Bretton Woods: Birth of a Monetary System – Part 2



Before reading the part II, recommends you to read the part I of the birth of a Monetary System. On 2 July, during the morning session, Morgenthau discussed with the American delegates how to handle the press. ‘The best plan in the world is no good if you can’t get Congress to accept it’, said White. It was necessary to meet the opposition that still prevailed in some influential papers, and get public opinion on the side of the Fund. On the first day of the conference, every accredited representative of the press had received the full text of the master document that was to be the basis of all the discussions, and they were told that they would be given all facilities to remain informed about the proceedings of the conference. This was an innovation in the conduct of international conferences, and the reporters liked it. But Morgenthau felt that this was not enough. Senator Tobey said that he had met ‘some saboteurs at this hotel doing all they can to stick a knife into this thing’. Representative Wolcott had just been told ‘that this is throwing money down a rat hole’. As Republicans, they had been opposing the Fund, and were now expected to continue their opposition, which they did not want to do. ‘If we are going to be successful’, Wolcott said, ‘we have to have public sentiment with us because public sentiment will control whatever action is taken by the Congress, and I think we have got to begin and start building public sentiment right today and now.’ Utilising the medium of the press to beat the opponents to the punch and to take the edge off their criticism seemed the most effective way of building up public sentiment. The Congressmen obviously did not know enough about the subject to answer the questions that were asked by press reporters; they suggested that White hold a press meeting every afternoon to explain the purposes of the Fund and to answer questions. ‘Let them have it with both barrels’, Tobey recommended.

The method was extremely effective. The Chicago Daily News reported,

Every afternoon at 3 Harry White, the dynamic assistant secretary of the Treasury Department, holds a ‘seminar’ for the press, at which he relates what progress, if any, has been made by the various committees, and discourses freely on the dark science of international finance. White is a medium-sized man with a trim mustache, rimless eyeglasses and thinning hair.

He formerly taught college economics, and as he gets into his stride with the 40 or more reporters who attend these sessions he seems to be back in the classroom. A reporter stumbles through a complicated inquiry, and White shakes his finger at him and says vigorously, ‘That’s a very intelligent question.’ The reporter, who is a little in doubt about it in the first place undergoes a lifting of the spirit and begins to take notes furiously as White goes into rapid-fire account perhaps of the evils of unilateral action in the manipulation of foreign exchange.

After reading part I and part II, you should definitely read the part III of the birth of a Monetary System. On 6 July, Keynes appeared at one of these press conferences – the only occasion on which he did so, As usual, White was present. So far as the press was concerned, the event was obviously one of the highlights of the whole conference, For an hour and a half, Keynes and White answered questions fired at them by the correspondents. Keynes warned that, if the Fund were rejected, Britain might have to resort to bilateral barter agreements in order to protect its economy. He ridiculed the ‘key currency’ proposals, which would ‘let the rest of the world go hang’. The Fund would make gold ‘a monarch subject to constitutional limitations’.

No one with any practical sense would make the gold reserves of the world worthless, but gold should not exercise ‘tyrannical powers over the world’.

‘It is thought here’, said a reporter, that the purpose of the Fund is to eliminate foreign exchange restrictions, but in your speech – a great point was made that the Fund will allow each country to Control all capital.’

‘The object of the Fund’, Keynes responded ‘is to remove exchange restrictions as soon as possible. It provides that Capital movements must be controlled, and indeed that is an essential condition. . . . I think you will find there is no possible doubt about that in the provisions of the Fund.’

At that point White intervened to state that countries which chose to impose restrictions on capital movements were allowed to do so, but ‘the United States does not wish to have them and they do not exist’.

Keynes explained that, in the long run, there had to be for every country a balance, between imports and exports. If the United States went on exporting more than it imported, there was no remedy. ‘The Fund can’t solve continuing problems of this sort. It can just give the opportunity for settling it in an orderly way.’ If he wished to criticise the Fund, he could make ‘quite a good job of it’. But all the alternatives he had seen were very much worse.

