How to Deal with a “Bretton Woods Moment”

By James Broughton, a former official historian of the IMF. His latest book is Harry White and the American Creed: How a Federal Bureaucrat Created the Modern Global Economy (and Failed to Get the Credit),Yale University Press, 2021. Originally published at The Institute for New Economic Thinking website.

The world economy is in serious disarray. What can we do about it?

It has become commonplace for political leaders and pundits to pronounce the need for a “new Bretton Woods” to solve the problems of our broken world economic system. The cry evokes memories of the monetary conference in Bretton Woods, New Hampshire, in 1944, during which all the allied countries fighting the Axis in World War II created the rules-based international financial system that produced unprecedented economic growth in the decades that followed the war. But circumstances have changed, and Bretton Woods—the only truly successful global economic meeting of the twentieth century—cannot be reproduced. What would a positive response look like today?

Sometimes the Bretton Woods rallying call reflects a desire to restore discipline by imposing new rules (or reviving old ones) on trade and finance across national borders. Sometimes it is a call for new institutions to deal with new challenges such as climate change or the rise of pervasive digital technology. Sometimes it is just a way of summarizing the urgent need for restoring international cooperation in the wake of rising populist nationalism. In most cases, however, these pleas lack both a clear goal and a roadmap for getting there. As it happens, we can go a long way toward closing those gaps by studying how and why the original Bretton Woods conference succeeded in 1944.

When the American economist Harry Dexter White began in 1941 to plan what would become the Bretton Woods conference, the global situation was far more dire than it is today. War was raging in Europe and Asia; the depression of the 1930s had decimated economic production, employment, and trade; and currency instability was making it impractical to accept or hold any country’s currency other than one’s own. There was simply no model or template to draw on for thinking about how to design a system for restoring prosperity and peace.

A strikingly original thinker, White—the chief economist in the U.S. Treasury—began by setting out a clear vision of what had to be achieved and what steps would have to be taken to get there. Fundamentally, postwar prosperity would require a renewal of international trade. If major countries instead tried to pull inward, a return of the Great Depression would be all but inevitable. Trade would require cooperation, and cooperation would depend on the acceptance of rules and the development of institutions with the power to enforce them. The challenge that White faced was to get political leaders in the United States and across the broad alliance of countries to focus on the problem and agree on a strategy that could be completed after the war was won.

White had four main insights for this process. He had to fight to get each of them accepted, and those battles hold lessons for today.

First, the solution must be devised while the crisis (in that case, the war) is still present. If leaders wait for a more comfortable moment, the incentive to cooperate and accept compromises will be undermined. As evidence, consider that when negotiators decided to postpone consideration of an international trade organization during World War II so that they could focus on creating the World Bank and the International Monetary Fund, discussions broke down, and the World Trade Organization did not get established until fifty years later, in 1994. Nonetheless, senior officials in the U.S. State Department were initially adamant that none of White’s plan could or should be done until after the war. It took several months before they gave way and allowed planning to go forward. The multiple crises of 2022 might persist, or they might diminish. Waiting until the situation clears could be fatal.

Second, all potential participating countries must be engaged in discussions as early and as fully as possible. In 1942-43, British negotiators, led by John Maynard Keynes, argued long and hard for a bilateral deal between Britain and the United States, with other countries to be invited in only after the system was already designed. Many U.S. officials shared that view, but White understood instinctively that most countries would be loath to commit to a deal that had been cooked up by great powers without the opportunity to plead for their own national interests. Countries as diverse as Canada, China, France, India, Mexico, and the Soviet Union all contributed to the final design.

Today the dominant rivalry on economic governance is between the United States and China. Resolving that conflict cannot be achieved bilaterally, because national interests are too conflicting. If the U.S. government wants the existing rules-based world order to survive, it must seek the views and the support of a broad alliance. Taking a multilateral approach was a tough sell in the 1940s when the United States was by far the dominant economic and financial power. In the current multipolar environment, the need for cooperation is more obvious, but achieving it remains challenging.

Third, whatever form a new system might take, it must reflect the world’s practical realities. In 1944, a key fact was that the U.S. dollar had become the pre-eminent currency for global trade. The British knew that the days of dominance by the pound sterling were over, but they wanted to replace it with a new international currency and sideline the dollar. Even White’s boss, Treasury Secretary Henry Morgenthau, Jr., wanted to create such a stateless currency, apparently out of concern that a system based on the dollar would put too much pressure on the value of the U.S. currency. White understood that insisting on a hegemonic role for the dollar was likely to generate a political backlash. His solution was to retain a strong link between the dollar and gold for international settlements so that countries could choose whether to hitch their stars to the dollar or to gold. Domestic monetary policy could be safely delinked from gold, but he feared that foreign institutions and investors would be reluctant to hold dollars if they were no longer convertible into a universal asset. With that assurance, the postwar system was—and had to be—based essentially on the dollar.

