The Bretton Woods Conference:
Birth of a Monetary System

Armand Van Dormael

This selection was excerpted from Armand Van Dormael’s book Bretton Woods: Birth of a Monetary System, published in 1978.

THE FUND IS BORN

After two weeks of negotiations, Secretary Morgenthau issued a statement to the press:

The International Monetary Fund has been born. The achievement has been an unusually fine demonstration to the world that forty-four nations can get together to iron out their differences and decide how they will work together in post-war monetary matters. Not all countries have received all they hoped to get, but the spirit of give and take is the best kind of omen for international cooperation and for what we may expect when we get around the peace table. The few matters still outstanding are not of supreme importance.

In the morning session on 17 July, Keynes, Morgenthau and other delegates discussed a possible extension of the conference. Keynes had raised the question. In matters of fundamental difficulty or disagreement, he said, most questions had been resolved. 'But the technicians and draftsmen can handle the detail properly only when you have settled what it is all about, and I am afraid they are dreadfully behindhand. They are doing a grand piece of work. It is not easy to keep track of it because none of us are seeing it as a whole, but in bits and pieces.' If they were hasty, errors and inconsistencies might slip in, and this would be dangerous. The British delegates concerned with the details were 'quite breaking up under the strain ... their efficiency is getting very seriously impaired.' And so was their health. Then there was another consideration:

There are certain final technical matters we haven't considered at all, what the lawyers call the final act, which embodies the results of this Conference. No attempt has yet been made to draft that, and it hasn't been considered by anybody. At present, no one has seen, as a continuous narrative, the work that has been done, and I think it is not quite fair to the Delegations that they should be expected to pass so quickly on things they have never had a chance, really, of reading as a consecutive narrative.

There was unanimous agreement that the conference should be extended.

'We have certain mechanical difficulties which I won't bore you with', said Morgenthau. 'We may have to get the President to get out an order to seize the hotel as of Wednesday night, and put troops in here to run it ... we may have to carry the manager of the hotel out with two soldiers! If that is necessary, Judge Vinson will give the orders . . . we ought to fix a date and then not postpone it again, because we will be in considerable litigation here with the hotel.'

'We want to do as good a job as we can,' said White, 'because when it is available the whole world is going to examine this document. There will be lawyers and technicians and writers. They are going to go through this with a fine-toothed comb and find out and interpret every phrase, and as Lord Keynes has said, some of them may give rise to substantial problems.' Several of his people were 'getting irritable and a little inefficient. I felt myself cracking up last night and I went to bed at 10 o'clock, had some sleep, and I feel fine now.' He thought it would be possible to get through by Saturday night. 'So I would strongly urge that you don't leave here until Sunday.'

'As a technician,' said Luxford, 'I don't believe that you can promise that this job will be done by that time.'

'Well you just have to', Morgenthau told him; 'you can't stay on here forever…. Why last night did it suddenly dawn on you that you couldn't do it?'

Judge Vinson intervened: 'Lord Keynes' men last night - Sir Wilfrid Eady and Mr. Robertson were just fagged. I am just merely saying that for Mr. Luxford.'

White also wanted time for a plenary session, a rather formal night occasion - in which the world can be informed of the successful conclusion of the Fund, and an indication that the Bank is going forward'.

Keynes suggested that the rest of the day 'be a whole holiday….Everybody wants to stop and think. I haven't been able to get hold of my technicians for three days.

There was unanimous agreement.

Two days later, Keynes walked upstairs to his own suite after dining with Morgenthau, and suffered a mild heart attack. Lady Keynes mentioned the fact to a friend she had met at the conference, and who was the mother of the Reuters correspondent. The news leaked out.

Keynes advised the Chancellor of the Exchequer that the conference would be extended.

The procedure of this conference is enormously complicated, the subjects under discussion are difficult and intricate, we are constantly sitting under chairmen who barely understand English and opportunities for the minor powers to waste time are unlimited. In the end we shall I believe produce satisfactory and workable document but here again there are lessons to be learned for future occasions.