Using the material provided by White during his seminars, by the daily conference journal, and by rumours and leaks, and the statements by delegates or prominent visitors, the press reported daily about the proceedings of the conference. Some correspondents were able to obtain confidential information about the attitude of the Russians, the conflict between Keynes and the American delegation about where the Fund should be located, and many other matters. Comments were generally neutral or favourable. Despite all the available information, much of what went on, however, remained mysterious. Walter Lippmann commented, ‘It has been impossible for the general public to obtain any idea of what the Bretton Woods conference is about. Though it is concerned with questions which will affect men’s lives deeply, the language of monetary policy is understood by very few men in any country.

The Christian Science Monitor noted that ‘Fundamentals behind the monetary conference were partly hidden by the controversies over quotas, gold subscriptions, and other technicalities.’ The monetary plans were a, game between debtors and creditors, between the United States and Great Britain, or between Wall Street and Washington’. Although White had taken great pains to convince the press that the commercial banks would profit from the operations of the Fund, which would deal only with government agencies, the papers which had opposed the Fund were not convinced.

The New York Times commented, ‘The proposed agreement sets up a huge machinery and ignores all basic principles which must be adopted if such machinery could hope to be successful. American money poured into supporting weak foreign countries will be worse than wasted.

Another critical comment was that, instead of compelling a debtor nation to put its affairs in order, the Fund merely provided a breathing spell. While there was no objection to a breathing spell, the money provided would be wasted unless the breathing spell were used by the debtor country to strengthen its economic structures, so that it would not only get back to a sound monetary basis, but stay there.

As usual, the German press closely followed the monetary discussions. And so did the German government. Speaking to a group of economists and business leaders, Walther Funk said on 7 July 1944, while the Bretton Woods Conference was in process, that this was the wrong way to handle the problem. Instead of providing a complicated machinery to restore equilibrium in the balances of payments, it was much more effective to make sure that they did not get out of equilibrium. International commerce could not be maintained in orderly condition by monetary plans, but currencies had to be maintained in stable relations through commercial planning. If the Americans advocated a return to currencies backed by gold, this was only to make the dollar the international currency of the system. As for the Russians, they must be following the struggle between the two major capitalist countries with diabolical pleasure. In practice, the Russians were interested in the conference only because it assured them a market for their gold production, for which, because of the poverty of the Russian population, they had no internal use.


In the early days of the Conference, the French delegation was referred to as the ‘Comite’, and it bothered the French delegates. President Roosevelt was furious at de Gaulle, and fed up with the general’s manoeuvres to become the sole and undisputed leader of the French Committee of National Liberation. While the Bretton Woods conference was going on, the President, in Washington, modified his position, and became more favourable towards de Gaulle. By the end of the conference it had become customary to refer to the ‘French’ delegates, and they had become a little happier; but their problems were not over.

Mr. Mends France had flown from Algiers to the United States, and had briefly met Morgenthau on the stairs of the hotel. Morgenthau had understood that he was ‘terribly upset’ about the attitude of the American delegation: ‘he can only draw one conclusion – that we are unfriendly to his Government’, Mends France had not threatened a French withdrawal, but the case was serious, and Morgenthau had another crisis on his hands. He promised to see the Frenchman in the evening. White reported that at a committee meeting Mends France had warned that, because of the French quota, his government might not participate, and White thought it ‘inexcusable for a country like France to make that statement’. Vinson, however, thought ‘he had to make a strong statement, because, as I saw it, there is hostility in this group, and if he didn’t put a strong speech in, it might be others around that might replace him. I didn’t take his statement seriously…. I think he is a pretty fair poker player.’

One of the problems of the French delegation, causing them great anxiety, was the fact that Holland, Belgium and Luxembourg had recently signed the Benelux agreement. The combined quotas of these three countries was slightly larger than that of France, and the French feared that Benelux might get even closer together, and be given the fifth rank in the table of quotas, qualifying them automatically for a seat on the executive Committee of the Fund.

