Tag: Bretton Woods

Late January sees the annual global World Economic Forum meeting of politicians, businesspeople and the great and the good at Davos in Switzerland. Global economic, political, social and environmental issues are discussed and, sometimes, agreements are reached between world leaders. The 2019 meeting was somewhat subdued as worries persist about a global slowdown, Brexit and the trade war between the USA and China. Donald Trump, Xi Jinping, Vladimir Putin and Theresa May were all absent, each having more pressing issues to attend to at home.

There was, however, a feeling that the world economic order is changing, with the rise in populism and with less certainty about the continuance of the model of freer trade and a model of capitalism modified by market intervention. There was also concern about the roles of the three major international institutions set up at the end of World War II: the IMF, the World Bank and the WTO (formerly the GATT). In a key speech, Angela Merkel urged countries not to abandon the world economic order that such institutions help to maintain. The world can only resolve disputes and promote development, she argued, by co-operating and respecting the role of such institutions.

But the role of these institutions has been a topic of controversy for many years and their role has changed somewhat. Originally, the IMF’s role was to support an adjustable peg exchange rate system (the ‘Bretton Woods‘ system) with the US dollar as the international reserve currency. It would lend to countries in balance of payments deficit to allow them to maintain their rate pegged to the dollar unless it was perceived to be a fundamental deficit, in which case they were expected to devalue their currency. The system collapsed in 1971, but the IMF continued to provide short-term, and sometimes longer-term, finance to countries in balance of payments difficulties.

The World Bank was primarily set up to provide development finance to poorer countries. The General Agreement on Tariffs and Trade (GATT) and then the WTO were set up to encourage freer trade and to resolve trade disputes.

However, the institutions were perceived with suspicion by many developing countries and by more left-leaning developed countries, who saw them as part of the ‘Washington consensus’. Loans from the IMF and World Bank were normally contingent on countries pursuing policies of market liberalisation, financial deregulation and privatisation.

Although there has been some movement, especially by the IMF, towards acknowledging market failures and supporting a more broadly-based development, there are still many economists and commentators calling for more radical reform of these institutions. They advocate that the World Bank and IMF should directly support investment – public as well as private – and support the Green New Deal.




  1. What was the Bretton Woods system that was adopted at the end of World War II?
  2. What did Keynes propose as an alternative to the system that was actually adopted?
  3. Explain the roles of (a) the IMF, (b) the World Bank, (c) the WTO (formerly the GATT).
  4. What is meant by an adjustable exchange rate system?
  5. Why did the Bretton Woods system collapse in 1971?
  6. How have the roles of the IMF, World Bank and WTO/GATT evolved since they were founded?
  7. What reforms would you suggest to each of the three institutions and why?
  8. What threats are there currently to the international economic order?
  9. Summarise the arguments about the world economic order made by Angela Merkel in her address to the World Economic Forum.

Ahead of the G20 meeting in Seoul on 11 and 12 November 2010, there has been much debate about exchange rates and the dangers of currency and trade wars. This debate has heated up since the Federal Reserve Bank announced that it was embarking on a second round of quantitative easing: a policy likely to drive down the exchange rate of the US dollar.

Writing in the Financial Times, Robert Zoellick, president of the World Bank, argues that co-ordinated global action needs to be taken to promote economic growth and stability. Amongst other things, this should include using gold as an ‘international reference point’.

“… the G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account.

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

Would this be a return to the adjustable peg system designed at Bretton Woods in 1944 – a system that collapsed in the early 1970s? Zoellick thinks that the world should begin moving back to some sort of Bretton Woods system, with gold as the anchor against which currencies are pegged. Critics argue that this could be dangerously deflationary as the supply of gold is not something that can easily be increased. Read the articles below and consider whether such a move would be a good idea.

