The Global Economy in Turbulent Times

CHAPTER 64 In Search of Gold at Bretton Woods: Lust for Gold Not Paying Off¹

Bretton Woods, New Hampshire, USA—that’s where it all began in July 1944, where 730 delegates from 44 nations gathered to conclude the final Articles of Agreement of the International Monetary Conference (IMC). It established the new international monetary system, tying the value of countries’ currencies to the US dollar, which was convertible into gold at a fixed price (US$35 per troy ounce). The United States then held 70 percent of the world’s gold. The IMC also set up: (1) the International Monetary Fund (IMF) to administer this gold-anchored monetary system of fixed exchange rates among currencies; and (2) the International Bank for Reconstruction and Development (IRBD or World Bank) to provide long-term loans, especially to underdeveloped countries.

Ironically, the IMF should have been called a bank (because it lends short-term “working capital” to nations with temporary payments deficits to enable them to adjust), whereas the World Bank should have been called a fund (since it makes long-term loans up to 30 years to assist nations to build physical and social infrastructure). It is said that the IMC was more important than the Treaty of Versailles, which ended World War I, but crippled the German economy. This time it established the economic base, which led to global prosperity after World War II—rebuilt the German economy and stabilized Europe for the first time in centuries (through the massive ...