Bretton Woods, or how the dollar got its throne
On July 1, 1944, 730 delegates from 44 nations arrived at the Mount Washington Hotel in the White Mountains of New Hampshire to redesign the world’s money. The hotel had been shuttered for two years. The sheets were musty, the hot water unreliable, and Boy Scouts had been hired to sprint microphones between speakers at the plenary sessions. The war was still going. The delegates worked around the clock for three weeks anyway, because they had decided that the next peace would not look like the last one.
The last one had been a disaster. The gold standard, which countries had abandoned in 1914 to print war money, was pieced back together in the 1920s in ways nobody agreed on, then shattered again in the Depression as nations devalued their currencies to grab export markets from each other — a race to the bottom that made every economy worse. By 1944, the architects of the Allied financial order were determined to build something that couldn’t come apart like that.
Two men would shape the outcome. John Maynard Keynes was, by 1944, the most celebrated economist alive — a Cambridge man, a Bloomsbury figure, a Lord. Harry Dexter White was an obscure Treasury bureaucrat from Boston, Harvard-trained, the son of Lithuanian Jewish immigrants, and entirely unmoved by Keynes’s fame. They had been arguing by cable for two years before they met in the same room.
Keynes wanted a genuine international currency — the “bancor” — governed by a clearing union that would penalize both debtor and surplus nations for running imbalances. The elegant mechanism: any country accumulating too large a trade surplus would pay interest on the excess, creating pressure to spend rather than hoard. White’s counter-proposal was simpler and frankly American: peg the dollar to gold at $35 per ounce, peg every other currency to the dollar, and create a new fund to police the pegs. Since the United States held most of the world’s gold reserves, the bancor was, in effect, a proposal to tax American surpluses. White made sure it died.
What is less remembered is how it died. When delegates turned to the precise wording of the exchange-rate rules, it was a British economist — Dennis Robertson of the UK delegation — who proposed defining reserve assets as “gold and United States dollars,” fixing the dollar’s name into the architecture. Not the Americans. Britain, whose reserves had been bled dry by six years of war, was simply admitting what the balance sheets already said. The dollar’s central position was handed over, not taken.
From the conference came two institutions: the International Monetary Fund, to manage exchange-rate stability and backstop countries running short of reserves, and the International Bank for Reconstruction and Development — the World Bank — to fund the rebuilding of shattered economies. Keynes chaired the commission that designed the World Bank. He won the consolation prize.
The system held for nearly thirty years, giving the postwar decades their unusual monetary calm: currencies stayed roughly fixed, trade expanded, and Europe and Japan rebuilt without the competitive devaluations that had poisoned the 1930s. Then, in August 1971, President Nixon closed the gold window. The United States would no longer exchange dollars for gold at any price, to any central bank.
The bancor never returned. The dollar, stripped of its gold promise, kept its place at the center of global finance anyway — because by 1971, the entire system had been built around it, and no one had a better idea.
Sources
- The 1944 Bretton Woods Conference — National WWII Museum — delegates, setting at Mount Washington Hotel, dollar-gold peg at $35, Keynes and White’s roles.
- Harry Dexter White and the History of Bretton Woods — Institute for New Economic Thinking — White’s background, the Keynes-White rivalry, Harvard training and role as Treasury official.
- Bretton Woods Conference — Library of Congress — IMF and World Bank origins, conference timeline.
- Bretton Woods Conference — Wikipedia — the bancor proposal, Dennis Robertson’s dollar-language insertion, collapse in 1971.