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Bretton Woods system

2007 Schools Wikipedia Selection. Related subjects: Economics

   The Bretton Woods system of international monetary management
   established the rules for commercial and financial relations among the
   world's major industrial states. The Bretton Woods system was the first
   example of a fully negotiated monetary order intended to govern
   monetary relations among independent nation-states.

   Preparing to rebuild the international economic system as World War II
   was still raging, 730 delegates from all 44 Allied nations gathered at
   the Mount Washington Hotel in Bretton Woods, New Hampshire for the
   United Nations Monetary and Financial Conference. The delegates
   deliberated upon and signed the Bretton Woods Agreements during the
   first three weeks of July 1944.

   Setting up a system of rules, institutions, and procedures to regulate
   the international monetary system, the planners at Bretton Woods
   established the International Bank for Reconstruction and Development
   (IBRD) (now one of five institutions in the World Bank Group) and the
   International Monetary Fund (IMF). These organizations became
   operational in 1946 after a sufficient number of countries had ratified
   the agreement.

   The chief features of the Bretton Woods system were an obligation for
   each country to adopt a monetary policy that maintained the exchange
   rate of its currency within a fixed value—plus or minus one percent—in
   terms of gold; and the ability of the IMF to bridge temporary
   imbalances of payments. In the face of increasing strain, the system
   collapsed in 1971, following the United States' suspension of
   convertibility from dollars to gold.

   Until the early 1970s, the Bretton Woods system was effective in
   controlling conflict and in achieving the common goals of the leading
   states that had created it, especially the United States.

Origins

   The political bases for the Bretton Woods system are in the confluence
   of several key conditions: the shared experiences of the Great
   Depression, the concentration of power in a small number of states, and
   the presence of a dominant power willing and able to assume a
   leadership role in global monetary affairs.

The Great Depression

   A high level of agreement among the powerful on the goals and means of
   international economic management facilitated the decisions reached by
   the Bretton Woods Conference. The foundation of that agreement was a
   shared belief in capitalism. Although the developed countries'
   governments differed somewhat in the type of capitalism they preferred
   for their national economies (France, for example, preferred greater
   planning and state intervention, whereas the United States favored
   relatively limited state intervention), all relied primarily on market
   mechanisms and on private ownership.

   Thus, it is their similarities rather than their differences that
   appear most striking. All the participating governments at Bretton
   Woods agreed that the monetary chaos of the interwar period had yielded
   several valuable lessons.

   The experience of the Great Depression, when proliferation of foreign
   exchange controls and trade barriers led to economic disaster, was
   fresh on the minds of public officials. The planners at Bretton Woods
   hoped to avoid a repeat of the debacle of the 1930s, when foreign
   exchange controls undermined the international payments system that was
   the basis for world trade. The "beggar thy neighbour" policies of 1930s
   governments—using currency devaluations to increase the competitiveness
   of a country's export products in order to reduce balance of payments
   deficits—worsened national deflationary spirals, which resulted in
   plummeting national incomes, shrinking demand, mass unemployment, and
   an overall decline in world trade. Trade in the 1930s became largely
   restricted to currency blocs (groups of nations that use an equivalent
   currency, such as the " Sterling Area" of the British Empire). These
   blocs retarded the international flow of capital and foreign investment
   opportunities. Although this strategy tended to increase government
   revenues in the short run, it dramatically worsened the situation in
   the medium and longer run.

   Thus, for the international economy, planners at Bretton Woods all
   favored a liberal system, one that relied primarily on the market with
   the minimum of barriers to the flow of private trade and capital.
   Although they disagreed on the specific implementation of this liberal
   system, all agreed on an open system.

“Economic security”

   Cordell Hull
   Enlarge
   Cordell Hull

   Also based on experience of interwar years, U.S. planners developed a
   concept of economic security—that a liberal international economic
   system would enhance the possibilities of postwar peace. One of those
   who saw such a security link was Cordell Hull, the U.S. secretary of
   state from 1933 to 1944. Hull believed that the fundamental causes of
   the two world wars lay in economic discrimination and trade warfare.
   Specifically, he had in mind the trade and exchange controls (bilateral
   arrangements) of Nazi Germany and the imperial preference system
   practiced by Britain (by which members or former members of the British
   Empire were accorded special trade status). Hull argued


   Bretton Woods system

   [U]nhampered trade dovetailed with peace; high tariffs, trade barriers,
   and unfair economic competition, with war…if we could get a freer flow
         of trade…freer in the sense of fewer discriminations and
  obstructions…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.


   Bretton Woods system

The rise of governmental intervention

   The developed countries also agreed that the liberal international
   economic system required governmental intervention. In the aftermath of
   the Great Depression, public management of the economy had emerged as a
   primary activity of governments in the developed states. Employment,
   stability, and growth were now important subjects of public policy. In
   turn, the role of government in the national economy had become
   associated with the assumption by the state of the responsibility for
   assuring of its citizens a degree of economic well-being. The welfare
   state grew out of the Great Depression, which created a popular demand
   for governmental intervention in the economy, and out of the
   theoretical contributions of the Keynesian school of economics, which
   asserted the need for governmental intervention to maintain an adequate
   level of employment.

   At the international level, these ideas evolved from the experience of
   the 1930s. The priority of national goals, independent national action
   in the interwar period, and the failure to perceive that those national
   goals could not be realized without some form of international
   collaboration resulted in “beggar-thy-neighbour” policies such as high
   tariffs and competitive devaluations which contributed to economic
   breakdown, domestic political instability, and international war. The
   lesson learned was that, as New Dealer Harry Dexter White, the
   principal architect of the Bretton Woods system, put it:


   Bretton Woods system

      the absence of a high degree of economic collaboration among the
  leading nations will…inevitably result in economic warfare that will be
    but the prelude and instigator of military warfare on an even vaster
                                   scale.


   Bretton Woods system

   To ensure economic stability and political peace, states agreed to
   cooperate to regulate the international economic system. The pillar of
   the U.S. vision of the postwar world was free trade. Free trade
   involved lowering tariffs and among other things a balance of trade
   favorable to the capitalist system.

   Thus, the more developed market economies agreed with the U.S. vision
   of postwar international economic management, which was to be designed
   to create and maintain an effective international monetary system and
   foster the reduction of barriers to trade and capital flows.

The rise of U.S. hegemony

   International economic management relied on the dominant power, the
   United States, to lead the system. The concentration of power
   facilitated management by confining the number of actors whose
   agreement was necessary to establish rules, institutions, and
   procedures and to carry out management within the agreed system.