In another telegram he said, 'With the exception of the Russians, who have pursued an unbroken policy of contracting into all benefits but out of all duties and obligations and a hesitation probably temporary by the Netherlands, all of the major delegations have agreed to subscribe to the Bank an amount of not less than their quota with the Fund.'

THE FINAL DAYS

Secretary Morgenthau asked the chairmen of several delegations who were members of the steering committee to see him on 19 July at 9 p.m.

'I think we will start', he said, 'and maybe Lord Keynes can catch up.' He introduced Mr Frank Coe, the technical secretary-general of the conference, and asked him to explain the purpose of the meeting. Coe explained that it was necessary to constitute a coordinating committee to complete the documents of the conference. Because the commissions had been so careful in their work, the coordinating committee would have practically nothing to do. Therefore he suggested that it would not be necessary to call it together, 'unless some confusion should develop which would require such a body'. There was general agreement that authority for this job should be delegated to Secretary Morgenthau.

'The next piece of business is the resolution on the Final Act', said Morgenthau.

Frank Coe read a statement to the effect that the conference secretariat, of which he was leader, would be authorised to prepare the Final Act, containing the definitive texts of the conclusions approved by the conference, and that no changes would be made at the closing plenary session. The coordinating committee could review the text, and submit it to the final plenary session. 'The signature, therefore, of the Final Act would be essentially or entirely, a statement by the signer that he had attended the Conference and had witnessed these things being done', Coe added.

Mendès France wanted to know when the plenary session would take place. It had tentaively been arranged for 10 p.m. on Saturday, after the farewell dinner, he was told.

'At what time do we get the last papers?', Mendès France inquired.

'That will depend, of course upon the time that the Commissions complete their work and the Executive Session is held. It might be explained that each of those articles and resolutions will be considered twice by the plenary session; one, in Executive Session where there can be free discussion, and the last a mere formal approval.'

This too was agreed, 'If there is no other business, we could make this a record meeting', Morgenthau said happily.

The records seem not to contain any evidence, and probably never did, of whether Keynes was asked to attend the meeting.

The meeting over, White and his group could go ahead and write up the Final Act; the coordinating committee would not be called together, and there would be little time for anyone else to read much of the text. White and his group worked day and night at combining the provisions that had been adopted by the various committees and commissions, plus those that had been secretly agreed upon in bilateral negotiations, and including those that had been prepared by the special committee and not been referred back to any commission meeting. The completed Final Act contained ninety-six pages and was written mostly in lawyers' language, practically unintelligible to the layman; the chairmen or other chosen representatives of the delegations were to sign it by noon on the day following the closing plenary session (held at 9.45 p.m. on 22 July). Before that could happen, however, the conference went through some of its most dramatic moments.

On 21 July, Keynes took the time to write a long letter to Sir John Anderson, the Chancellor of the Exchequer, who was preparing for a visit to the United States:

You should appreciate that you will be coming into an atmosphere of the greatest possible friendliness and good will. The Americans are inclined to be intolerably tiresome in method and in detail and with the execution of plans and in the mode of pressure they bring to bear.... One can and should approach them as a band of friends and brothers. They have their own difficult psychology and a dreadful tendency to suspicion and all the rest of it. But underneath, what I have just said is the real truth....

The fact that we have been able to work in such intimacy and for so long a period with the Americans, and more especially with the American Treasury, more as colleagues on the same side of the table, helping them to common ends and to make a good job of a piece of work, than trying to get something for ourselves has, as I think all of us agree, produced a relationship of intimacy and confidence which has never previously existed. We have tried most scrupulously to be reasonable and not to be greedy. We and we alone of the other Delegations have spent 90 per cent of our time trying to help them and not to make trouble for them. This is deeply understood and appreciated....