Morgenthau had agreed to see the French delegates on the evening of 15 July, at nine o’clock. He was there, but the French were late for the appointment, and everyone was becoming restless. Morgenthau suggested that White, Vinson and the other delegates wait for another five minutes and then go on with their own work, but soon afterwards Mends France and Istel at last arrived. Morgenthau asked them to speak their mind. Mends France explained that France had hoped to be number four, but that for political reasons China had been given number four, and France number five. This was understood and accepted. He had hoped, however, to be more successful on other matters, but, ‘since we are here, on all questions we were interested in, we were refused’. In April he had been assured that, since France was considered a devastated country, it would have to pay only 75 per cent of its gold contribution. ‘Then this thing was wiped out and we didn’t receive it.’ Morgenthau replied that France had not been singled out, and that this would apply to all countries. He was worried because Mends France had told him that he would go back to Algiers saying that the Americans were against France.

Istel indicated that he was aware of the deal that had been made with the Russians, for whose sole benefit a special clause on newly-mined gold had been granted. At Morgenthau’s request, France had earlier backed the proposal behind this, not knowing that in fact it would work to the disadvantage of France.

‘But I don’t want to discuss again all this question’, said Mends France. ‘What I wanted to tell you is that, that I wanted to give you a few examples, and it is bad, but I can give you a lot of them. I wanted to give you a few examples to show you that every important decision was taken since we are here, and all this decision is without you willing it and without you and of course an enemy of my country, but these questions are always settled against our interest, and I give you the first example, which was this question about devastated countries. A second example is the example about quota. I am sure, and I don’t say it to be polite, because I am sure you think it, I am sure you like my country and you want to be good with it, and I saw this morning when I spoke with you, that of course you were willing to find a solution and I am grateful to you, having made what you could, but in fact what happened, that in this situation, we didn’t get what we hoped for and why – because when we started this question two or three days ago with Mr. White, we thought we would have a talk between us and he would have an agreement and this morning you told me it is too late.’

Morgenthau interrupted him: when this was discussed, the committee meeting was still going on, and the French delegation could have argued its case.

‘No,’ said Mends France, ‘because what happened, I went to this Committee this morning and we were suddenly given a list and we saw on this list we had four hundred and Fifty and I spoke and said we don’t accept it. Then Lord Keynes said it is too late, “You can not change these things, it is a total which is eight and seven fifty and if somebody gets more, then it is necessary to take it to another man, because the total must not be changed.” Then what was to do at this moment – I understood it was very difficult. Then I came to you and I saw you were willing to find something, but the direct difficulty, you told me, is that you have given a promise to the Chinese they must always be a hundred more than us and if you give us, for example, fifty, you have to give fifty to the Chinese, and the result is instead of having increased the fifty, you have increases of a hundred. But this promise you make to the Chinese, and if you made this promise, I have nothing to say against it, but this promise you made has a result that you give to the Chinese of course more than they have to receive, because you know, as well as we all know, that wasn’t correct calculation with the correct quota, with the formula. We all know if China will not get so much than she has, then we have not to be a victim of this situation and when you told us, not you, but Mr. White, one month ago, that we will have five hundred, we thought it will be so, and now we only have four hundred and fifty.’

White had had to leave the meeting, and while Mends France admitted that this had not been a firm commitment, he still wanted five hundred. White had promised to talk to the Secretary, but nothing further had been heard. The Frenchman had wanted to talk to Acheson, but that had not been useful, ‘And then this morning when we received this sheet it was too late…. That is another example.’

‘But’, Morgenthau wondered, ‘I asked you whether twenty-five million dollars would do any good. You said no.’

‘You see, I am not a bargaining man.’

‘I am not either, but I asked you if it would help any and you said it would be of no use.’

Vinson intervened: ‘Now it seems to me in all friendliness that you are making a mountain out of a molehill.’

