The Ministry for the Future

49

In July of 1944, the United States government convened a group of seven hundred delegates, from all the Allied countries, to design the postwar financial order. They met at the Mount Washington Hotel in Bretton Woods, New Hampshire, and there, after three weeks of meetings, they published recommendations that when ratified by the member governments resulted in the International Bank for Reconstruction and Development, and the International Monetary Fund. The intended results of these new entities included the establishment of open markets and the stability of member nations’ currencies.

An international trade organization was also proposed, but when the US Senate failed to ratify this part of the proposal, it was not founded. Later the GATT, the General Agreement on Tariffs and Trade, was established and took on the functions that the failed ITO would have fulfilled. Later the GATT was superseded by the World Trade Organization.

John Maynard Keynes, the chief British negotiator, also suggested at Bretton Woods that they found an International Clearing Union, which would make use of a new unit of currency to be called a bancor. The purpose of the bancor would be to allow nations with trade deficits to be able to climb out of their debts by calling on an overdraft account with the ICU that would allow them to spend money to employ more citizens and thus create more exports. Nations making use of their overdraft would be charged 10 percent interest on these bancor loans, which could not be traded for ordinary currencies, or by individuals. Nations with large trade surpluses would also be charged 10 percent interest on these surpluses, and if their credit exceeded an allowed maximum at the end of the year, the excess would be confiscated by the ICU. Keynes thus hoped to create an international balance of trade credit which would keep countries from becoming either too poor or too wealthy.

Harry Dexter White, the assistant secretary of the US Treasury and the chief American negotiator, said of this plan, “we have taken the position of absolutely no.” As the world’s biggest creditor and holder of gold by far, the US was in a position to enter the postwar period as the sole owner of the major global currency, the US dollar, which was to be backed by gold reserves. White proposed an International Stabilization Fund, which would place the burden of debt firmly on deficit nations; this later became part of the World Bank.

So at Bretton Woods, White’s plan prevailed over Keynes’s, and in the absence of the International Clearing Union and its bancor, postwar reconstruction and subsequent economic development was funded by the US dollar, which became the de facto global currency. The imperial coin, so to speak.