Zoellick seeks gold standard debate Financial Times, Alan Beattie (7/11/10)
The G20 must look beyond Bretton Woods Financial Times, Robert Zoellick (7/11/10)
World Bank chief calls for gold to anchor forex AFP on Google hosted news (8/11/10)
In Which Bob Zoellick Makes His Play for the Stupidest Man Alive Crown Grasping Reality with Both Hands blog, J Bradford DeLong (8/11/10)
Return to the Gold Standard would be madness Telegraph, Edmund Conway, (8/11/10)
There is room for debate on a gold standard Financial Times, James Mackintosh (8/11/10)
Private sector should lead gold standard adoption Reuters blogs, Martin Hutchinson (8/11/10)


  1. How did the Bretton Woods system work to correct balance of payments disequilibria?
  2. What was the role of (a) gold and (b) the dollar under the Bretton Woods system?
  3. If countries adopted a pegged exchange rate, what implications would this have for their monetary policy?
  4. Would using gold as a world currency, to which other currencies were pegged, inevitably have a deflationary effect on the world economy?
  5. To what extent is gold currently used as a world currency?
  6. What other measures could the G20 countries adopt to create greater exchange rate stability between the major currencies?
  7. What is the case for the private sector to start using gold in ordinary transactions?

The Mount Washington Hotel in Bretton Woods, New Hampshire was the location for a historically significant meeting in the summer of 1944. John Maynard Keynes was part of the British negotiating team at a meeting to plan the post World War II economic order. As a result of the meeting an adjustable peg system of semi-fixed exchange rates was developed and the International Bank for Reconstruction and Development (IBRD – now part of the World Bank Group) and the International Monetary Fund (IMF) were also born. As a result of this meeting the small rural location of Bretton Woods has moved into the economics lexicon. The institutions born out of this meeting have been subject to considerable criticism in recent years and in the first article linked to below, George Monbiot argues that it is unfair to attach this criticism to Lord Keynes. With a recent meeting of the G20 having been dubbed as Bretton Woods II, the original meeting and its outcomes have been thrown back into the limelight.

Keynes is innocent: the toxic spawn of Bretton Woods was no plan of his Guardian (18/11/08)
How Bretton Woods reshaped the world Guardian (14/11/08)
Shaping the world: Bretton Woods 1944 Guardian (14/11/08)
It takes two Guardian (5/12/08)


  1. Write a short paragraph summarising the outcomes of the Bretton Woods conference in 1944.
  2. Explain the role in the world financial system of (a) the World Bank and (b) the IMF.
  3. Assess the possible validity of the criticisms that have been levelled at the IMF. See particularly the George Monbiot article.
  4. Using diagrams as appropriate, explain how the system of semi-fixed exchange rates negotiated at Bretton Woods worked to maintain economic stability.
  5. Examine the principal reasons for the breakdown of the Bretton Woods system.

The G20 Leaders Summit on Financial Markets and the World Economy took place on November 14–15, 2008, in Washington DC. Many commentators dubbed this meeting ‘Bretton Woods II’. Bretton Woods – Mark I was a meeting in the summer of 1944 that set out the foundations for the post World War II economic order. It set up a system of semi-fixed exchange rates and led to the establishment of the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF). Bretton Woods Mark II was perhaps less historically significant, but the world leaders agreed a plan to boost the world economy through tax cuts, higher public expenditure and lower interest rates; something Lord Keynes, the principal negotiator for the UK at Bretton Woods Mark I, would have wholeheartedly approved of!

G20 to back global tax cuts Times Online (16/11/08)
This week, our leaders have a chance to make the world anew Guardian (9/11/08)
A dangerous free-for-all Guardian (11/11/08)
Bretton Woods II – five key points on the road to a new global financial deal Guardian (14/11/08)
G20 summit: ‘The world economy is broken and they need to reflate’ Guardian (14/11/08) Podcast
Doubts raised over prospects of success for ‘hasty summit’ Guardian (15/11/08)
Our chance for a working regulatory regime Guardian (15/11/08)


  1. Write a short paragraph summarising the outcomes of Bretton Woods II.
  2. Assess the extent to which the fiscal and monetary stimulus agreed by the G20 leaders will be successful at minimising the depth of the global recession.
  3. Discuss the need for regulatory reform of the world financial system (as considered at Bretton Woods II).
  4. The G20 “signalled a determination to press on with the completion of the Doha world trade round”. Assess the extent towhich this is likely to be successful.