   The United States had emerged from the Second World War with the
   strongest economy, experiencing rapid industrial growth and capital
   accumulation. The U.S. had remained untouched by the ravages of World
   War II and had built a thriving manufacturing industry and grown
   wealthy selling weapons and lending money to the other combatants; in
   fact, U.S. industrial production in 1945 was more than double that of
   annual production between the prewar years of 1935 and 1939. In
   contrast, Europe and East Asia were militarily and economically
   shattered.

   As the Bretton Woods Conference convened, the relative advantages of
   the U.S. economy were undeniable. The U.S. held a majority of
   investment capital, manufacturing production and exports. In 1945, the
   U.S. produced half the world's coal, two-thirds of the oil, and more
   than half of the electricity. The U.S. was able to produce great
   quantities of machinery, including ships, airplanes, vehicles,
   armaments, machine tools, and chemicals. Reinforcing the initial
   advantage—and assuring the U.S. unmistakable leadership in the
   capitalist world—the U.S. held 80% of gold reserves and had not only a
   powerful army but also the atomic bomb.

   The U.S. stood to gain more than any other country from the opening of
   the entire world to unfettered trade. The U.S. would have a global
   market for its exports, and it would have unrestricted access to vital
   raw materials. In addition, U.S. capitalism could not survive without
   markets and allies. William Clayton, the assistant secretary of state
   for economic affairs, was among myriad U.S. policymakers who summed up
   this point: "We need markets—big markets—around the world in which to
   buy and sell".

   There had been many predictions that peace would bring a return of
   depression and unemployment, as war production ceased and returning
   soldiers flooded the labor market. Compounding the economic
   difficulties was a sharp rise in labor unrest. Determined to avoid
   another economic catastrophe like that of the 1930s, U.S. President
   Franklin D. Roosevelt saw the creation of the postwar order as a way to
   ensure continuing U.S. prosperity.

The Atlantic Charter

   Roosevelt and Churchill during their secret meeting of August 9 –
   August 12, 1941 in Newfoundland that resulted in the Atlantic Charter,
   which the U.S. and Britain officially announced two days later.
   Enlarge
   Roosevelt and Churchill during their secret meeting of August 9 –
   August 12, 1941 in Newfoundland that resulted in the Atlantic Charter,
   which the U.S. and Britain officially announced two days later.

   Throughout the war, the United States envisaged a postwar economic
   order in which the U.S. could penetrate markets that had been
   previously closed to other currency trading blocs, as well as to expand
   opportunities for foreign investments for U.S. corporations by removing
   restrictions on the international flow of capital.

   The Atlantic Charter, drafted during U.S. President Roosevelt's August
   1941 meeting with British Prime Minister Winston Churchill on a ship in
   the North Atlantic, was the most notable precursor to the Bretton Woods
   Conference. Like Woodrow Wilson before him, whose " Fourteen Points"
   had outlined U.S. aims in the aftermath of the First World War,
   Roosevelt set forth a range of ambitious goals for the postwar world
   even before the U.S. had entered the Second World War. The Atlantic
   Charter affirmed the right of all nations to equal access to trade and
   raw materials. Moreover, the charter called for freedom of the seas (a
   principal U.S. foreign policy aim since France and Britain had first
   threatened U.S. shipping in the 1790s), the disarmament of aggressors,
   and the "establishment of a wider and permanent system of general
   security."

   As the war drew to a close, the Bretton Woods conference was the
   culmination of some two and a half years of planning for postwar
   reconstruction by the Treasuries of the U.S. and the UK. U.S.
   representatives studied with their British counterparts the
   reconstitution of what had been lacking between the two world wars: a
   system of international payments that would allow trade to be conducted
   without fear of sudden currency depreciation or wild fluctuations in
   exchange rates—ailments that had nearly paralyzed world capitalism
   during the Great Depression.

   Without a strong European market for U.S. goods and services, most
   policymakers believed, the U.S. economy would be unable to sustain the
   prosperity it had achieved during the war. In addition, U.S. unions had
   only grudgingly accepted government-imposed restraints on their demand
   during the war, but they were willing to wait no longer, particularly
   as inflation cut into the existing wage scales with painful force. (By
   the end of 1945, there had already been major strikes in the
   automobile, electrical, and steel industries.)

   Financier and self-appointed adviser to presidents and congressmen,
   Bernard Baruch, summed up the spirit of Bretton Woods in early 1945: if
   we can "stop subsidization of labor and sweated competition in the
   export markets," as well as prevent rebuilding of war machines, "oh
   boy, oh boy, what long term prosperity we will have." Thus, the United
   States would use its predominant position to restore an open world
   economy, unified under U.S. control, which gave all nations unhindered
   access to markets and raw materials.

Wartime devastation of Europe and East Asia

   Furthermore, U.S. allies—economically exhausted by the war—accepted
   this leadership. They needed U.S. assistance to rebuild their domestic
   production and to finance their international trade; indeed, they
   needed it to survive.

   Before the war, the French and the British were realizing that they
   could no longer compete with U.S. industry in an open marketplace.
   During the 1930s, the British had created their own economic bloc to
   shut out U.S. goods. Churchill did not believe that he could surrender
   that protection after the war, so he watered down the Atlantic
   Charter's "free access" clause before agreeing to it.

   Yet, U.S. officials were determined to break open the empire. Combined,
   British and U.S. trade accounted for well over half the world's
   exchange of goods. If the British bloc could be split apart, the U.S.
   would be well on its way to opening the entire global marketplace. But
   as the 19th century had been economically dominated by Britain, the
   second half of the 20th was to be one of U.S. hegemony.

   A devastated Britain had little choice. Two world wars had destroyed
   the country's principal industries that paid for the importation of
   half the nation's food and nearly all its raw materials except coal.
   The British had no choice but to ask for aid. In 1945, the U.S. agreed
   to a loan of $3.8 billion. In return, weary British officials promised
   to negotiate the agreement.

   For nearly two centuries, French and U.S. interests had clashed in both
   the Old World and the New World. During the war, French mistrust of the
   United States was embodied by General Charles de Gaulle, president of
   the French provisional government. De Gaulle bitterly fought U.S.
   officials as he tried to maintain his country's colonies and diplomatic
   freedom of action. In turn, U.S. officials saw de Gaulle as a political
   extremist.

   But in 1945 de Gaulle—the leading voice of French nationalism—was
   forced to grudgingly ask the U.S. for a billion-dollar loan. Most of
   the request was granted; in return France promised to curtail
   government subsidies and currency manipulation that had given its
   exporters advantages in the world market.