‘And how will it look’, said Mends France, ‘when I come back to my people and explain to them, “I went some months ago to Bretton Woods, and explained our position. I told them we want to ask this, this, and this, and in all these questions I have to tell you I come with zero.” That is the fact. Then comes another example. Yes, it is very bad, as you know it is. Now, we have spoken with the Fund. Now we speak with the Bank. You have a council of Executive Directors in the Bank, the same kind as the Fund. That is to say, a council in which five permanent countries will be represented. And as our quota is the fifth, we thought that, like in the Fund, we ‘ will have the fifth seat. Now what happened today? We heard for the first time that only three permanent seats would be given.’

None of the American delegates had heard about this. It might have been suggested, but no position had been taken, and nothing had been decided,

‘But please,’ said Mendes France, ‘but sometimes I come too early and sometimes I come too late. Then I prefer to come now too early as too late, because it is very expensive in these last days when I come too late.’

Morgenthau asked the American delegates whether France would have a seat if there were five members on the Executive Committee, Luxford thought that if there were five appointed members and France subscribed the fifth quota, she would have a seat.’

‘But I don’t want to speak about technical questions’, said Mends France. ‘I want you to understand this. I must tell you frankly I have not an easy position in Algiers. I understand why you are laughing now…. Then when I go back to Algiers and have to explain all these things, my colleague will say, “You have lost on the quota, you have lost on the devastated countries, you have lost on these, and these, and these – then what do you bring back to us? What is the good news you bring back? What do I have to understand?” Then what I said this afternoon to the Commission – and I said it because it is true – it is not that I am leaving the Conference, but what I said – and it is worse – that if there are those I am describing now, my Government will not accept it, and I don’t want to be in such a position.’

‘If you don’t mind my saying so,’ Morgenthau remarked, ‘I think your statement is a little bit too strong.’

‘It is strong like the truth’, the answer came back.

Morgenthau asked whether the request for a seat on the Executive Committee was the last one.

‘It is the last one I wanted to give you, but if you want to have some others, I can give you – ‘

‘It is enough’, said Morgenthau. ‘Let me ask this. I think that, Mr. Mendes France, about the Government and the little threat there which I don’t like -‘

‘It isn’t a threat, You must not think so. I give you my word it isn’t a threat. It is an exact position. I have explained this morning about Belgium and Holland and Luxembourg.’

But Morgenthau had learned all about the customs union; he had learned his lesson. What worried the French was that the Benelux quotas would amount to 510, as against 450 for France.

‘This was really the new fact which changed the position’, Istel explained.

Vinson asked what was the position of Belgium, the Netherlands and Luxembourg ‘in respect of France having a seat among the mighty’.

‘It is very simple’, Istel started to say, but Mends France ordered him, ‘Don’t speak.’

‘I will speak to you afterwards. You know the position of Luxembourg’ was all lstel could add.

Morgenthau wanted the Frenchmen to understand how difficult it was, when you have ‘forty-four nations to juggle and put together into a picture puzzle’. The thing that had bothered him, and which had now been corrected, was that the French delegates might have had the impression that anything he had done would be directed at France. ‘I don’t know who is handling this thing, but let’s throw our weight to five Directors’, Morgenthau suggested,

This satisfied the French delegates. ‘Mr. Secretary,’ said Mends France, ‘I must tell you, you spoke with me about this, and I thank you very much for having put five countries, and I told you, of course I would back it and I told you I am grateful. But, please, you must understand that taking this position was not so easy with us, because on issues with Belgium and Holland it was not quite easy, but as I had promised you, I did it and I thank you for the idea you had for us.’

Luxford thought they had already asked for this at Atlantic City.

‘Yes, and we thank you for it’, said Istel.

‘And I thank you for it’, Mends France echoed.

‘Once is enough’, said Morgenthau.

‘But you had the feeling I had some bad idea’, Mendes France wondered.

No, Morgenthau was simply concerned that there had been this impression that the American delegation had been unfriendly to France, and ‘I told you I would not go to bed until I tried to correct that impression. Now you say you have not got that impression and I can go to bed.’

Thereupon the French delegates left, and Mrs. Morgenthau, who had followed the conversation, asked, ‘Does he feel happier?’