As I have already reported, one of the surprises has been the intimate and friendly relations with Morgenthau personally. As you know, I myself have known him for a considerable time. But until Bretton Woods I had never spent a minute with him that was not sticky. Now all that is completely changed. I have seen a good deal of him, and increasingly as time went on. Most of the interviews have been tete-a-tete. For the first time I have been able to discuss serious matters of business with him in quite long interviews without his getting into those moods which used to be so obstructive to proper relations. He could not have been more consistently kind and friendly, and even expansive....

The pressure of work here has been quite unbelievable ... carried on in committees and commissions numbering anything up to 200 persons in rooms with bad acoustics, shouting through microphones, many of those present, often including the Chairman, with an imperfect knowledge of English, each wanting to get something on the record which would look well in the Press down at home, and one of the most important Delegations namely the Russians, only understanding what was afoot with the utmost difficulty and expense of time.... We have all of us worked every minute of our waking hours practically without intermission for what is now four weeks.... I have resolutely refused to go to any committees after dinner (except once only against orders which promptly led to a heart attack, so that I suffered from guilt not less than from bodily discomfort!); whereas the others have been sitting in committees night after night up to 3.30 a.m., starting again in the committee at 9.30 a.m. next morning. How people have stood it all is a miracle....

Our personal relations with the Russians have been very cordial and we have seen quite a lot of them socially. We like them exceedingly and, I think, they like us. Given time we should, I believe, gain their confidence and would then be able to help them a good deal. They want to thaw and collaborate. But the linguistic difficulties and very poor interpretation are a dreadful obstacle, Above all, they are put in a most awkward, and sometimes humiliating, position by the lack both of suitable instructions and of suitable direction from Moscow.

Well we have survived. In my opinion the final products are clear and even aesthetic in presentation. I hope you will like the substance and we feel that we have protected your position not too badly.

One of the knottiest problems the conference had to deal with was the Russians' attitude on the quotas. It had been stipulated that the quotas of each country would be the same in the Fund, where they meant access to the facilities, as in the Bank, where they had to be contributed and would be used by the neediest. All major countries had agreed to this, except the Russians, who insisted on a $1200 million quota in the Fund, but wanted to contribute only $900 million to the Bank. After protracted negotiations the American delegation had accepted this, and the press had become aware of it,

In order to break the deadlock, Judge Vinson asked the chairmen of a number of delegations to meet during the morning of 21 July. Several delegations indicated their willingness to increase their Bank quota, in order not to change the aggregate, while subscribing the part the Russians refused to take. Keynes appealed to the Soviet delegate, who was present but had not yet spoken: 'He has heard in the course of the last few minutes that Poland and China are prepared to make increased contributions to meet something that Russia cannot afford.' The risks involved were limited, but, owing to language difficulties, this probably had not been understood by the Soviet delegation. The delegate from India had just remarked that, if the Russian contribution remained at $900 million, the Indian contribution 'will be half the Soviet contribution, which he would find difficult to justify. I do urge, most sincerely, that it is scarcely consistent with the honor and dignity of a great country to remain so uncompromising at this stage.'

The Soviet delegate was 'deeply moved by the willingness of other delegations to reach the goal which was mentioned'. He had, however, no authorisation to propose any other figure, In international organisations each country has to determine its contribution by its circumstances, and he could not see the necessity for taking into account other countries' circumstances too. Russia had suffered more from the war than India, He did not want to influence in any way any other delegation; it was up to each country to make its own decision.

That afternoon the same delegates met again, and Vinson had to announce that the Russian delegation had received no further communication from Moscow. China, Poland, the United States, Canada, and even the Latin American countries had all shown themselves prepared to increase their own contributions. Thus the total remained unchanged. Keynes suggested that the final table of contributions be presented at six o'clock that evening. There was unanimous agreement.

At seven o'clock that evening, the two principal Russian delegates came to see Morgenthau.

'Mr. Stepanov would like to tell you that he has the answer from Mr. Molotov', said the interpreter, 'and the answer is that he is happy to agree to your proposition.'

'Yes', was all Morgenthau could say.

'Mr. Molotov says that we will agree to increase our quota', the interpreter repeated.

'To how much?'

'To $1,200,000,000.'