   On a far more profound level, as the Bretton Woods conference was
   convening, the greater part of the Third World remained politically and
   economically subordinate. Linked to the developed countries of the West
   economically and politically—formally and informally—these states had
   little choice but to acquiesce to the international economic system
   established for them. In the East, Soviet hegemony in Eastern Europe
   provided the foundation for a separate international economic system.

   In short, the confluence of these three political conditions—the
   concentration of power, the cluster of shared interests and ideas, and
   the hegemony of the United States—provided the political capability to
   equal the task of managing the international economy.

Design

   Free trade relied on the free convertibility of currencies. Negotiators
   at the Bretton Woods conference, fresh from what they perceived as a
   disastrous experience with floating rates in the 1930s, concluded that
   major monetary fluctuations could stall the free flow of trade.

   The liberal economic system required an accepted vehicle for
   investment, trade, and payments. Unlike national economies, however,
   the international economy lacks a central government that can issue
   currency and manage its use. In the past this problem had been solved
   through the gold standard, but the architects of Bretton Woods did not
   consider this option feasible for the postwar political economy.
   Instead, they set up a system of fixed exchange rates managed by a
   series of newly created international institutions using the U.S.
   dollar (which was a gold standard currency for central banks) as a
   reserve currency.

Informal regimes

Previous regimes

   In the 19th and early 20th centuries gold played a key role in
   international monetary transactions. The gold standard was used to back
   currencies; the international value of currency was determined by its
   fixed relationship to gold; gold was used to settle international
   accounts. The gold standard maintained fixed exchange rates that were
   seen as desirable because they reduced the risk of trading with other
   countries.

   Imbalances in international trade were theoretically rectified
   automatically by the gold standard. A country with a deficit would have
   depleted gold reserves and would thus have to reduce its money supply.
   The resulting fall in demand would reduce imports and the lowering of
   prices would boost exports; thus the deficit would be rectified. Any
   country experiencing inflation would lose gold and therefore would have
   a decrease in the amount of money available to spend. This decrease in
   the amount of money would act to reduce the inflationary pressure.
   Supplementing the use of gold in this period was the British pound.
   Based on the dominant British economy, the pound became a reserve,
   transaction, and intervention currency. But the pound was not up to the
   challenge of serving as the primary world currency, given the weakness
   of the British economy after the Second World War.

   The architects of Bretton Woods had conceived of a system wherein
   exchange rate stability was a prime goal. Yet, in an era of more
   activist economic policy, governments did not seriously consider
   permanently fixed rates on the model of the classical gold standard of
   the nineteenth century. Gold production was not even sufficient to meet
   the demands of growing international trade and investment. And a
   sizable share of the world's known gold reserves were located in the
   Soviet Union, which would later emerge as a Cold War rival to the
   United States and Western Europe.

   The only currency strong enough to meet the rising demands for
   international liquidity was the US dollar. The strength of the US
   economy, the fixed relationship of the dollar to gold ($35 an ounce),
   and the commitment of the U.S. government to convert dollars into gold
   at that price made the dollar as good as gold. In fact, the dollar was
   even better than gold: it earned interest and it was more flexible than
   gold.

The Bretton Woods system of fixed exchange rates

   The Bretton Woods system sought to secure the advantages of the gold
   standard without its disadvantages. Thus, a compromise was sought
   between the polar alternatives of either freely floating or irrevocably
   fixed rates—an arrangement that might gain the advantages of both
   without suffering the disadvantages of either while retaining the right
   to revise currency values on occasion as circumstances warranted.

   The rules of Bretton Woods, set forth in the articles of agreement of
   the International Monetary Fund (IMF) and the International Bank for
   Reconstruction and Development (IBRD), provided for a system of fixed
   exchange rates. The rules further sought to encourage an open system by
   committing members to the convertibility of their respective currencies
   into other currencies and to free trade.

The "pegged rate" or "par value" currency regime

   What emerged was the " pegged rate" currency regime. Members were
   required to establish a parity of their national currencies in terms of
   gold (a "peg") and to maintain exchange rates within plus or minus 1%
   of parity (a "band") by intervening in their foreign exchange markets
   (that is, buying or selling foreign money).

The "reserve currency"

   In practice, however, since the principal "Reserve currency" would be
   the U.S. dollar, this meant that other countries would peg their
   currencies to the U.S. dollar, and—once convertibility was
   restored—would buy and sell U.S. dollars to keep market exchange rates
   within plus or minus 1% of parity. Thus, the U.S. dollar took over the
   role that gold had played under the gold standard in the international
   financial system.

   Meanwhile, in order to bolster faith in the dollar, the U.S. agreed
   separately to link the dollar to gold at the rate of $35 per ounce of
   gold. At this rate, foreign governments and central banks were able to
   exchange dollars for gold. Bretton Woods established a system of
   payments based on the dollar, in which all currencies were defined in
   relation to the dollar, itself convertible into gold, and above all,
   "as good as gold." The U.S. currency was now effectively the world
   currency, the standard to which every other currency was pegged. As the
   world's key currency, most international transactions were denominated
   in dollars.

   The U.S. dollar was the currency with the most purchasing power and it
   was the only currency that was backed by gold. Additionally, all
   European nations that had been involved in World War II were highly in
   debt and transferred large amounts of gold into the United States, a
   fact that contributed to the supremacy of the United States. Thus, the
   U.S. dollar was strongly appreciated in the rest of the world and
   therefore became the key currency of the Bretton Woods system.

   Member countries could only change their par value with IMF approval,
   which was contingent on IMF determination that its balance of payments
   was in a "fundamental disequilibrium."

Formal regimes

   The Bretton Woods Conference led to the establishment of the IMF and
   the IBRD (now the World Bank), which still remain powerful forces in
   the world economy.

   As mentioned, a major point of common ground at the Conference was the
   goal to avoid a recurrence of the closed markets and economic warfare
   that had characterized the 1930s. Thus, negotiators at Bretton Woods
   also agreed that there was a need for an institutional forum for
   international cooperation on monetary matters. Already in 1944 the
   British economist John Maynard Keynes emphasized "the importance of
   rule-based regimes to stabilize business expectations"—something he
   accepted in the Bretton Woods system of fixed exchange rates. Currency
   troubles in the interwar years, it was felt, had been greatly
   exacerbated by the absence of any established procedure or machinery
   for intergovernmental consultation.

   As a result of the establishment of agreed upon structures and rules of
   international economic interaction, conflict over economic issues was
   minimized, and the significance of the economic aspect of international
   relations seemed to recede.