The current global financial system is a curious mix of dollar hegemony and multipolar settlements. The IMF recognizes five currencies—dollars, Euros, pounds sterling, yen, and renminbi—as equally suited for its lending and other official transactions. The portion of international trade and finance conducted by or through the United States is a small fraction of what it was in the 1940s. Nonetheless, a majority of cross-border transactions are denominated in dollars, and a majority of official reserves are held in dollar securities. If the hope for a new Bretton Woods is that it will lead to a more stable and sustainable financial system, negotiators will have to find a way to resolve this disconnect.

Fourth, notwithstanding the need for consultation and compromise, the resulting system must be founded on strong principles. For the postwar system, White argued that the settlement of payments balances between national governments had to become open and multilateral. In the 1940s, if, say, Brazil accumulated pounds sterling by running a trade surplus against Britain, it could not readily convert those pounds into dollars to buy U.S. exports. That system benefited Britain, which oversaw a vast network of countries that used the pound as their currency or tied their own currencies tightly to it. The British resisted committing themselves fully to multilateralism, but White held his ground. In the end, White devised a compromise that gave participating countries several years to unwind their bilateral trade relationships. The Bretton Woods system did not become fully realized until the late 1950s, but in the meantime, it grew gradually in effectiveness and importance. Today, the existing rules-based system must adapt to serve the interests of China and other rapidly growing economic powers, but that need not lead to an abandonment of basic principles including the preservation of transparency, openness, and fairness in international financial relations.

It is too early to specify what a new world economic order might encompass, other than in general terms: a revival of cooperation, an acceptance of effective updated rules governing trade and finance, and new or modernized institutions to deal with the challenges of the twenty-first century. The lessons of Bretton Woods might not reveal the endpoint, but they do illuminate the pathway to it.

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  1. Michael Hudson

    I’m sure the US, NATO and the Schab’s group would love a new BW conference right now, before the China-Russian depolarization alternative takes place. It would be pre-emptive — and like the first BW conference, would seek to lock in US hegemony.
    The problem is that the World Bank and IMF’s operating economic philosophy is adverse to the growth of other countries independent of US investment and control, for the reasons that I’ve described in Super-Imperialism.
    I would expect the Shanghai Cooperation Organization to convene its OWN conference to lay down THEIR philosophy of foreign investment, exchange rates and government-to-government lending without the predatory behavior of the IMF in supporting capital-flight by oligarchies, and then making labor pay by devaluing the currency and selling off government assets.

    1. eg

      I was going to say, Michael, that this author likely didn’t have the benefit of having read your “Super Imperialism” (I just finished the 3rd edition a few weeks back). He may have been less enthusiastic about White’s work had he read your book. I know I am.

    2. Susan the other

      Thank you Prof. H. This essay does sound like it is written by someone who is completely clueless about the evolving concept of money. To insinuate that this new but undefined multilateral rules-based system needs to be put in place pronto is disconcerting. And even more so because, standing in the wings and ready to help, we have crypto currencies. They, crypto, are arranging their own Bancor Crypto Exchange system. The one wee problem with that is crypto itself. It is a purely private enterprise; synthetic value to the core. Seeking to be established by a set of “rules”. What an evasion of value. It would serve to preclude any deeper analysis. A perfect heist. And Putin himself just exposed the phrase “rules-based” as special-interest-based when he said that Russia was only interested in “law-based” systems – he was speaking of current international agreements. But laws could certainly be passed that controlled the use of some international medium of exchange that limited the value of the “money” and prevented externalizing losses and outright kleptocrat behavior. This essay is so superficial it does not even approach current considerations of money.

