Bretton Woods - A Changed America

The Bretton Woods Conference will celebrate its 80th anniversary this year. Driven by a United States keen to involve its partners in international problem-solving, the initial conference may have ultimately proved a high-water mark for multilateral economic policy coordination. The Senate passed the bill to ratify the conference outcomes with a vote of 61 to 16, a stark contrast to the prevailing sentiments in contemporary U.S. politics. Yet the arguments in favour of multilateralism seem as valid today as they were then. 

The Bretton Woods Conference took place during July of 1944 in Bretton Woods, New Hampshire with the participation of delegations from 44 countries. It started only 4 weeks after the Allied Normandy Landing (D-Day) at a time when the outcome of World War II was still highly uncertain and was called by U.S. President Franklin Roosevelt as part of his vision of a multilateral rules-based post-war world order. Roosevelt insisted that a framework must be in place by the time the war ends to establish conditions supportive for a rapid post-war recovery. The conference led to the establishment of the International Monetary Fund and the World Bank as pillars for international economic policy cooperation.  

In an address to conference participants, Roosevelt wrote: “The spirit in which you carry on those discussions will set a pattern for future friendly consultations among nations in their common interest. The things that we need to do, must be done—can only be done—in concert. This conference will test our capacity to cooperate in peace as we have in war.” * 

The conference was the culmination of discussions between the U.S. and other countries starting in as early as 1934. Important milestones included the Tripartite Agreement between the U.S., U.K. and France to provide for consultation on exchange rates with a view to avoid “unnecessary fluctuations […] which were impeding the growth of world trade.” Belgium, Netherlands and Switzerland shortly afterwards joined the agreement. It was followed by competing proposals for comprehensive reform throughs plans including by Harry Dexter White (White Plan) for the U.S. and John Maynard Keynes (Keynes Plan) for the U.K. during 1941-42. Further negotiations led to the Joint Statement between the U.S. and U.K. of September 1943 and eventually to the Atlantic City conference in June 1944 based on the White Plan with the participation of 16 countries that laid the foundation for Bretton Woods. 

The IMF was established on the premise that each member country would have a stake, a quota, in the institution to determine its financial contribution but also how much it could draw in financial assistance and importantly its voting power to guide decisions of the IMF, with quotas designed to reflect the economic size of a country. 

At Bretton Woods, the quotas were the hot topic and countries tried to make the case for obtaining as big a quota as possible. The minutes of discussions among U.S. Delegates at Bretton Woods read: “Russia is necessary to winning the war. She wants ten percent [of quota], or some such amount. […] I am perfectly willing to say that it is well worthwhile to give them a much larger quota than they would otherwise be entitled […]. […] it is foolish from purely trade considerations to give China more than India. On the other hand, if we are going to beat Japan we have got to keep China happy. From the point of view or respective influence in the post-war world, clearly Russia and China ought to be given more than India or France.” ** 

The quota allocation was to provide adequate incentives to engage with the IMF. It has remained a contentious issue and is at the center of repeated calls for IMF governance reform. Today, the U.S. has maintained the largest quota share of 17.4 percent (as well as the power to block any change to quotas). Japan follows with 6.5 percent, barely surpassing China at 6.4 percent. This although China’s GDP—GDP is not the only metric to guide quota size—is more than four times larger than Japan’s. India has a GDP slightly bigger than the U.K. but its quota share is 2.8 percent compared with the U.K.’s 4.2 percent.  

The IMF has failed to adjust its quotas to reflect the emergence of fast-growing countries. For some time, stakeholders have recognized the need for quota alignment, considering it crucial for increasing the legitimacy and effectiveness of the IMF. Currently, the IMF aims to develop a possible approach by June 2025. Lack of progress is due in large part to a perception by some countries that an increase in quota share is reward for the “right” sort of contribution to the international community. Others believe that a lack of commensurate quota share discourages any engagement and leads to stepping outside the existing multilateral framework. 

In 1944 The U.S. saw the importance in giving countries’ their rightful weight in the IMF and this still holds today. Roosevelt reminded the Bretton Woods participants that no country can do it alone. This still holds as well. 80 years on, the IMF remains the “only bridge in sight” for better world economic security. To preserve it, major economies will need to be happy with their stake in it. 

* White House, United Nations Monetary and Financial Conference, 29 June 1944.

** Henry Morgenthau diaries, Book 749, 1-3 July 1944.

*** Chicago Daily News 17 March 1945

Ousmène Jacques Mandeng, Director, Economics Advisory Ltd, Visiting Fellow, London School of Economics and Political Science