'Mr. Molotov agrees to that?'

'He said that he agrees with Mr. Morgenthau.'

'Well, you tell Mr. Molotov that I want to thank him from the bottom of my heart. Now, I don't know what we will do, but I will have to send for Mr. Vinson and the others right away, and we will have to get busy.'

'Yes, Mr. Stepanov says that it is all right.'

Just so I understand', said Morgenthau, 'would you mind saying it once more?'

Mr. Stepanov repeated the message and the interpreter formulated it once more: 'Mr Molotov gives us the right to agree to a quota of $1,200,000,000 in the Bank. He said that he agrees with Mr. Morgenthau, and I should like to mention this too. Mr. Molotov says that he agrees to the size of the quota because Mr. Morgenthau asked the Soviet Delegation to do it.'

'I want you to say this to Mr. Molotov. This confirms the long time respect and confidence that I have in the Union of Soviet and Socialist Republics.'

'Mr. Stepanov says that he will telegraph what you told him just as it was said by yourself.'

'Well, this makes me very, very happy. The Conference was almost a success and now it is a complete success.

Before the Russian decision became known, Keynes had sent the following comment to London:

At the final discussion of subscriptions ... Russia stood pat on 900 and lost much honour and dignity in the process . . .. The Americans have been outstandingly anxious to meet Russia on every point. The Russian stonewalling tactics have been successful in getting nearly all concessions for which they have asked. Nevertheless they have overplayed their hand and seriously diminished their prestige before every delegation here present.

Another problem that came up at the end of the conference resulted from the fact that the representatives of China, France, the USSR, Greece, Ethiopia, Yugoslavia, India, Australia, Egypt and New Zealand, while they agreed to sign the Final Act, wanted to express reservations of one sort or another, most of them about their quotas.

At the executive plenary session on 20 July, Keynes took up the subject and wondered

whether there is not a possibility of some misunderstanding in the minds of the Delegates who wish to make reservations on particular points. So far as the U.K. Delegation is concerned we, in common with all other Delegations, reserve the opinion of our Government on the document as a whole and on every part of it ... we are at the present stage in no way committed to anything. We do not even recommend our Governments to adopt the result.

By expressing reservations on part of the document, the countries concerned seemed to suggest that the rest was in some sense accepted, and this might create some misapprehension of the position of those countries that expressed no reservations. He suggested that the reservations be retained in the minutes of the commission, but not be made part of the Final Act.

Judge Vinson appealed to the delegations that had made reservations not 'to make the task of friends more difficult'. He assured the Chinese delegates that the United States was not unmindful of the 'historic friendship that has existed throughout the years between China and our country; tell me that the United States does not recognize the glorious courageous effort that China has made'. As for France, 'we learned it at our mother's knees that France came to us years ago when we were in need. 1917 when millions of our sons joined common cause with France and others of her kind a historic statement was made by an American when he stood before the tomb of Lafayette, saluted and said, "Lafayette we are here." ' He trusted and prayed that all delegations that had expressed reservations on the question of quotas would reconsider their position.

Following these appeals, the reservations were withdrawn. They remained recorded in the minutes of the commission, but were not included in the Final Act.

During the morning of 22 July, the American delegation met for the last time. Morgenthau was happy. The previous night, at 11 o'clock, he had got the idea that it might be nice if the President sent a message of congratulations to the Conference on the conclusion'. He did not know where the President was, but around midnight he had sent him a proposed draft for a telegram, and the President's approval had arrived in the morning.

He thanked everybody for the splendid work the American delegation had done. 'It has been a team. It has been the most successful group I have ever worked with, the most pleasant, and I think it has demonstrated to me that on this sort of thing it is the way we should work with Congress.'

One after the other the delegates complimented Morgenthau on his splendid leadership', on 'your remarkable patience and your genius in directing the Conference'. The members of Congress, both the Democrats and the Republicans, promised to do the best they could to 'carry this thing forward to success'.