The International Monetary Fund

   Officially established on December 27, 1945, when the 29 participating
   countries at the conference of Bretton Woods signed its Articles of
   Agreement, the IMF was to be the keeper of the rules and the main
   instrument of public international management. The Fund commenced its
   financial operations on March 1, 1947. IMF approval was necessary for
   any change in exchange rates. It advised countries on policies
   affecting the monetary system.

Designing the IMF

   The big question at the Bretton Woods conference with respect to the
   institution that would emerge as the IMF was the issue of future access
   to international liquidity and whether that source should be akin to a
   world central bank able to create new reserves at will or a more
   limited borrowing mechanism.
   Harry Dexter White (left) and John Maynard Keynes (right) at the
   Bretton Woods Conference
   Enlarge
   Harry Dexter White (left) and John Maynard Keynes (right) at the
   Bretton Woods Conference

   Although attended by 44 nations, discussions at the conference were
   dominated by two rival plans developed by the U.S. and Britain. As the
   chief international economist at the U.S. Treasury in 1942–44, Harry
   Dexter White drafted the U.S. blueprint for international access to
   liquidity, which competed with the plan drafted for the British
   Treasury by Keynes. Overall, White's scheme tended to favour incentives
   designed to create price stability within the world's economies, while
   Keynes' wanted a system that encouraged economic growth.

   At the time, gaps between the White and Keynes plans seemed enormous.
   Outlining the difficulty of creating a system that every nation could
   accept in his speech at the closing plenary session of the Bretton
   Woods conference on July 22, 1944, Keynes stated:


   Bretton Woods system

    We, the delegates of this Conference, Mr. President, have been trying
   to accomplish something very difficult to accomplish.[...] It has been
     our task to find a common measure, a common standard, a common rule
                 acceptable to each and not irksome to any.


   Bretton Woods system

   Keynes' proposals would have established a world reserve currency
   (which he thought might be called " bancor") administered by a central
   bank vested with the possibility of creating money and with the
   authority to take actions on a much larger scale (understandable
   considering deflationary problems in Britain at the time).

   In case of balance of payments imbalances, Keynes recommended that both
   debtors and creditors should change their policies. As outlined by
   Keynes, countries with payment surpluses should increase their imports
   from the deficit countries and thereby create a foreign trade
   equilibrium. Thus, Keynes was sensitive to the problem that placing too
   much of the burden on the deficit country would be deflationary.

   But the U.S., as a likely creditor nation, and eager to take on the
   role of the world's economic powerhouse, balked at Keynes' plan and did
   not pay serious attention to it. The U.S. contingent was too concerned
   about inflationary pressures in the postwar economy, and White saw an
   imbalance as a problem only of the deficit country.

   Although compromise was reached on some points, because of the
   overwhelming economic and military power of the U.S., the participants
   at Bretton Woods largely agreed on White's plan. As a result, the IMF
   was born with an economic approach and political ideology that stressed
   controlling inflation and introducing austerity plans over fighting
   poverty. This left the IMF severely detached from the realities of
   Third World countries struggling with underdevelopment from the onset.

Subscriptions and quotas

   What emerged largely reflected U.S. preferences: a system of
   subscriptions and quotas embedded in the IMF, which itself was to be no
   more than a fixed pool of national currencies and gold subscribed by
   each country as opposed to a world central bank capable of creating
   money. The Fund was charged with managing various nations' trade
   deficits so that they would not produce currency devaluations that
   would trigger a decline in imports.

   The IMF was provided with a fund, composed of contributions of member
   countries in gold and their own currencies. The original quotas planned
   were to total $8.8 billion. When joining the IMF, members were assigned
   " quotas" reflecting their relative economic power, and, as a sort of
   credit deposit, were obliged to pay a "subscription" of an amount
   commensurate to the quota. The subscription was to be paid 25% in gold
   or currency convertible into gold (effectively the dollar, which was
   the only currency then still directly gold convertible for central
   banks) and 75% in the member's own currency.

   Quota subscriptions were to form the largest source of money at the
   IMF's disposal. The IMF set out to use this money to grant loans to
   member countries with financial difficulties. Each member was then
   entitled to withdraw 25% of its quota immediately in case of payment
   problems. If this sum was insufficient, each nation in the system was
   also able to request loans for foreign currency.

Financing trade deficits

   In the event of a deficit in the current account, Fund members, when
   short of reserves, would be able to borrow needed foreign currency from
   this fund in amounts determined by the size of its quota. In other
   words, the higher the country's contribution was, the higher the sum of
   money it could borrow from the IMF.

   Members were required to pay back debts within a period of 18 months to
   five years. In turn, the IMF embarked on setting up rules and
   procedures to keep a country from going too deeply into debt, year
   after year. The Fund would exercise "surveillance" over other economies
   for the U.S. Treasury, in return for its loans to prop up national
   currencies.

   IMF loans were not comparable to loans issued by a conventional credit
   institution. Instead, it was effectively a chance to purchase a foreign
   currency with gold or the member's national currency.

   The U.S.-backed IMF plan sought to end restrictions on the transfer of
   goods and services from one country to another, eliminate currency
   blocs and lift currency exchange controls.

   The IMF was designed to advance credits to countries with balance of
   payments deficits. Short-run balance of payment difficulties would be
   overcome by IMF loans, which would facilitate stable currency exchange
   rates. This flexibility meant that member states would not have to
   induce a depression automatically in order to cut its national income
   down to such a low level that its imports will finally fall within its
   means. Thus, countries were to be spared the need to resort to the
   classical medicine of deflating themselves into drastic unemployment
   when faced with chronic balance of payments deficits. Before the Second
   World War, European nations often resorted to this, particularly
   Britain.

   Moreover, the planners at Bretton Woods hoped that this would reduce
   the temptation of cash-poor nations to reduce capital outflow by
   restricting imports. In effect, the IMF extended Keynesian
   measures—government intervention to prop up demand and avoid
   recession—to protect the U.S. and the stronger economies from
   disruptions of international trade and growth.

Changing the par value

   The IMF sought to provide for occasional discontinuous exchange-rate
   adjustments (changing a member's par value) by international agreement
   with the IMF. Member nations were permitted first to depreciate (or
   appreciate in opposite situations) their currencies by 10%. This tends
   to restore equilibrium in its trade by expanding its exports and
   contracting imports. This would be allowed only if there was what was
   called a "fundamental disequilibrium." A decrease in the value of the
   country's money was called a "devaluation" while an increase in the
   value of the country's money was called a " revaluation".

