Bretton Woods Conference

How do countries trade with each other? And how do they decide how much a currency is worth against another?

Bretton Woods Conference Bretton Woods Conference

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    In this article, we will try to answer these questions by looking into the Bretton Woods Conference of 1944. The Bretton Woods Conference set the ground for today's international financial relationships. So let's look at why it was organised and what were its outcomes and its legacy.

    Bretton Woods Conference definition

    The official name for the Bretton Wood Conference is the United Nations Monetary and Financial Conference. It was a conference held between 1st and 22nd July 1944 in the Mount Washington Hotel, Bretton Woods, New Hampshire, USA.

    It was attended by 730 representatives from 44 nations, including the USSR (now, referred to as the former Soviet Union), with the goal of establishing a new post-World War II international order.

    The overall aim of the Bretton Woods Conference was to establish greater political and economic stability, that would prevent the breakout of further world wars and promote peace through global financial cooperation.

    Bretton Woods Conference Mount Washington Hotel StudySmarterFig. 1 Mount Washington Hotel, Bretton Woods, NH, USA

    Bretton Woods Conference summary

    As we've established, the Bretton Woods Conference represented a key economic and political event. Therefore, to take a closer look we will explore these three areas below:

    1. The historical context of the Conference
    2. The key political principles of the Conference
    3. The structure of the Bretton Woods Conference

    Historical context of the Conference

    After World War I (1914-1918), the Treaty of Versailles (1919) required the German state to pay 132 billion gold marks in war reparations. Today, 132 billion gold marks are equivalent to roughly $33 billion!

    Consequently, the cost of war reparations and wider economic climate led to the collapse of the German economy during the inter-war period between 1918-1939, which in turn was a key factor in the rise of Nazism and World War II.

    This set of events, coupled with the events that characterised the Great Depression, motivated nations, such as the USA and Britain, to attempt to come up with a new system of international economic stability.

    The Great Depression

    The Great Depression was an extreme economic event that hit the world between 1929 and 1939. It was characterised by a dramatic fall in US stock prices.

    Most economists agree that two key elements that led to the Great Depression were the rigidity of the gold standard (how many banknotes banks can produce while backing them with gold reserves) and the international inability to pay back war loans. These led to a worldwide shrinkage of national and international trade due to reduced lending, bankruptcy, and protectionist policies by individual countries.

    Protectionist policies

    Policies aimed at closing a country's economy to world trade in an attempt to "protect" it from external factors.

    Key political principles of the Conference

    The key assumption behind the Bretton Woods conference was that free trade promoted international cooperation, peace, and prosperity; and that free trade relies on currency convertibility.

    In preparation for the conference, John Maynard Keynes, adviser to the British Treasury, and Harry Dexter White, chief international economist at the American Treasury Department, started drafting plans which included:

    • agreements for international financial cooperation and assistance to countries experiencing deficit (including post-war deficit) and,

    • an entity that would mediate currency exchanges and prevent competitive devaluation of currency while allowing countries to maintain economic autonomy.

    As an international conference focused on global economics, there is a lot of technical terminology to be consider. Take a look at the table below to brush up on some key concepts:

    Key TermDefinition

    Free trade

    Free trade is when there are no restrictions on imports and exports.

    DeficitWhen expenditure is higher than earnings.
    Currency exchangeThe conversion of one currency into another
    Economic autonomyThe ability to make decisions about the running of one's economy without influence from other countries.
    Currency convertibility

    The ability to convert a country’s own currency into the currency of another country, or into gold.

    Competitive devaluation

    When a country devalues its currency in response to another country's currency losing value. The direct effect is the first country's economy gaining a competitive edge; however, it tends to damage trade relationships with its other trade partners, who might, in turn, introduce protectionist policies.

    Bretton Woods Conference structure

    During the Bretton Woods conference, the representatives were divided into 3 working groups or "commissions":

    • one to discuss the International Monetary Fund (the IMF);
    • the second to discuss the International Bank for Reconstruction and Development (the IBRD, later to become part of the World Bank Group);
    • and a third to discuss any other ideas for international financial cooperation that didn't fall under the umbrella of the first two commissions.