Ned Brown the banker promised to 'do what I can to sell it to the bankers of the country', although he 'didn't give any guarantee'. The Republican senators' Morgenthau felt, could take care of the opposition in Congress: 'I will leave Taft to you', he told Senator Tobey. 'He is your personal meat. I think you could take him apart and put him together again so that you would not recognize what he looks like.'

Senator Tobey, in turn, paid tribute to 'something that has impressed me tremendously, and it is the genius of these two men, Luxford and Bernstein. I have watched them in action and it is wonderful the work they have done here and I want to compliment them and I appreciate all they have done.'

Now that the conference was coming to an end, there was general agreement that 'every one here has to work as hard as they have been working to sell it. Our job isn't done until it is sold.' Morgenthau suggested that the delegation meet in Washington from time to time, and 'go along step by step', as a permanent body, to organise the campaign that would have to be conducted in Congress and with public opinion.

'Speaking of continuing our conversations in Washington,' Morgenthau concluded, 'I think the New Hampshire air has contributed much to the clear thinking of everybody, . . . Believe me, if the United States Government had a summer capital, I think it would increase the work by a hundred per cent.'

A formal dinner marked the closing plenary session. When almost everyone was already seated, Keynes's chair was still empty, He came in a little late, 'Tired, pale as a sheet, he was walking round the long table to his empty seat. Spontaneously everyone in the room stood up in complete silence while he made his way to his chair. It was an unspoken moving tribute to the master, the true prophet of this gathering,'

The message from President Roosevelt asking Morgenthau to convey his heartiest congratulations to the delegates on the successful completion of their difficult task was read: 'They have prepared two further foundation stones for the structure of lasting peace and security.'

Keynes had been asked to address the conference for the last time, and to submit the motion to accept the Final Act. He rose and said,

I feel it a signal honour that I am asked to move the acceptance of the Final Act.

We, the Delegates of this Conference, Mr. President, have been trying to accomplish something very difficult to accomplish.... We have had to perform at one and the same time the tasks appropriate to the economist, to the financier, to the politician, to the journalist, to the propagandist, to the lawyer, to the statesman - even, I think, to the prophet and to the soothsayer. Nor has the magic of the microphone been able, silently and swiftly perambulant at the hands of our attendant sprites, the faithful Scouts, Puck coming to the aid of Bottom, to undo all the mischief first wrought in the Tower of Babel.

He paid tribute to Secretary Morgenthau's 'wise and kindly guidance', and to 'the indomitable will and energy, always governed by good temper and humour, of Harry White'. But it had been teamwork, such as he had seldom experienced.

And for my own part, I should like to pay a particular tribute to our lawyers. All the more so because I confess that, generally speaking, I do not like lawyers. I have been known to complain that, to judge from results in this lawyer-ridden land, the Mayflower, when she sailed from Plymouth, must have been entirely filled with lawyers. . . . Too often lawyers busy themselves to make commonsense illegal. Too often lawyers are men who turn poetry into prose and prose into jargon, Not so our lawyers here in Bretton Woods. On the contrary they have turned our jargon into prose and our prose into poetry.... I have only one complaint against them. . . . I wish that they had not covered so large a part of our birth certificate with such very detailed provisions for our burial service, hymns and lessons and all.

I am greatly encouraged, I confess, by the critical, sceptical, and even carping spirit in which our proceedings have been watched and welcomed in the outside world, How much better that our projects should begin in disillusion than that they should end in it!

The end of his address, in which he stated his hope that the brotherhood of man would 'become more than a mere phrase', is quoted at the beginning of this book.

One of the most dramatic moments of the conference occurred when Secretary Morgenthau announced that the Russian government had agreed to increase its quota in the Bank from $900 million to $1200 million. The delegates applauded when they heard that the telegram from Moscow announcing this decision had just arrived. The Russian delegate expressed his gratitude to Secretary Morgenthau and stated,

The stabilization of the currencies of the various countries, the expansion of world trade, the balancing of international payments, long-term capital investments intended for the reconstruction and development of the democratic nations and especially for the restoration of economy of those countries who suffered severely from enemy occupation and hostilities - all these aspirations will have exceptional importance for the postwar organization of the World and for the maintenance and strengthening of peace and security.

