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Feb. 15, 1 9 4 5

1 HE actual details of a financial and monetary agreement may seem mysterious to the general public. Yet
at the heart of it lie the most elementary bread-andbutter realities of daily life. What we have done here
in Bretton Woods is to devise machinery by which men
and women everywhere can exchange on a fair
and stable basis, the goods which they produce
through their labor. And we have taken the initial
step through which the nations of the world will be able
to help one another in economic development to their
mutual advantage and for the enrichment of all.
—From the address closing the Bretton Woods Conference.

Secretary of the Treasury,
President of the Conference.

Bretton Woods is the symbol of a new kind of cooperation. It
stands for proposals looking toward cooperation in the solution of
international monetary and financial problems. Drafted by representatives of 44 nations in a conference called on the invitation of
President Roosevelt at Bretton Woods, New Hampshire, in July 1944,
the proposals are the outgrowth of three years of study by the technical staffs of the Treasury, State Department, Board of Governors of
the Federal Reserve System, and other agencies of the United States
government. For a period of more than a year, informal discussions
were held with representatives of other governments associated with
us in winning the war.
As part of the economic foundation for a peaceful and prosperous
world, the Bretton Woods proposals call for the establishment of two
international institutions, the International Monetary Fund and the
International Bank for Reconstruction and Development. Although
related in purpose, these institutions will perform quite different functions. The Fund will be concerned with the maintenance of orderly
currency practices as they relate to international trade, while the
Bank will facilitate the making of long-term international investments for productive purposes.
Acceptance of the proposals by the United States will require
Congressional action.

What the Fund Will Do
The fundamental purpose of the International Monetary Fund is to
promote the balanced growth of international trade. It will do this
in three ways. First, it will stabilize the value of all currencies in terms
of each other. Second, it will progressively remove barriers against
making payments across boundary lines. Third, it will provide a
supplementary source of foreign exchange to which a member country
may apply for the assistance necessary to enable it to maintain stable
and unrestricted exchange relationships with other members.
During much of the period since the first world war, unstable
exchange rates have seriously interfered with trade and the settlement of international balances. People who buy or sell abroad need
to know today what their money will be worth tomorrow, and a year
hence, in terms of their own currency.
Restrictions on payments, which have in the past been among the
most serious obstacles in the way of international trade, take a number of forms. In some countries, importers are not permitted to purchase the dollars or pounds reguired to buy goods in the United
States or England. In ether countries, of which Germany before the
war was an example, foreign trade was disrupted by the use of
so-called multiple currencies. Germany also relied heavily on barter
arrangements—"we will buy your coffee if you will accept our
machine tools in payment." Barter is at the opposite end of the
scale from freedom in international trade.
During the war, many new restrictions have been devised and employed for reasons of military necessity. Unless uniform standards
can now be developed and generally adopted, the entire jungle of
controls may be extended and intensified in the postwar period. We
in the United States believe that the greatest possible freedom should
be given to our own businessmen engaged in international trade.
But we know that this freedom will be meaningless unless other countries accord an egual measure of freedom to their businessmen.
Exchange rates must be stable
The Fund proposal provides for stabilizing the value of world currencies. This is a subject that concerns every trading nation, the