‘Yes,’ said Morgenthau, ‘he said tonight that he did not feel that the American Delegation and the Conference were opposed to France. Now I understood him to say this. That is the only thing that bothered him and the man is a very smart, intelligent fellow and I think, a very sincere fellow. And I certainly didn’t know it, because you can’t know all these things, but it never occurred to me that when we were fighting the Russians on the twenty-five percent that France was one of the most devastated countries and that they were affected. It never occurred to me.’

‘Well,’ said Morgenthau, ‘let’s call it a night.’


The position of the Russians had been anomalous from the beginning. Why, with their system of state trading and absolute government control over imports and exports, they should become part of an international organisation that would not allow restrictions on current transactions, but would be ready to assist governments whose citizens, by their multitude of uncoordinated decisions, had led the country temporarily to live beyond its means, was hard to see.

White had insisted all along that ‘the Fund needs Russia’, and Morgenthau shared this view, though, to get the reluctant Russians to Bretton Woods, they had all but had to drag them there. In the end Russia had sent to the conference a strong delegation, headed by Mr. M. S. Stepanov, Deputy People’s Commissar of Foreign Trade.

Within the American delegation there was disagreement on how far to go along with the Russians, particularly because they were demanding that provisions applicable only to them be written into the Final Act. They wanted, for instance, to be able to change the value of the rouble, if the change in parity did not affect international transactions, without having to refer the matter to the Fund. White had agreed, although he could not

figure out what purpose it could be and neither could the Russians. We have asked them time and time again to cite us a single illustration of what they would wish to accomplish in parities that would not affect international transactions. They couldn’t give an illustration, but you might conceive a hypothetical circumstance in which they would want to call their gold a different unit or something for domestic bookkeeping and still keep their exchange rates the same.

The provision, White thought, might save us a lot of trouble, because if this phrase isn’t there, Congress might take the position, do we understand we can’t alter the gold content of the dollar, which has always been our right, unless it is appropriate to correct a fundamental disequilibrium. If we could be able to answer ‘no, you could do anything you want as long as it doesn’t affect international transactions’, we are talking at the kind of nonsensical level, but that is the level at which those discussions take place.

‘What reason would we have, Harry, to change the gold value of the dollar if it didn’t affect international transactions?’, Marriner Eccles wanted to know.

‘No reason’ said White. ‘It is nonsense.’

Brown, the banker, thought that putting in this provision would be an invitation to every other country to monkey with it and get them in trouble with the Fund.’ The surest way to have the whole thing rejected by the American people, was to put it in. ‘I think you have to meet the Russians head-on on this.’

Eccles thought that ‘the Russians have … determined to have more than it is possible to give them, without breaking up the Conference’. The outlook was not very bright, and their interest in the success of the conference was entirely different from that of capitalistic countries. ‘Their interest is openly to get this credit.’

‘What is China’s interest and Poland’s interest and Greek interest?’, White asked. He thought it was necessary to make concessions to Russia.

To Brown, the Russian attitude proved that for them this was not a stabilization fund, ‘and as I see it, it is a grab-bag’.

This made White angry. He went into a long speech: ‘No. I don’t think that is an appropriate supposition…. A Stabilization Fund is a fund to provide exchange to take care of the cyclical swings in the demand for foreign exchange. Those cyclical swings may be caused by harvest failures, depreciation abroad, certain breakdowns of one kind or another when you are unable to export your goods at a price which will enable you to keep the imports you want. USSR has advantages which no other country has. She has large gold production, she has tremendous productive capacity, and last and most important, she herself can determine how much she is going to sell. No capitalistic country can do that, because they have to sell at a profit. Now then, when USSR says, very frankly, “We are going to use this Fund to buy things because this is a time of need and this is what a stabilization fund is for and we will pay you back after five, six or seven years”, I say that is a stabilization operation and no different than what happens in any other country. . . . The reason why I go into detail here is because there is a tendency completely to distort the analysis and to point a finger at USSR, because they are saying frankly what the other countries are going to do anyway. What do you think Poland and the Netherlands or France or Belgium or China are going to do? If they didn’t do it, in my judgment, their financial ministers would be stupid. That is what they should do, and that is what the Fund is for, and the only consideration that we have to bear in mind is, can they repurchase that within the period we are thinking of, within the four, five, six, seven year period. If a country cannot repurchase it, then she has no business in getting some money from here, but should get it in thirty or forty year loans, and it is even questionable whether she should get it there…. From the point of view of the ability to repurchase foreign exchange which she buys from the Fund, I put USSR on top of the list and instead of giving her one billion dollars you could give her two billion and the Fund would operate still better and your exports would do a lot more business. That is quite a speech, but I think it is necessary in the light of the misunderstanding which is prevalent not only here but outside on what the nature of the Stabilization Fund is.’