    International Monetary Fund or IMF was an institution created to mediate economic transactions between countries to avoid economic crises such as the Great Depression.

    The International Bank for Reconstruction and Development or IBRD was an international bank created to fund the reconstruction of post-war Europe.

    The three working groups generally reached decisions by consensus via a vote. Each represented nation-state was afforded a single vote on each matter. Let's now take a closer look at the purpose of the IMF and of the IBRD.

    Bretton Woods Conference organisations

    The two organisations that emerged from the Bretton Woods Conference were the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, which are, still today, powerful economic institutions.

    As a quick activity, take a look at the names of these two organisations and try to think about what their purpose might be.

    Bretton Woods Conference Plaque of the establishment of the IMF StudySmarterFig. 2 Plaque in the gold room, mount Washington hotel, where the IMF was established

    International Monetary Fund summary

    The purpose of the IMF was to promote stability in international currency exchange rates. The IMF would do this by pegging (fixing) exchange rates to the value of the dollar, which in turn was pegged to gold. A level of flexibility to this system was inbuilt, allowing for alteration in exchange rates by individual countries in case of a "fundamental disequilibrium".

    "Fundamental disequilibrium" was never more specifically defined, however, financially speaking, it means when spending far exceeds earnings.

    By being the currency that all other currencies were pegged against, the US dollar became the new "gold", and therefore, the new international currency.

    All members pledged to the convertibility of their currencies to allow for free trade and had to get permission from the IMF should they wish to change the rate of exchange by more than 10%. All member states were required to sign up to the IMF, and the IMF is funded by the subscriptions of its members.

    In time, the aim of the IMF shifted toward the support and promotion of international trade and economic development by promoting policies that facilitate free international trade and economic cooperation.

    For instance, the IMF has provided loans to Pakistan on multiple occasions since 1950 with the aim to support its struggling economy.

    International Bank for Reconstruction and Development

    The purpose of the IBRD was to organise foreign aid and provide funds to rebuild infrastructure in post-war European countries. After the reconstruction of Europe, the IBRD's aim shifted to the promotion of economic development and the eradication of poverty. This means the IBRD is today the lending arm of the World Bank Group from which middle-income and "credit-worthy" low-income countries can get loans and receive economic advice.

    As of May 2022 the World Bank Group has financially supported the Covid-19 vaccine rollout in 74 countries in the Global South1

    Countries can only be members of the IBRD if they sign up to the IMF. Influence in both organisations was, and continues to be based on "quotas".


    IMF and IBRD quotas are how much each country contributes to either institution according to the country's economy (the bigger the economy, the bigger the quota). The quotas also determine how much a country can borrow from, and how much influence they have on the institutions.

    The outcome of the Bretton Woods Conference

    The role of the IMF and the IBRD in the management of international financial relationships is known as the Bretton Woods system. The Bretton Woods system took a number of years to stabilise itself and led to a considerable time of financial stability and growth.

    However, as this progressed and world economies, as well as population numbers, continued growing, the Bretton Woods system started feeling the pressure of inflation. This means that the pegged system it created wasn’t allowing enough liquidy (availability of cash) to keep funding new businesses and therefore to keep employment rates high.

    Bretton Woods Conference Graph Representing Inflation StudySmarterFig. 3 Graph representing inflation


    Inflation is an economic term that refers to the value of goods and services increasing in time. This means that each unit of currency buys less, and people need more of it to buy the same amount of goods.

    A change to the Bretton Woods system

    In 1971 Richard Nixon ended the system of fixed (pegged) currency to gold followed by a system characterised by floating currencies which is what we still use today. This means that, even though the dollar standard remains, the value of world currencies “floats”: it is not backed by gold and goes up and down in response to the market forces of availability and demand of goods.

