The Bretton Woods Model: the Principles of the System

Abstract

T HE Conference of July 1944 established the outlines of the international monetary scene as we have known it since the war-of the so-called Bretton Woods system. This system, although modified and shaped by events, remained basic to the international monetary framework until events in the early seventies seemed to show that it was breaking down and was ab out to be superseded by new arrangements. Whether this is indeed so is a question whose ans wer is determined by interpretation of very recent events-an interpretation which we shall attempt in a later chapter. Meanwhile, it is apparent that either as a continuing modified system or as a former system which was formative in new events, we must examine the Bretton Woods System in some depth. Thus, without embarking upon a laborious study of the Articles of the Fund and Bank we will attempt an evaluation of the model which was constructed at Bretton Woods. Later, when we shall have examined the working of the modelover thirty years, we may be in a position to form usefuljudgements. Bretton Woods created two international institutions-an international stabilisation fund and an international investment authority. Implicit in the organisation and structure of these institutions were certain principles as to how international trade and payments should be conducted. These we must regard as the essence of the Bretton Woods system. The institutions were designed to give expression to these principles, and, given the validity ofthe principles, the institutions could sooner or later have been perfected, ifnot in the first drafting then by aseries of adjustments made in the light of experience. In the interests of clarity it is perhaps best to discuss briefly the nature and validity of these basic principles and in doing so to touch upon the machinery which has sought to give them expression. The basic principles of the Bretton Woods system are as follows: (i) That exchange-rate changes are a matter of international concern and that exchange stability is best achieved by a system of exchange rates which are fixed in the short-run but may be varied from time to time to adjust fundamental changes in the international economy.