    3. Mikel

      I believe you once mentioned Walter Rodney and his book “How Europe Underdeveloped Africa.”
      First published in 1972. Some good reading too…

  2. The Rev Kev

    A new Bretton Woods? Absolutely not! You do not want to organize something like that. And it is for the same reason that holding a Constitutional Convention in America would be a disaster – it would be the corporations and the oligarchs that would be re-writing the US Constitution for their own benefit. If you want an idea of how a new Bretton Woods would go down, then you only have to look back at the Trans-Pacific Partnership a few years ago. Trump flushed that one down the toilet which people everywhere should thank him. His four years in office I consider a small price to pay for avoiding the TTP. Think of the TTP as NAFTA – but on steroids. It was bad enough that the whole thing was being negotiated in secrecy but it wasn’t the governments who were doing the negotiations so much as the big corporations. American congressmen had little idea of what was being negotiated as it was so secret, even though they would be required to vote on it. I think that the terms said that it would still be secret for five years after signing it so by the time they came to light, it would be too late to reverse the worse of it. Think of all the wet dreams of rapacious neoliberal corporations and what they wanted and it was probably in there. So no, you can forget a Bretton Woods 2.0

    1. ambrit

      Does anyone have a copy of the draft agreement? That would be, as you say, enlightening, if only to show us what to watch out for.
      Knowing what the Oligarchs and corporations want will allow whatever “real” Left is ‘out there,’ to devise counter-measures.
      An organized Left would be so helpful. It almost makes one pine for the days of the Comintern and Fourth International. At least those ‘groups’ had a focusing effect on world “leftist” movements. (And yes, I know that the ‘Fourth’ is still alive and kicking, but, heavens help us, no one takes any notice today. Stronger ‘presence multipliers’ please.)

    2. Daniel Raphael

      More of the same gets called new. It’s neither new nor news. P.S. Mother Nature has her own conference visibly in the making, and we are all included. Very much so. Just thought I’d mention it.

    3. lance ringquist

      notice not one word about GATT. you could see the hatred in nafta billy clintons eyes when he made a speech right after nafta, now its onto GATT, you could see he despised GATT.

      all the author spoke about is the W.T.O. and its rules. of course the W.T.O. is a fascist organization that neuters democratic control, which was what GATT was all about.

      no trump booster either, BUT, he did do some good things, and that is why he is hated so much.

      the TPP would have ended all democratic control except the issuing of punitive policing of the deplorable.

  3. Michael

    Who is the modern Harry Dexter White?

    We know who “his” adversaries are.

    “”If the U.S. government wants the existing rules-based world order to survive…””
    Yes to SWIFT.
    Yes to financial repression.
    Yes to reserve currency.
    Yes to fractional reserve banking.

    I see the challenge as the age old puzzle of squaring the circle.
    A recent article had a super computer divide one or the other into “zillions” of random shaped pieces to be reassembled.

    As in NFWC!

  4. Keith Newman

    From the post:”If the U.S. government wants the existing rules-based world order to survive…”.
    The author does not ask why any country not under US control want that? He was an “official historian” of the IMF. Yes, quite obviously.
    He would certainly benefit from reading “Superimperialism” but if he honestly absorbed its ideas he would lose his status and become an outcast to those he spent his life working with.
    And thank you for your comment Michael H.

  5. Mikel

    The article didn’t mention that the US presided over a world that had sustained damage to infrastructure/manufacturing capacity after governments received enough loans for sustained warfare from 1914 to 1945.

    So are they leaving out the part about needing sustained destruction of other leading powers to preside over the next Bretton Woods?

  6. Alex Cox

    The author repeatedly uses the term ‘rules based order’. As I understand it, this term was invented by the US as an alternative to the treaty based system of International Law, which the US chooses to ignore.

    And he thinks the late arrival of the WTO was a bad thing. Perhaps he could list some of the good the WTO has done.

    Speculatively, what if Bretton Woods hadn’t happened, and all states had dedicated themselves to autarky at the end of WW2?

    Happy Sunday!

  7. Susan the other

    We should think ecologically about an international “monetary” system. The old BW system created a temporary stability of sorts that was relentlessly diminished by the delusion that money had some intrinsic value or that gold had some intrinsic value and by the lack of understanding of nations and corporations to see that their profits were mostly extractions without any effort to repair the planetary damage. Without any acknowledgement that it was even necessary to rebalance the losses in any viable way. What we are left with is debt. Pure debt. (We kid ourselves that “debt is money”.) And lots of misery. What we need right now is an international multilateral system of commerce that actually puts back more than it extracts. A system that creates credit. Jamie Galbraith’s “low-cost” decentralized economies are a reasonable mechanism to repair the planet while making civilization prosper. If an international (multilateral) monetary system can be designed to support that kind of universal industry it would be a very good thing. Instead of extracting, put back more than you take out. Always think long-term. And when the planet is healthy again, then keep it in balance. That “balance” should be the only one we take to the bank.