United States more than most. When an American sells abroad, he
wants to be assured that the buyer's currency will have a constant
value in terms of dollars. The reason is obvious. If, for example, he
receives payment in Brazilian cruzeiros, the rate of exchange will
determine the number of dollars he finally receives for a sale in
Brazil. Even though the terms of the sale call for payment in dollars, which is not unlikely, the exporter will still be concerned with
the stability of the cruzeiro, since a fluctuation in the dollar-cruzeiro
exchange rate will alter the cost to the Brazilian buyer. Specifically,
any depreciation of Brazilian currency raises the cruzeiro cost, possibly to a point where the Brazilian can no longer afford the purchase.
An American exporter, oddly enough, may be equally concerned
with currency stability in other countries, Holland, fpr example, in
which he neither sells nor expects to sell. This interest arises from
the fact that producers in Holland compete for the same Brazilian
market, and depreciation of the guilder would give the exporter in
that country an edge over the American who, on the basis of efficiency
in production and quality of product, might be able to hold his own in
any market.
Under the Fund proposal, no member may resort to exchange
depreciation simply to gain a competitive advantage in world markets. The proposal recognizes, however, that under certain conditions it may be necessary to change the value of a currency. For
example, prices in a given country may remain relatively high while
world prices generally decline. If so, the country's exports will drop
off and its imports, over the short run, will tend to increase. This
situation may be corrected by a downward adjustment of the exchange rate which, however, under the Fund proposal will have to
be requested by the country in question and approved by other
members of the world trading community.
Exchange Transactions Must Be Free
Among the more important provisions of the Fund proposal are
those relating to the member's obligation to allow businessmen maximum freedom to conduct current transactions across boundary lines.
This means more than simply allowing an Englishman who buys in
America to pay the exporter in English pounds sterling. Since the
American exporter cannot use pounds sterling to pay wages or
buy raw materials in the United States, he must be assured that he
can at any time readily convert a sterling balance in a London
bank to dollar balances in his own bank. The problem is reversed
in certain respects if it is agreed that the Englishman will pay in
dollars. In that case, he should be able to buy a dollar draft on
an American bank with an ordinary check drawn in terms of pounds,
shillings, and pence against a London bank.

So long as the financial transaction grows out of current business,
the Fund proposal provides that a member country shall impose no
restrictions either on the acquisition of foreign exchange or on the
conversion of foreign balances into domestic currency.
Multiple currencies must be eliminated
During the inter-war years, the simultaneous use of several different
kinds of currencies was one of the favorite tricks of the Axis nations.
The value of special currencies was purely artificial, created and
maintained to gain trade advantages by means which, to us, appeared unfair. Germany used a variety of special marks, some of
which could be purchased at 3 or 4 to the dollar as against the official rate of 2%, to stimulate the export of goods for which the foreign
demand otherwise would not have been great—wooden toys, aspirin
tablets, or cheap manufactured goods. For such goods as cameras,
optical lenses, and precision instruments she exacted all the traffic
would bear in terms of foreign exchange. In certain instances, x'bargain counter" marks could be bought from American owners of
"frozen" German bank balances which could not be withdrawn in
cash. It was the Germans who got the bargain, however, since by
this device they were able to force merchandise upon customers who
otherwise might have bought elsewhere. Discriminatory practices
employed by Germany were variously applied from country to country, and even from firm to firm, and extended to foreigners exporting
to as well as those buying from Germany.
Inasmuch as discriminatory practices obstruct the free flow of
trade, members of the Fund must agree not to resort to their use.
Post-War Transition Period
It will not be easy for some countries to lift their exchange controls.
Those ravaged by war will require time to revive the export industries upon which they ordinarily depend for supplies of foreign
currencies. In these instances, the Fund will not require the immediate termination of all controls, but will expect every country to move
in the direction of relaxation as rapidly as it can safely do so.
The Fund Must Have Resources
Stable exchange rates and freedom from exchange restrictions
the world over cannot be achieved by hopeful resolutions alone.
When a country agrees not to change the par value of its currency
without Fund approval, nor to engage in restrictive exchange practices, it surrenders effective though blunt methods of singlehandedly
adjusting its own economy to world conditions. Left to its own
devices, a nation that finds its gold and foreign exchange resources
inadequate to meet a temporary adverse balance of payments must,