‘That is an honest difference in point of view’, said Eccles. ‘I don’t agree with you. Your speech hasn’t changed my point of view a particle.’

Neither did Brown like the agreement that had been made on the technical level ‘that Russia should get eight hundred million. That was not published but you gave them an agreement to give them twenty-five per cent off in gold payments which isn’t important, which wasn’t published, just as the eight hundred million wasn’t published but which is very important when you take the world as a whole as to the amount of gold you are going to get . . . you are going to hurt yourself. The newly-mined gold … two hundred million more than the eight hundred million that was agreed … twenty-five percent…. Now I think … the Conference is stalled absolutely stalled by these Russian demands. I think the time has come when unless it is resolved that the Conference will fail just because it can’t complete its task within the two weeks, that it is necessary for us at this time to show our teeth, something which I dislike to do.’

‘Not unless they are good teeth’, said White.

Tell the Russians that the Fund is more to their benefit than to ours, Congressman Wolcott suggested. ‘I don’t like to say, “Take it or leave it”, but that should be our attitude anyway.’

‘I think the delegation should make up its mind and instruct the negotiators’, Judge Vinson said.

But to Eccles, ‘the question of negotiations is over. I think you have reached the point where you say this is taken up, this is the position and that is final. Let’s adopt their tactics.’

White had been warned. He thought there was a chance in attempting to bargain. ‘It is kind of a ticklish situation in which I really think we have the final cards, but they may not break out that way. You see, they may not turn it down that way. They will say, “We will consult with Moscow”, maybe. And we sit and sweat and wait.’

‘That will give us some time to go up to the mountain and play some golf’, Wolcott concluded.

The Russians were tough negotiators. On 3 July the Soviet delegate had privately indicated to Morgenthau that he hoped the Russian quota would be only slightly less than the British quota, which meant $1200 million instead of the $800 million which had been discussed before. Morgenthau thought there must be some misunderstanding, but ‘In spite of this regrettable misunderstanding … the delegation of the United States will associate itself in any efforts by the Soviet delegation to obtain an increase at this Conference in the quota for the Soviet Union.’

According to White: ‘they are basing their desire to have a billion two on the grounds that from an economic point of view, from their economic potentialities, from the fact that they are a rapidly expanding economy and expect to play a major role in international monetary and economic affairs’. On the other hand, the Russians wanted a very substantial reduction in their gold contribution, ‘because they say that during the next years they cannot get dollars or other currencies because they are not in a position to export anything until they restore their factories’.

On 11 July Morgenthau asked the Russians to come down and see him, because this was ‘the first time I have had this experience in dealing with your government’. There had been an honest misunderstanding about the $800 million, but White had suggested two alternatives: either a $1200 million quota, or a $900 million quota with the right to reduce by 25 per cent the amount of gold contributed.

But the Russians wanted $1200 million and a 25 per cent reduction. Morgenthau was ‘quite shocked that two great nations should begin what we call “to horse trade”. . . . That isn’t the spirit which my Government has approached this problem with; it isn’t the spirit expressed by Mr. Molotov to me; it isn’t the spirit of your Minister of Finance, where he said we would do this thing side by side, which means like partners.’