   It was envisioned that these changes in exchange rates would be quite
   rare. Regrettably the notion of fundamental disequilibrium, though key
   to the operation of the par value system, was never spelled out in any
   detail—an omission that would eventually come back to haunt the regime
   in later years.

IMF operations

   Never before had international monetary cooperation been attempted on a
   permanent institutional basis. Even more groundbreaking was the
   decision to allocate voting rights among governments not on a
   one-state, one-vote basis but rather in proportion to quotas. Since the
   U.S. was contributing the most, U.S. leadership was the key
   implication. Under the system of weighted voting the U.S. was able to
   exert a preponderant influence on the IMF. With one-third of all IMF
   quotas at the outset, enough to veto all changes to the IMF Charter on
   its own.

   In addition, the IMF was based in Washington, D.C., and staffed mainly
   by its economists. It regularly exchanged personnel with the U.S.
   Treasury. When the IMF began operations in 1946, President Harry S.
   Truman named White as its first U.S. Executive Director. Since no
   Deputy Managing Director post had yet been created, White served
   occasionally as Acting Managing Director and generally played a highly
   influential role during the IMF's first year.

The International Bank for Reconstruction and Development

   No provision was made for international creation of reserves. New gold
   production was assumed sufficient. In the event of structural
   disequilibria, it was expected that there would be national solutions—a
   change in the value of the currency or an improvement by other means of
   a country's competitive position. Few means were given to the IMF,
   however, to encourage such national solutions.

   It had been recognized in 1944 that the new system could come into
   being only after a return to normalcy following the disruption of World
   War II. It was expected that after a brief transition period — expected
   to be no more than five years — the international economy would recover
   and the system would enter into operation.

   To promote the growth of world trade and to finance the postwar
   reconstruction of Europe, the planners at Bretton Woods created another
   institution, the International Bank for Reconstruction and Development
   (IBRD) — now the most important agency of the World Bank Group. The
   IBRD had an authorized capitalization of $10 billion and was expected
   to make loans of its own funds to underwrite private loans and to issue
   securities to raise new funds to make possible a speedy postwar
   recovery. The IBRD was to be a specialized agency of the United Nations
   charged with making loans for economic development purposes.

Readjusting the Bretton Woods system

The dollar shortages and the Marshall Plan

   The Bretton Wood arrangements were largely adhered to and ratified by
   the participating governments. It was expected that national monetary
   reserves, supplemented with necessary IMF credits, would finance any
   temporary balance of payments disequilibria. But this did not however
   prove sufficient to get Europe out of the doldrums.

   Postwar world capitalism suffered from a huge dollar shortage. The
   United States was running huge balance of trade surpluses, and the U.S.
   reserves were immense and growing. It was necessary to reverse this
   flow. Dollars had to leave the United States and become available for
   international use. In other words, the United States would have to
   reverse the natural economic processes and run a balance of payments
   deficit.

   The modest credit facilities of the IMF were clearly insufficient to
   deal with Western Europe's huge balance of payments deficits. The
   problem was further aggravated by the reaffirmation by the IMF Board of
   Governors in the provision in the Bretton Woods Articles of Agreement
   that the IMF could make loans only for current account deficits and not
   for capital and reconstruction purposes. Only the United States
   contribution of $570 million was actually available for IBRD lending.
   In addition, because the only available market for IBRD bonds was the
   conservative Wall Street banking market, the IBRD was forced to adopt a
   conservative lending policy, granting loans only when repayment was
   assured. Given these problems, by 1947 the IMF and the IBRD themselves
   were admitting that they could not deal with the international monetary
   system's economic problems.

   Thus, the much looser Marshall Plan—the European Recovery Program—was
   set up to provide U.S. finance to rebuild Europe largely through grants
   rather than loans. The Marshall Plan was the program of massive
   economic aid given by the United States to favored countries in Western
   Europe for the rebuilding of capitalism. In a speech to Congress on
   June 5, 1946, U.S. Secretary of State George Marshall stated:


   Bretton Woods system

    The breakdown of the business structure of Europe during the war was
   complete. …Europe's requirements for the next three or four years of
   foreign food and other essential products… principally from the United
   States… are so much greater than her present ability to pay that she
      must have substantial help or face economic, social and political
                  deterioration of a very grave character.


   Bretton Woods system

   From 1947 until 1958, the U.S. deliberately encouraged an outflow of
   dollars, and, from 1950 on, the United States ran a balance of payments
   deficit with the intent of providing liquidity for the international
   economy. Dollars flowed out through various U.S. aid programs: the
   Truman Doctrine entailing aid to the pro-U.S. Greek and Turkish
   regimes, which were struggling to suppress socialist revolution, aid to
   various pro-U.S. regimes in the Third World, and most important, the
   Marshall Plan. From 1948 to 1954 the United States gave 16 Western
   European countries $17 billion in grants.

   To encourage long-term adjustment, the United States promoted European
   and Japanese trade competitiveness. Policies for economic controls on
   the defeated former Axis countries were scrapped. Aid to Europe and
   Japan was designed to rebuild productive and export capacity. In the
   long run it was expected that such European and Japanese recovery would
   benefit the United States by widening markets for U.S. exports, and
   providing locations for U.S. capital expansion.

   In 1956, the World Bank created the International Finance Corporation
   and in 1960 it created the International Development Association (IDA).
   Both have been controversial. Critics of the IDA argue that it was
   designed to head off a broader based system headed by the United
   Nations, and that the IDA lends without consideration for the
   effectiveness of the program. Critics also point out that the pressure
   to keep developing economies "open" has lead to their having
   difficulties obtaining funds through ordinary channels, and a continual
   cycle of asset buy up by foreign investors and capital flight by
   locals. Defenders of the IDA pointed to its ability to make large loans
   for agricultural programs which aided the " Green Revolution" of the
   1960s, and its functioning to stabilize and occasionally subsidize
   Third World governments, particularly in Latin America.

   Bretton Woods, then, created a system of triangular trade: the United
   States would use the convertible financial system to trade at a
   tremendous profit with developing nations, expanding industry and
   acquiring raw materials. It would use this surplus to send dollars to
   Europe, which would then be used to rebuild their economies, and make
   the United States the market for their products. This would allow the
   other industrialized nations to purchase products from the Third World,
   which reinforced the American role as the guarantor of stability. When
   this triangle became destabilized, Bretton Woods entered a period of
   crisis which lead ultimately to its collapse.

Bretton Woods and the Cold War

   In 1945, Roosevelt and Churchill prepared the postwar era by
   negotiating with Joseph Stalin at Yalta about respective zones of
   influence; this same year U.S. and Soviet troops divided Germany into
   occupation zones and confronted one another in Korea.