  8. Dave in Austin

    Britain (and US commentators) always say that Great Britain was for free trade in the 19th and early 20th Century. That is not quite correct; it was for free trade where that benefited Great Britain (grain from Russia and the US paid for with machinery, textile and the indirect subsidy which was “half the world trade goes over the London docks and uses British insurace”).

    But trade with the British colonies? No way. American exports to India were essentially zero because of the hedges and rules set up to give all industrial imports into India to Great Britain. France, the Netherlands, and all the other empires including the US did the same. The system died in 1942 when Great Britain was forced to give American firms equal access to the Indian market. The economic reason for having India as a colony vanished at that moment.

    1. Bill

      The British government of the 19th and 20th centuries never followed the “Free Trade” policy as outlined by Adam Smith. The only British politician who came close to the same zeal to implement free trade was Keynes. Free trade cant exist without heavy involvement of government to minimise the global risk of war, bank crises, famine, crime etc. It simply cant exist. Which why all the nativist and America first lot support domestic anti government measures in order to prevent free trade.

      British government in the 19th century helped to destabilise global powers and fund more foreign wars than anyone else. They did this to preserve their own foreign power/territory/wealth, without ever needing to do the major fighting themselves.

  9. TimD

    The elements of sustainable international trade are selling goods and services abroad, with a value expressed in money, and the purchase of goods and services from a trading partner(s) with a similar value. In the current international economy it is selling goods and services for money without purchasing goods or services from trading partners, leading to a situation where there are sustained creditors and debtors.

    The US has an annual trade deficit that nudges $1 trillion per year and pays for it with money (debt) this would usually lead to an excess supply of the US$ and a drop in its value. The value is maintained by creditors buying assets like businesses, government debt and real estate in the US. This happens instead of a sustainable trading relationship where the country would sell nationally-produced goods and services to maintain balanced trade and of course, balanced trade is not in the best interests of American companies that have offshored production. To keep this system running, the US needs to keep printing money and show a return for the assets it is selling to pay for its trade deficit. The situation is further twisted by many of America’s creditors being American-owned offshore companies that are parking the money at home. All the while, the creation of good jobs for people is declining and the national debt is rising. We live in interesting times.

  10. korual

    Harry White gets whitewashed here by the official IMF historian. Can only further recommend Superimperialism for another perspective.

  11. Sound of the Suburbs

    There are no signs that anyone in the mainstream knows how the monetary system actually works.
    A new Bretton-Woods now would be a disaster.

    Rolling neoliberalism out globally has been a great opportunity to find out how the monetary system works.
    The financial crises are actually the time when the big advances can be made, and there have been plenty of those. These are the keys to unlock the secrets of the monetary system.
    When you do understand the monetary system you can achieve financial stability and there should be no financial crises.

    How do the basic elements of the system fit together?
    GDP measures the new goods and services being produced in the economy every year.
    This is where the real wealth in the economy lies.

    Private banks create the money supply.
    Money and debt come into existence together and disappear together like matter and anti-matter.
    Bank loans create money and debt repayments to banks destroy money.
    Bank loans create 97% of the money supply
    The money supply ≈ public debt + private debt
    Money and debt are like opposite sides of the same coin.

    The money supply should grow with the economy, i.e. GDP.
    More goods and services in the economy require more money in the economy.

    It’s a debt based monetary system.
    You want the debt to stay at a level where it will not adversely affect the economy.
    You want GDP, the money supply and debt to grow together so the economy is not held back by the debt contained within it.

    How do you achieve this?
    The idea is that banks lend into business and industry to increase the productive capacity of the economy.
    Business and industry don’t have to wait until they have the money to expand. They can borrow the money and use it to expand today, and then pay that money back in the future.
    The economy can then grow more rapidly than it would without banks.
    Debt grows with GDP and there are no problems
    The banks create money and use it to create real wealth

    When you have a firm grip on what money and wealth really are; and know how banks work, it all falls into place.

    When you understand the monetary system, you can achieve financial stability.
    The financial crises are actually the time when the big advances can be made, and they did it before after 1929
    Financial stability arrived in the Keynesian era and was locked into the regulations of the time.
    “This Time is Different” by Reinhart and Rogoff has a graph showing the same thing (Figure 13.1 – The proportion of countries with banking crises, 1900-2008).

    We removed the regulations, and put central bankers in charge, and the financial crises have come back.
    The central bankers are desperately trying to rediscover the secrets of financial stability.
    It isn’t as hard as they make it look.

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