Stepanov did not understand English. The interpreter translated Morgenthau’s words, and gave Stepanov’s reply: ‘Mr. Stepanov’s idea is such that our Government really consented not to object against the positions which were made by your technical experts, in spite of the position of ours, because it was regarded to the mutual benefit and we didn’t interfere, but wanted to collaborate with the Government of the United States.’ Stepanov was of the opinion that ‘there would be no difficulty in settling these problems if we try to understand each other properly. The Russian questions which we are not entitled to decide in case they have been already decided and agreed upon in Moscow – among these questions is the question concerning the loans of twenty-five per cent.’ By ‘loans’ the interpreter meant something different, but Morgenthau understood what he wanted to say.

The quota suggested by White was very tentative, very approximate, the interpreter continued. But in Moscow ‘those people who are in a position to see more clearly the data available for them concerning our financial position, they say that the amount which was just mentioned is approximate to that amount which we are entitled to get. And the American Delegation would see very clearly that we were right in this respect after we will give you the data concerning our financial position, including the national income.’ Stepanov could not decide anything without the consent of Moscow.

Morgenthau was puzzled by this method of negotiation: ‘I am not a diplomat, I am not a lawyer, I am just a farmer’ he said. The interpreter answered. ‘Mr. Stepanov says he is no diplomat himself – no lawyer, no financier, just a businessman.’ And he went on to say that Russia would be glad to support the position of your country and your personal proposition … we simply would like to occupy the place which we regard we are entitled to, according to the calculations which we have’.

Morgenthau said that he would be glad to recognize the-importance of Russia in the world, ‘but we have no real data about Russian resources and therefore that is why I said we had to do this largely based on your military’ successes. We have not-been furnished any data, you see?’ After the Fund came into operation, Stepanov said, Russia would be glad to present all the data required, ‘and you would see very clearly that this sum is very approximate ‘to the exact sum you have arrived at on the basis of the American formula’.

Two days later, since nothing had been heard from the Russian delegation, Morgenthau saw Stepanov again. Unfortunately, no word had been received from Moscow. Mr. Stepanov ‘is not sleeping too well at night waiting for the answer’, the interpreter said. He had sent another cable but received no answer. ‘What I would like to say to Mr. Stepanov, with all courtesy, is that the whole Conference is being held up , Morgenthau remarked. Ambassador Harriman had cabled from Moscow that the Russian delegation had received instructions but he had not been able to find out what the instructions were. There was going to be a meeting in the afternoon, and the American delegation would have to take position publicly on the Russian attitude. Morgenthau made the suggestion that the American delegation would support the $1200 million quota, and would also agree that the newly-mined gold would not have to be counted as part of the national reserves. This, he thought, was more important than a 25 per cent reduction in the gold contribution. Since the position of Russia was unique, in that it was the only country that had suffered devastation from the war and was at the same time a gold-producing country, by taking this position the American delegation would keep out of trouble with the other countries that had been devastated. If Russia received a special treatment because of the war damage, ‘then all the other countries who have also been devastated will want the same treatment’.

The meeting where the quotas were to be announced was being held shortly, and it was necessary to make a decision.

‘Now, we feel very sorry that we have to do this thing publicly, and that we can’t wait’, said Morgenthau; and we don’t want to be discourteous. But we must go forward, and therefore at this two o’clock meeting when this question on the quotas comes up, that will be the position of the American Delegation. And I sincerely hope that when Mr. Stepanov gets word from Moscow that he will be able to concur.’

‘Mr. Stepanov wants to thank you, sir, sincerely’, said the interpreter, ‘for your very good attitude towards our position.’

Having obtained about all they wanted, the Russians came to see Morgenthau the following day. They wanted to bring up again the point that a country would be allowed to change the par value of its currency if this did not affect the international transactions of the other members of the Fund. White had already gone a long way to meet the Russian demand, and had changed the paragraph which now said that the Fund would ‘concur’ in a proposed change, if it was ‘satisfied that the proposed change does not affect international transactions of the member proposing the change’. The Russians wanted this to read that the country could, in that case, change the value without the consent of the Fund, Stepanov suggested that just the USSR should be given that right.