in self protection, resort to practices detrimental to world trade. No
country is willing, however, to give up the right to depreciate its
currency or restrict transactions in foreign currencies unless offered
other means of securing results as good or better. The Fund must
be prepared to help member countries maintain stable and free
exchanges. Hence it must have at its disposal a sizable volume of
liguid assets.
The assets of the International Monetary Fund will consist of
currencies and gold to be subscribed by members in accordance
with their guotas. Quotas for the original members, as determined
at Bretton Woods, are stated in the Fund proposal. The gold portion
of a member's subscription will be egual to 25 percent of its quota,
or 10 percent of its net official holdings of gold and U. S. dollars,
whichever is smaller. The member's currency subscription, egual
to the remainder of its quota, will be in the form of a deposit to the
account of the Fund at the member's central bank. A member may
substitute a non-interest-bearing note, payable on demand, for that
portion of its quota which, in the opinion of Fund authorities, is not
required for working purposes.
At the start, the Fund will have total resources of $8.8 billion, of
which the United States will subscribe $2.75 billion, the largest
single share. Other large subscribers are England, Russia, China,
and France.
Under carefully planned safeguards, the Fund will sell currencies
in limited amounts to tide over a member temporarily in need of
dollars, pounds, or francs, as the case may be. The Fund may use
its gold resources to purchase any particular currency for which
the demand is substantial.
For temporary use only
The Fund's resources are to be used to aid members in meeting a
temporary adverse balance of payments on current international account. When a member's balance turns favorable, it will repurchase its own currency from the Fund with gold and foreign exchange.
Thus the Fund's resources will be continually paid out and replenished. If a member's adverse balance is not temporary but chronic,
it will have to undertake corrective measures. The Fund's resources
are not to be used to finance a persistent deficit. Similarly, the
Fund's resources are not to be used to accumulate foreign balances
or to make permanent investments abroad.
Member countries are limited both as to the rate and amount of
assistance they can get from the Fund. A member may not purchase foreign exchange with its own currency in a net amount exceeding 25 percent of its quota in any twelve-month period. Nor in
general may a member over any period buy foreign exchange with

its own currency in a net amount exceeding 100 percent of its quota
plus the amount of its original gold contribution. Thus, if a country
has a quota of $100 million, of which $75 million has been contributed
in its own currency and $25 million in gold, it may purchase with its
own currency a maximum of $25 million net of foreign exchange annually for five years, or a total of $125 million net, before reaching
the normal limit of its use of the Fund's resources.
It should not be inferred, however, that a member has an absolute
right to purchase any amount of foreign exchange from the Fund.
A country known to have made improper use of its resources may be
limited or entirely denied aid by the Fund. This is an important
safeguard and a powerful sanction that may be employed to get
members to adhere to Fund principles.
In addition to these quantitative limitations on the use of its resources
and facilities, the Fund will impose charges that will increase both
with the amount and the length of time a member uses resources
acquired from the Fund.
Scarce currency
The Fund may occasionally be unable to meet all demands for one
or more currencies. In that event, it may use gold to buy a scarce
currency, or it may borrow from the member if the latter is willing to
lend. If these remedies are inadequate, the Fund may formally
declare a currency scarce and proceed to apportion its sales of that
currency among members according to their relative needs. Moreover, members will be authorized to limit sales of the scarce currency.
The fact that the Fund may have to apportion its sales of a currency
will not mean that the value of its assets has been impaired. Only
the composition, not the gold value, will have changed, and the Fund
will have the means wherewith gradually to replenish its supply of
the scarce currency. In order to restore balance to the entire system
of international payments, the Fund will suggest corrective measures
to the member whose currency is scarce as well as to the members
seeking the scarce currency.
Organization and Management
The International Monetary Fund will come into being when members subscribing 65 percent of its resources officially adopt the
Agreement prepared at Bretton Woods. Each member country will
then appoint a representative to serve on the Board of Governors,
the body that will control the general policies of the Fund.
Responsibility for the operations of the Fund will be lodged in a
board of 12 Executive Directors, of whom five will be appointed by
the five members having the largest quotas—the United States, the
United Kingdom, Russia, China, and France—two elected by the