   Harry Dexter White succeeded in getting the Soviet Union to participate
   in the Bretton Woods conference in 1944, but his goal was frustrated
   when the Soviet Union would not join the IMF. In the past, the reasons
   why the Soviet Union chose not to subscribe to the articles by December
   1945 have been the subject of speculation. But since the release of
   relevant Soviet archives, it is now clear that the Soviet calculation
   was based on the behaviour of the parties that had actually expressed
   their assent to the Bretton Woods Agreements. The extended debates
   about ratification that had taken place both in the UK and the U.S.
   were read in Moscow as evidence of the quick disintegration of the
   wartime alliance.

   Facing the Soviet Union, whose power had also strengthened and whose
   territorial influence had expanded, the U.S. assumed the role of leader
   of the capitalist camp. The rise of the postwar U.S. as the world's
   leading industrial, monetary, and military power was rooted in the
   impact of the U.S. military victory, in the instability of the national
   states in postwar Europe, and the wartime devastation of the Soviet
   economy.

   Thus, American power had to be used to rebuild U.S.-friendly regimes
   and free market capitalism, especially in Europe, and prevent
   Soviet-backed regimes from spreading across the war-torn countries of
   Europe. The conflict, however, was that European nations, which still
   nominally held large colonial possessions overseas, could not
   simultaneously rebuild their own economies, and hold on to their
   colonial empires. The fiscal discipline imposed by Bretton Woods made
   the U.S. the only nation that could afford large-scale foreign
   deployments within the Western alliance. Over the course of the late
   1940s and early 1950s, the United Kingdom and France were gradually
   forced to accept abandoning colonial outposts, which would in the late
   1950s and early 1960s, lead to revolt and finally independence for most
   of their empires.

   The price paid for this position—especially in the Cold War climate—was
   the militarization of the U.S. economy, what U.S. President Dwight D.
   Eisenhower called the "armament industry" and "the military-industrial
   complex," and the related notion that the U.S. should assume a
   protective role in what was referred to as "the free world." Looking
   back at the origins of the Cold War, in a paper that Harry Dexter White
   was writing at the time of his death, he lamented the "tensions between
   certain of the major powers" that had brought "almost catastrophic"
   consequences, including an "acute lack of confidence in continued
   political stability and the crippling fear of war on a scale
   unprecedented and almost unimaginable in its destructive
   potentialities."

   Despite the economic effort imposed by such a policy, being at the
   centre of the international market gave the U.S. unprecedented freedom
   of action in pursuing its foreign affairs goals. A trade surplus made
   it easier to keep armies abroad and to invest outside the U.S. Because
   other nations could not sustain foreign deployments, U.S. power to
   decide why, when and how to intervene in global crisis increased. The
   dollar continued to function as a compass to guide the health of the
   world economy, and exporting to the U.S. became the primary economic
   goal of developing or redeveloping economies. This arrangement came to
   be referred to as the Pax Americana, in analogy to the Pax Britannica
   of the late 19th century and the Pax Romana of the first. (See
   Globalism)

The late Bretton Woods System

The U.S. balance of payments crisis (1958–68)

   After the end of World War II, the U.S. held $26 billion in gold
   reserves, of an estimated total of $40 billion (approx 65%). As world
   trade increased rapidly through the 1950s, the size of the gold base
   increased by only a few percent. In 1958, the U.S. balance of payments
   swung negative. The first U.S. response to the crisis was in the late
   1950s when the Eisenhower administration placed import quotas on oil
   and other restrictions on trade outflows. More drastic measures were
   proposed, but not acted on. However, with a mounting recession that
   began in 1959, this response alone was not sustainable. In 1960, with
   Kennedy's election, a decade-long effort to maintain the Bretton Woods
   System at the $35/ounce price was begun.

   The design of the Bretton Woods System was that only nations could
   enforce gold convertibility on the anchor currency—the United States’.
   Gold convertibility enforcement was not required, but instead, allowed.
   Nations could forgo converting dollars to gold, and instead hold
   dollars. Rather than full convertibility, it provided a fixed price for
   sales between central banks. However, there was still an open gold
   market, 80% of which was traded through London, which issued a morning
   "gold fix," which was the price of gold on the open market. For the
   Bretton Woods system to remain workable, it would either have to alter
   the peg of the dollar to gold, or it would have to maintain the free
   market price for gold near the $35 per ounce official price. The
   greater the gap between free market gold prices and central bank gold
   prices, the greater the temptation to deal with internal economic
   issues by buying gold at the Bretton Woods price and selling it on the
   open market.

   However, keeping the dollar because of its ability to earn interest was
   still more desirable than holding gold. In 1960 Robert Triffin noticed
   that the reason holding dollars was more valuable than gold was because
   constant U.S. balance of payments deficits helped to keep the system
   liquid and fuel economic growth. What would be later known as Triffin's
   Dilemma was predicted when Triffin noted that if the U.S. failed to
   keep running deficits the system would lose its liquidity, not being
   able to keep up with the world's economic growth, thus bringing the
   system to a halt. Yet, continuing to incur such payment deficits also
   meant that over time the deficits would erode confidence in the dollar
   as the reserve currency creating instability.

   The first effort was the creation of the "London Gold Pool." The theory
   of the pool was that spikes in the free market price of gold, set by
   the "morning gold fix" in London, could be controlled by having a pool
   of gold to sell on the open market, which would then be recovered when
   the price of gold dropped. Gold's price spiked in response to events
   such as the Cuban Missile Crisis, and other smaller events, to as high
   as $40/ounce. The Kennedy administration began drafting a radical
   change of the tax system in order to spur more productive capacity, and
   thus encourage exports. This would culminate with his tax cut program
   of 1963, designed to maintain the $35 peg.

   In 1967 there was an attack on the pound, and a run on gold in the
   "sterling area," and on November 17, 1967, the British government was
   forced to devalue the pound. U.S. President Lyndon Baines Johnson was
   faced with a brutal choice, either he could institute protectionist
   measures, including travel taxes, export subsidies and slashing the
   budget—or he could accept the risk of a "run on gold" and the dollar.
   From Johnson's perspective: "The world supply of gold is insufficient
   to make the present system workable—particularly as the use of the
   dollar as a reserve currency is essential to create the required
   international liquidity to sustain world trade and growth." He believed
   that the priorities of the United States were correct, and that, while
   there were internal tensions in the Western alliance, that turning away
   from open trade would be more costly, economically and politically,
   than it was worth: "Our role of world leadership in a political and
   military sense is the only reason for our current embarrassment in an
   economic sense on the one hand and on the other the correction of the
   economic embarrassment under present monetary systems will result in an
   untenable position economically for our allies."