But White objected, ‘If we did, it might be clear to the technicians, but it would create a storm of protest and suspicion on the part of the people who do not understand – in Congress and with the public.’

This was becoming too complicated for Morgenthau and he asked White to carry on the discussion. White said that, as a -result of the redrafting they had agreed upon, the two provisions were almost identical. There was no difference of substance.

‘Mr. White finds that both languages are identical, then Mr. Stepanov proposes to take our wording’, said the interpreter.

‘Not identical; almost identical. The substance is the same’, White answered.

‘It is the “almost” we want to liquidate, do you see?’

White explained again that, since the Fund must agree, there was no difference in substance. But the Russians wanted their wording, which said that they would only have to inform the Fund of the proposed change: ‘We have studied the American -proposal very carefully…. Still, we think that our proposition is the one that is feasible and that it ‘will be accepted.’

There followed an intense discussion, each sticking to his own position, ‘We will go in the other room and you just relax’, Morgenthau told the Russians.

After a while the American group came back; White told the Russians that ‘we have a suggestion that will meet you and probably please you’.

Luxford, the lawyer, started reading: ‘ “A change in the par value of a member’s currency affecting the international transactions of members may be….” – you don’t have to propose it, it doesn’t affect it.’

‘That is identical with yours’, said White.

‘And what about the changes that do not affect those transactions?’, Stepanov wanted to know.

‘Don’t raise them’, said White. ‘That is identical. The reason why we have a little preference for that is because it doesn’t highlight the change, do you see? But you don’t raise the question…. Probably that is equally good, or better from your point of view; but it is better from ours, because it doesn’t stand out.’

As far as Stepanov could see, there was no more disagreement on substance. He agreed to it. But since the question was of great importance, Moscow would have to agree also. Therefore, he insisted on the wording he had proposed at the start of the conversation, since there was no difference of substance.

Morgenthau was exasperated; ‘Mr. Stepanov has said two different things. First he said he would like time to consider the language of Mr. Luxford; then in the next breath he has changed his mind and has gone back to his own language.’

The ‘interpreter explained that Mr. Stepanov had not changed his mind, but that he only wanted to point out that since there was no difference in substance, it would be easier for everyone to take his wording, since in that case he would not have to refer to his government.

‘You mean you have to cable?’

‘Cable. Mr. Stepanov says to avoid loss of time, he is offering his proposal.’

‘I am laughing because he knows when he says “Cable” to me, I go like this!’ said Morgenthau, gesturing.

‘Same reaction on our side. It is a point of primary importance concerning our domestic affairs. There is no disagreement about the substance.’

‘What is the use?’ asked White,

‘Well, look, on this particular issue,’ said Morgenthau, ‘I think it will be easier for the Conference to accept the language Mr. Luxford suggested, but we also like to be reasonable and therefore we will accept your language.’

‘Thank you very much.’

‘You tell Mr. Stepanov I am afraid it is the last time he is going to say thank you at this Conference!’ responded Morgenthau, laughing.

There were more points to be discussed. The Russians wanted to know where the Fund’s gold would be stored. Then there was the matter of the information that the Fund requested: Russia had never published many detailed statistics regarding newly-mined gold, national income, the index of prices, and so on, but it was ready to accept a programme such as the one proposed by the American delegation,

The Russians also thought that the rates of interest to be charged by the Fund were too high, and they were ready to discuss again the 25 per cent reduction in the gold contribution for devastated countries, bearing in mind that, since Russia had suffered the heaviest devastation, she would have the full reduction. They also had a few more points to make about the Bank. ‘May I say this to Mr. Stepanov?’ Morgenthau asked. ‘He has brought up enough questions to take us ten hours to discuss, and Mr. White has a Commission at ten o’clock. What meeting is there now?’

‘Why do they bring up all these things?’ Morgenthau asked. There was no answer.

Share on
© 2024 *This is not the official website for the IMF. The views expressed on this website are entirely those of the authors of each article.