Latin-American republics, and the remaining five elected by all
other members. The Executive Directors will appoint a Managing
Director, who will be responsible for the day-to-day conduct of the
Fund's business. The principal office of the Fund will be located
in the country having the largest quota—the United States.
Voting power will in general be proportional to member quotas,
every member being entitled to one vote for each $100,000 of its
quota. However, as a device for enabling small countries to exercise some influence in Fund policies, every member starts out with
250 votes without regard to quota. A member's total votes thus
computed will be slightly modified under certain circumstances. As
the resources of the Fund are drawn upon, the voting strength of
creditor members will increase while that of debtor members will
Cooperation vs. Isolation
The essence of the proposed International Monetary Fund is that it
would substitute order and stability for the dog-eat-dog attitude that
has in the past characterized international currency practices. Order
and stability in exchange policies are objectives that can be attained
not by a single country working alone but only by the united action of
all of the 44 countries represented at Bretton Woods. Upon the attainment of these objectives hinges the realization of the ultimate goals
of national policy—high levels of employment, rising standards of
living, and economic development. In the shrunken world of tomorrow
prosperity, like political security, lies not in isolation but in cooperation
and mutual understanding.

What the Bank Will Do
The International Bank for Reconstruction and Development, like
the International Monetary Fund, recognizes the need for worldwide
cooperation in monetary and financial matters. Both aim at the
balanced growth of trade as a means of achieving high levels of
employment and rising standards of living. Each, however, will have,
its own separate function. The Fund will be concerned with orderly,
stable exchange rates and freedom in exchange transactions; the
Bank will be concerned with long-range productive international
The Bank, therefore, will fill important needs in the postwar economies of all the 44 countries that assisted in preparing the Bretton
Woods proposals.
Factories, dams, power plants, transportation systems, and public
buildings in the countries ravaged by war have been shelled, bombed,
and pillaged. Foreign capital will be needed to help replace this
wealth. While it is fully recognized that the major portion of the
reconstruction burden must be borne by the affected countries themselves, yet for many ''seed corn" items of capital eguipment they must
look to their more fortunate neighbors.
There are also the long-standing needs of undeveloped areas inhabited by more than half of the world's population—particularly the
Far East and some of the Latin-American Republics. To uncover and
develop their resources, to make possible their full-scale participation
in maintaining healthy economic and political conditions the world
over, will require extensive investment of foreign capital.
A few countries will emerge from the war with heavy industries that
can produce capital equipment for export. Since exports in substantial volume will depend on the revival of international investment,
these countries have a vital interest in any plan that will place international investment on a high plane, supported by new standards and
safeguards. Among the countries in this group, the United States
ranks first in importance.
American investors took chances after the last war, and in the late
1920's and 1930's got caught in an epidemic of defaults. Although

some would continue to purchase foreign securities offered in our
markets, even without the Bank, many investors remember only too
well what happened before. They realize that an investor should
know something about the credit standing of the ultimate borrower;
that a loan is much more likely to be repaid if it is employed for productive purposes; and that the lender should have means of checking up
on the way in which his money is being used. Without these safeguards, foreign investment is a highly speculative business.
While the United States is concerned with the reconstruction and
development of other countries for their sake, our principal interest in
bringing about an expanded volume of American investment abroad
arises out of concern for our own welfare. After the war, our economic
policy will be aimed at full employment and full utilization of a greatly
enlarged industrial plant. These objectives, however, cannot be
realized unless we find new outlets for products of farm and factory—
outlets that will be steady and profitable after war demands have
dropped off.
International Investment is Essential
Ordinarily, an increase in exports can take place only if there is
a corresponding increase in imports. Granting that a large volume
of imports is desirable, the fact remains that the war-torn countries
will require many years to rebuild their export industries. Moreover, they will require foreign capital to get under way. In the
meanwhile, if our own exports are to expand, a large part of the
expansion must take the form of American investment abroad. Stated
another way, if foreigners are to buy a large volume of productive
machinery and equipment in the United States in the immediate
post-war period, American investors will have to lend part of the
purchase money.
The investor, however, will want assurance that he is making a
sound, remunerative investment. In providing this assurance, the
International Bank for Reconstruction and Development will function
in the following manner: It will determine the soundness of a project
for which a loan is sought, particularly with respect to its capacity to
enlarge a country's national income; it will secure the guarantee of
the government of the country in which the project is to be located;
and, finally, it will add its own guarantee. The risk of seeing that
investors are fully protected, therefore, will fall not on the investors,
nor even on any one country, but upon all of the 44 member countries.
This is only fair, since all of the countries associated for the purpose
of making the Bank possible will derive benefits from an expansion
of international investment.
The Bank, under certain conditions/ will also make direct loans.
Its principal function, however, will be to stimulate private investment.


