free. Keynes had originally planned that the world adopt a global currency but it was adoption in 1944 of Dexter White's own plan to make the dominant trading currency of the world the Dollar that had structured the future policies of the IMF/World Bank and allowed the US to have the power to dominate the globes trade.
By the 1970s the US was coming under strong criticism for its unilateral control of global trading. French President Charles De Gaulle 'claimed that the international monetary system allowed the United States to live beyond its means and forced the European surplus countries to finance America's military empire overseas' (Gavin, 2002, p.4). The Bretton Woods system was designed to separate monetary economic policies from power politics, and yet, by the 1970s it had become 'highly politicized and required constant political intervention to keep the system functioning smoothly' (Gavin, 2002, p.5). The faults of the Bretton Woods System were listed by Bordo (1991, p.20) as 'the gold exchange standard, which placed the United States under threat of a convertibility crisis' secondly the problems with the 'adjustable peg, because, in the face of growing capital mobility, the costs of discrete changes in parities were deemed so high, the system evolved into a reluctant fixed exchange rate system without any effective adjustment mechanism' and finally that 'U.S. monetary policy was inappropriate for a key currency'. Thus, the Bretton Woods System collapsed in the 1970s but its basic institution of the IMF and subsequently the World Bank remain as the guiding bodies of the international economy.
The World Bank's task is lending to promote the growth of world trade and to finance the post-war reconstruction of European economies. It is a 'multilateral institution that lends money to governments and government agencies for development projects'. However, the Bank also imposes harsh conditions through Structural Adjustment Programs, forcing countries to adopt reforms, deregulate capital markets, promote privatisation of state enterprises, and downsize public programs for social welfare. This results in policies such as privatisation of utility suppliers, bringing in fees and privatisation of education and health services. For its critics the World Bank and IMF have become the contributors to the persistence of world poverty rather than vanguard for preventing it and represent not the interests of the global society but rather the interests of Wall Street and the United States Treasury Department (Strange 1996, Cohen, 2009, Markwell, 2006)
In contrast, the supporters of the World Bank insist that the Bank is an institution in which the rich developed countries can serve to improve the global economy and the 'capacity of countries to trade by lending money to war-ravaged and impoverished countries for reconstruction and development projects' (www.imf.org).
Thus, in assessing the success of the Bretton Woods System and its subsequent trading organisations such as the IMF and the World Bank, one can see a very different analysis depending on your political affiliation. Rather than separate power politics from global trading, the System has become directly linked to the fortunes and hegemony of the US. Its record in helping a devastated globe recover from the affects of World War 11 is very good and the global economy has grown over each decade. However, its critics still see it as chiefly dominated by the US and its allies and whilst it continues to support the growth of trade its image as a vehicle mainly for the US retards how well its future role in the global economy will be judged by the growing economic powers of countries like China and India.
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