    Dollar Standard

    The dollar standard means that world currencies still peg their exchange rates against the dollar, and hold their foreign exchange reserves mainly in dollars.

    Bretton Woods Conference's significance

    Even though the gold standard principle is no longer in use, the Bretton Woods Conference was incredibly important because of the international effort it represented and the unity of purpose it signified.

    It was the first time, in the post-war era, that economic relations were institutionalised and that all governments involved were given voices, albeit dependent on "quotas".

    The USA contributed a third of the quotas, therefore owned a third of the decision-making power, and the power of veto.

    Because of this, the quota system is one of the main sources of criticism against the Bretton Woods system. The disproportionate US power is quoted as one of the main reasons the USSR has never joined the IMF or the World Bank.2

    In 1992 Russian Federation did join to receive support to re-join international trade and stabilise its economy. In joining, its president, Boris Yeltsin, said that it would not allow the IMF to impose conditions on the pace and kind of Russian reforms3. This was a bold statement but the act of joining further reinforced the key role the IMF plays in the world economy.

    Following the 2008 financial crisis and the 2020 economic recession, world leaders are also highlighting the significance of the Bretton Woods system by calling for a “Bretton Woods II”, a second conference “as bold in its own way as Bretton Woods”4 to develop a new financial system appropriate for modern times.

    Bretton Woods Conference 1944 - Key takeaways

    • The Bretton Wood Conference was a conference held between 1st and 22nd July 1944 in the Mount Washington Hotel, Bretton Woods, New Hampshire, USA with the aim to reach a new, post World War 2, political and economic stability.

    • The Two organisations that emerged from the Bretton Woods conference were the IMF and the IBRD.

    • The IMF introduced a system of pegged currencies to stabilise currencies exchanges and promote free trade and international economic growth.

    • The IBRD was created to fund the reconstruction of post war Europe.

    • The Bretton Woods System initially worked but inflationary pressure lead to the abandonment of the gold standard to be replaced by a fluctuating currencies system.

    • The Bretton Woods system was still significant due to the international effort it represented and institutionalisation of international financial relations it led to.


    1. World Bank Support for County Access to Covid-19 Vaccines,
    2. Kristina V. Minkova “The Economic Roots of the Cold War: The IMF, ITO and Other Economic Issues in Post-War Soviet-American Relations” 2018
    3. R. G. Gidadhubli and Abhijit Bhattacharya, Russia's 'Big-Bang' Entry into IMF 1992
    4. Prime minister of Greece Papandreu, 2010
    5. Fig. 1 Mount Washington Hotel Bretton Woods, NH, USA ( by Georgio ( licenced by CC BY-SA 3.0 ( on Wikimedia Commons
    6. Fig. 2 Plaque in the gold room, mount Washington hotel where the IMF was established ( by Barry Livingstone ( licensed by CC BY-SA 3.0 ( on Wikimedia Commons
    Frequently Asked Questions about Bretton Woods Conference

    What is Bretton Woods Conference?

    It was a conference held between 1st and 22nd July 1944 in the Mount Washington Hotel, Bretton Woods, New Hampshire, USA. The overall aim of the Conference was to reach a new post-World War II international order, grounded in political and economic stability. 

    What decisions were taken at the Bretton Woods Conference?

    The two main outcomes of the Bretton Woods Conference were the creation of the Internation Monetary Fund and the International Bank for Reconstruction and Development.

    What happened at Bretton Woods in 1944?

    730 representatives from 44 nation states met at Bretton Woods to discuss and decide on methods to promote free trade and international financial cooperation. 

    Why did Bretton Woods fail? 

    It could be argued that the Bretton Woods System failed due to the growth of the economy it led to, which meant the gold standard was abandoned in 1971 to be replaced by a system of floating currencies

    What is the importance of the Bretton Woods Conference that took place after World War II in July 1944?

    The importance of the Bretton Woods Conference lies in the international effort and unity it represented and the institutionalisation of international financial relations it led to.

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