Mr J. L. Ilsley, chairman of the Canadian delegation, hailed the results of the Conference as 'a great and even historic achievement'. He paid tribute to the technical competence of Harry White and his associates, to Morgenthau, and particularly to Keynes, who had so eloquently and fittingly presented the motion.

We find a happy fitness also in that delegate being Lord Keynes. Throughout the Conference, as indeed throughout his life, he has showered his ideas upon us and has occasionally nourished some of ours. His sudden insights, his revealing phrases, and, if I may say so, his passionate striving for what is reasonable and emancipating in human affairs, have contributed greatly to the progress and wisdom of our deliberations.

Mendès France, recalling the failures of the numerous economic and monetary conferences held between the two wars, stated that the delegates to the conference of Bretton Woods

may be proud of having inaugurated a new era in the history of these conferences....Because, as it is impossible in the modern world to circumscribe wars, it will be impossible to avoid the spread of unemployment, economic stagnation, excessive economic fluctuations from one country to another with all their train of miseries and sufferings.

As president of the conference it fell upon Secretary Morgenthau to deliver the farewell address. He stressed the fact that nations at the conference had 'had to yield to one another not in respect to principles or essentials, but in respect to methods and procedural details. The fact that we have done so ... is a sign blazoned upon the horizon ... that the peoples of the earth are learning to join hands and work in unity.' The American delegation, like all other delegations, 'has at all times been conscious of its primary obligation - the protection of American interests, And the other representatives here have been no less loyal or devoted to the welfare of their own people.' But the only genuine safeguard for the national interests lay in international co-operation.

To seek the achievement of our aims separately through the planless senseless rivalry that divided us in the past, or through the outright economic aggression which turned neighbors into enemies, would be to invite ruin again upon us all. Worse, it would be once more to start our steps irretraceably down the steep, disastrous road to war, That sort of extreme nationalism belongs to an era that is dead, Today the only enlightened form of national self-interest lies in international accord.

He took it as an axiom that governments would not tolerate prolonged and widespread unemployment any more. A revival of international trade was indispensable if full employment was to be achieved in a peaceful world, and with standards of living which will permit the realization of men's reasonable hopes'.

What are the fundamental conditions under which commerce among the nations can once more flourish?

First, there must be a reasonably stable standard of international exchange ....

Second, long-term financial aid must be made available at reasonable rates to those countries whose industry and agriculture have been destroyed. . . . Objections to this Bank have been raised by some bankers and a few economists. The institutions proposed by the Bretton Woods Conference would indeed limit the control which certain private bankers have in the past exercised over international finance. It would by no means restrict the investment sphere in which bankers could engage. On the contrary, it would greatly expand this sphere by enlarging the volume of international investment and would act as an enormously effective stabilizer and guarantor of loans which they might make. . . . The effect would be to provide capital for those who need it at lower interest rates than in the past and to drive only the usurious money lenders out of the temple of international finance, For my own part, I cannot look upon this outcome with any sense of dismay. Capital, like any other commodity, should be free from monopoly control, and available upon reasonable terms to those who will put it to use for the general welfare....

This monetary agreement is but one step, of course, in the broad program of international action necessary for the shaping of a free future. But it is an indispensable step and a vital test of our intentions. We are at a crossroads, and we must go one way or the other. The Conference at Bretton Woods has erected a signpost - a signpost pointing down a highway broad enough for all men to walk in step and side by side. If they will set out together, there is nothing on earth that need stop them.

A band played the 'Star-Spangled Banner'.

All eyes were on Keynes, and, as he rose and moved to leave the room, the delegates stood up again and sang 'For He's a jolly Good Fellow' and applauded.

Some chairmen of the delegations moved to room B to sign the Final Act. Others signed it the next morning.

The delegates then boarded two special trains, bound for New York and Washington.

PART I | PART II | PART III | PART IV