   While West Germany agreed not to purchase gold from the U.S., and
   agreed to hold dollars instead, the pressure on both the Dollar and the
   Pound Sterling continued. In January 1968 Johnson imposed a series of
   measures designed to end gold outflow, and to increase American
   exports. However, to no avail: on March 17, 1968, there was a run on
   gold, the London Gold Pool was dissolved, and a series of meetings
   began to rescue or reform the system as it existed. However, as long as
   the U.S. commitments to foreign deployment continued, particularly to
   Western Europe, there was little that could be done to maintain the
   gold peg.

   The attempt to maintain that peg collapsed in November 1968, and a new
   policy program was attempted: to convert Bretton Woods to a system
   where the enforcement mechanism floated by some means, which would be
   set by either fiat, or by a restriction to honour foreign accounts.

Structural changes underpinning the decline of international monetary
management

Return to convertibility

   In the 1960s and 70s, important structural changes eventually led to
   the breakdown of international monetary management. One change was the
   development of a high level of monetary interdependence. The stage was
   set for monetary interdependence by the return to convertibility of the
   Western European currencies at the end of 1958 and of the Japanese yen
   in 1964. Convertibility facilitated the vast expansion of international
   financial transactions, which deepened monetary interdependence.

The growth of international currency markets

   Another aspect of the internationalization of banking has been the
   emergence of international banking consortia. Since 1964 various banks
   had formed international syndicates, and by 1971 over three quarters of
   the world's largest banks had become shareholders in such syndicates.
   Multinational banks can and do make huge international transfers of
   capital not only for investment purposes but also for hedging and
   speculating against exchange rate fluctuations.

   These new forms of monetary interdependence made possible huge capital
   flows. During the Bretton Woods era countries were reluctant to alter
   exchange rates formally even in cases of structural disequilibria.
   Because such changes had a direct impact on certain domestic economic
   groups, they came to be seen as political risks for leaders. As a
   result official exchange rates often became unrealistic in market
   terms, providing a virtually risk-free temptation for speculators. They
   could move from a weak to a strong currency hoping to reap profits when
   a revaluation occurred. If, however, monetary authorities managed to
   avoid revaluation, they could return to other currencies with no loss.
   The combination of risk-free speculation with the availability of huge
   sums was highly destabilizing.

The decline of U.S. hegemony

   A second structural change that undermined monetary management was the
   decline of U.S. hegemony. The U.S. was no longer the dominant economic
   power it had been for almost two decades. By the mid-1960s Europe and
   Japan had become international economic powers in their own right. With
   total reserves exceeding those of the U.S., with higher levels of
   growth and trade, and with per capita income approaching that of the
   U.S., Europe and Japan were narrowing the gap between themselves and
   the United States.

   The shift toward a more pluralistic distribution of economic power led
   to increasing dissatisfaction with the privileged role of the U.S.
   dollar as the international currency. As in effect the world's central
   banker, the U.S., through its deficit, determined the level of
   international liquidity. In an increasingly interdependent world, U.S.
   policy greatly influenced economic conditions in Europe and Japan. In
   addition, as long as other countries were willing to hold dollars, the
   U.S. could carry out massive foreign expenditures for political
   purposes—military activities and foreign aid—without the threat of
   balance-of-payments constraints.

   Dissatisfaction with the political implications of the dollar system
   was increased by détente between the U.S. and the Soviet Union. The
   Soviet threat had been an important force in cementing the Western
   capitalist monetary system. The U.S. political and security umbrella
   helped make American economic domination palatable for Europe and
   Japan, which had been economically exhausted by the war. As gross
   domestic production grew in European countries, trade grew. When common
   security tensions lessened, this loosened the transatlantic dependence
   on defense concerns, and allowed latent economic tensions to surface.

The decline of the dollar

   Reinforcing the relative decline in U.S. power and the dissatisfaction
   of Europe and Japan with the system was the continuing decline of the
   dollar—the foundation that had underpinned the post-1945 global trading
   system. The Vietnam War and the refusal of the administration of U.S.
   President Lyndon B. Johnson to pay for it and its Great Society
   programs through taxation resulted in an increased dollar outflow to
   pay for the military expenditures and rampant inflation, which led to
   the deterioration of the U.S. balance of trade position. In the late
   1960s, the dollar was overvalued with its current trading position,
   while the Deutsche Mark and the yen were undervalued; and, naturally,
   the Germans and the Japanese had no desire to revalue and thereby make
   their exports more expensive, whereas the U.S. sought to maintain its
   international credibility by avoiding devaluation. Meanwhile, the
   pressure on government reserves was intensified by the new
   international currency markets, with their vast pools of speculative
   capital moving around in search of quick profits.

   In contrast, upon the creation of Bretton Woods, with the U.S.
   producing half of the world's manufactured goods and holding half its
   reserves, the twin burdens of international management and the Cold War
   were possible to meet at first. Throughout the 1950s Washington
   sustained a balance of payments deficit in order to finance loans, aid,
   and troops for allied regimes. But during the 1960s the costs of doing
   so became less tolerable. By 1970 the U.S. held under 16% of
   international reserves. Adjustment to these changed realities was
   impeded by the U.S. commitment to fixed exchange rates and by the U.S.
   obligation to convert dollars into gold on demand.

   In sum, monetary interdependence was increasing at a faster pace than
   international management in the 1960s, leading up to the collapse of
   the Bretton Woods system. New problems created by interdependence,
   including huge capital flows, placed stresses on the fixed exchange
   rate system and impeded national economic management. Amid these
   problems, economic cooperation decreased, and U.S. leadership declined,
   and eventually broke down.

The paralysis of international monetary management

"Floating" Bretton Woods (1968–72)

   By 1968, the attempt to defend the dollar at a fixed peg of $35/ounce,
   the policy of the Eisenhower, Kennedy and Johnson administrations, had
   become increasingly untenable. Gold outflows from the U.S. accelerated,
   and despite gaining assurances from Germany and other nations to hold
   gold, the "dollar shortage" of the 1940s and 1950s had become a dollar
   glut. In 1967, the IMF agreed in Rio de Janeiro to replace the tranche
   division set up in 1946. Special Drawing Rights were set as equal to
   one U.S. dollar, but were not usable for transactions other than
   between banks and the IMF. Nations were required to accept holding SDRs
   equal to three times their allotment, and interest would be charged, or
   credited, to each nation based on their SDR holding. The original
   interest rate was 1.5%.

   The intent of the SDR system was to prevent nations from buying pegged
   dollars and selling them at the higher free market price, and give
   nations a reason to hold dollars by crediting interest, at the same
   time setting a clear limit to the amount of dollars which could be
   held. The essential conflict was that the American role as military
   defender of the capitalist world's economic system was recognized, but
   not given a specific monetary value. In effect, other nations
   "purchased" American defense policy by taking a loss in holding
   dollars. They were only willing to do this as long as they supported
   U.S. military policy, because of the Vietnam war and other unpopular
   actions, the pro-U.S. consensus began to evaporate. The SDR agreement,
   in effect, monetized the value of this relationship, but did not create
   a market for it.

   The use of SDRs as "paper gold" seemed to offer a way to balance the
   system, turning the IMF, rather than the U.S., into the world's central
   banker. The US tightened controls over foreign investment and currency,
   including mandatory investment controls in 1968. In 1970, U.S.
   President Richard Nixon lifted import quotas on oil in an attempt to
   reduce energy costs; instead, however, this exacerbated dollar flight,
   and created pressure from petro-dollars now linked to gas-euros
   resulting the 1963 energy transition from coal to gas with the creation
   of the Dutch Gasunie. Still, the U.S. continued to draw down reserves.
   In 1971 it had a reserve deficit of $56 Billion dollars; as well, it
   had depleted most of its non-gold reserves and had only 22% gold
   coverage of foreign reserves. In short, the dollar was tremendously
   overvalued with respect to gold.

The "Nixon Shock"

   By the early 1970s, as the Vietnam War accelerated inflation, the
   United States as a whole began running a trade deficit (for the first
   time in the twentieth century). The crucial turning point was 1970,
   which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the
   view of neoclassical economists, represented the point where holders of
   the dollar had lost faith in the ability of the U.S. to cut budget and
   trade deficits.

   In 1971 more and more dollars were being printed in Washington, then
   being pumped overseas, to pay for government expenditure on the
   military and social programs. In the first six months of 1971, assets
   for $22 billion fled the U.S. In response, on August 15, 1971 Nixon
   unilaterally imposed 90-day wage and price controls, a 10% import
   surcharge, and most importantly "closed the gold window," making the
   dollar inconvertible to gold directly, except on the open market.
   Unusually, this decision was made without consulting members of the
   international monetary system or even his own State Department, and was
   soon dubbed the " Nixon Shock".

   The surcharge was dropped in December 1971 as part of a general
   revaluation of major currencies, which were henceforth allowed 2.25%
   devaluations from the agreed exchange rate. But even the more flexible
   official rates could not be defended against the speculators. By March
   1976, all the major currencies were floating—in other words, exchange
   rates were no longer the principal method used by governments to
   administer monetary policy.

The Smithsonian Agreement

   The shock of August 15 was followed by efforts under U.S. leadership to
   develop a new system of international monetary management. Throughout
   the fall of 1971, there was a series of multilateral and bilateral
   negotiations of the Group of Ten seeking to develop a new multilateral
   monetary system.

   On 17 and 18 December 1971, the Group of Ten, meeting in the
   Smithsonian Institution in Washington, created the Smithsonian
   Agreement which devalued the dollar to $38/ounce, with 2.25% trading
   bands, and attempted to balance the world financial system using SDRs
   alone. It was criticized at the time, and was by design a "temporary"
   agreement. It failed to impose discipline on the U.S. government, and
   with no other credibility mechanism in place, the pressure against the
   dollar in gold continued.

   This resulted in gold becoming a floating asset, and in 1971 it reached
   $44.20/ounce, in 1972 $70.30/ounce and still climbing. By 1972,
   currencies began abandoning even this devalued peg against the dollar,
   though it took a decade for all of the industrialized nations to do so.
   In February 1973 the Bretton Woods currency exchange markets closed,
   after a last-gasp devaluation of the dollar to $44/ounce, and reopened
   in March in a floating currency regime.

Bretton Woods II?

   A number of economists have referred to the system of currency
   relations which evolved after 2001, in which currencies, particularly
   the Renminbi, remained fixed to the US Dollar as Bretton Woods II. The
   argument is that a system of pegged currencies is both stable and
   desirable, a notion that causes considerable controversy.

Conclusions

   The collapse of the Bretton Woods system is a subject of intense
   debate. There are a variety of theories as to why it did so, ranging
   from the continuing printing of fiat money while maintaining a peg to
   gold, the budget deficit problems, to the Vietnam War, to marginal tax
   rates. The fundamental point of agreement is that the U.S. ran an
   increasing balance of trade deficit, and that, in the end, it could not
   establish credibility on reining this deficit in. This would lead to
   the study in economics of credibility as a separate field, and to the
   prominence of "open" macroeconomic models, such as the Mundell-Fleming
   model.

Pegged rates

   Dates shown are those on which the rate was introduced

Pound sterling

         Date        Value of pound
                     in US dollars
   27 December 1945       4.03
   18 September 1949      2.8
   17 November 1967       2.4

French Franc

         Date        Value of US dollar
                     in francs                     Note
   27 December 1945        119.11      £1 = 480F
   26 January 1948         214.39      £1 = 864F
   18 October 1948         263.52      £1 = 1062F
   27 April 1949           272.21      £1 = 1097F
   20 September 1949        350        £1 = 980F
   10 August 1957           420        £1 = 1176F
   27 December 1958        493.71      1F = 1.8 mg gold
   1 January 1960          4.9371      1 new franc = 100 old francs
   10 August 1968           5.48       1NF = 162 mg gold

Deutsche Mark

         Date        Value of US dollar
                     in Mark
   21 June 1948             3.33
   18 September 1949        4.20
   6 March 1961              4
   29 October 1969          3.67

Italian lira

         Date        Value of US dollar
                     in lire
   November 1947            575
   18 September 1949        625

Japanese yen

       Date      Value of US dollar
                 in yen
   25 April 1949        360

Swiss franc

         Date       Value of US dollar
                    in francs             Note
   27 December 1945       4.3052      £1 = 17.35SF
   September 1949         4.375       £1 = 12.25SF

Dutch gulden

         Date        Value of US dollar
                     in gulden
   27 December 1945        2.652
   20 September 1949        3.8
   7 March 1961             3.62

Belgian franc

         Date        Value of US dollar
                     in francs
   27 December 1945        43.77
   1946                   43.8725
   21 September 1949         50

Finnish markka

   Date Value of US dollar
        in markkaa
   1948        3.2
   1967        4.2
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