The Bank's Guarantee
The Bank is not intended to supplant but to supplement the private
capital market. Loans will be made, as they have been in the past,
by private lenders who see an opportunity to make an advantageous
investment in a foreign country. The Bank will support and encourage
these loans through the usual investment channels.
When a firm in Brazil, for example, wishes to obtain American
dollars with which to purchase eguipment for an electric power project,
it will send a representative to one of our underwriting houses to discuss
terms. If the borrower is well known to American investors, the loan
might be arranged without the Bank's assistance. But if the borrower
is unknown, or if for some other reason funds cannot be raised on
reasonable terms, the Bank may be reguested to offer its guarantee.
If, after a thorough investigation, the Bank is convinced that the proposed project conforms to all of the conditions and standards prescribed, it will guarantee the repayment of interest and principal.
In order that investors may always be assured that their own risks
are reduced to a minimum, the total obligations assumed by the Bank
may not exceed its unimpaired capital and other reserves.
Since all member countries will share the risks involved in expanding international investment, all must be in a position to benefit from
the resulting increase in trade. The proceeds of a guaranteed loan,
therefore, may be spent in any member country. The borrower in
the above illustration may use all of the proceeds in this country, or
in any other member country where the eguipment sought can be
purchased economically.
Further Safeguards for the Investing Public
In the past, loans were freguently made on the basis of inadeguate
information, and without supervision to prevent waste and misappropriation. The Bank will be in a position to see that borrowed
funds are used only for the specific purpose for which they are intended. To private investors without the means of assuring themselves that their savings are being productively employed, this feature
will be of inestimable value.
The private capital market will also benefit from the fact that the
Bank may guarantee only loans that are made at reasonable rates
of interest and bear schedules of repayment and other terms appropriate to the character of the project. These provisions will protect
the borrower as well as the investor. Exorbitant charges imposed on
foreign loans in the past have often proved too burdensome, and on
occasion have led to economic and political disturbances that made
repayment impossible. Lower rates, because of reduced risks, will
facilitate the servicing of foreign loans.
The Bank's earnings will be utilized in such a manner as to afford

the private investor additional security. Earnings will consist of
interest received on direct loans, and commissions received on direct
as well as guaranteed loans. The net income from interest may at
the Bank's discretion be distributed to the member countries under
conditions stipulated in the proposed Articles of Agreement. The
income from commissions, however, must be held in liquid form, in a
special reserve account, as a first line of defense against liabilities
that might arise in case of default on loans made or guaranteed by
the Bank.
Direct Lending Operations
Direct loans made by the Bank will be of two kinds. Of greater
significance will be loans in which the Bank serves as intermediary
between borrowers and lenders. The Bank may sell its own securities
in the market of a member country, and in turn lend directly to the
ultimate borrower. By this device the Bank will be able to consolidate
numerous demands for small amounts of capital and to appeal to
certain investors who might prefer to invest in securities issued by the
Bank itself. The obligations thus incurred will be secured 100 percent, as will be the guaranteed loans, by the Bank's reserves and
unimpaired capital.
The other form of direct loans will be made out of capital assets.
The total volume of such loans, however, will be limited to 20 percent—and is likely to be less than 10 percent—of the Bank's subscribed capital. The standards for direct loans are the same as
those for guaranteed loans. The projects to be financed must be
productive; they must be endorsed by a member government; and
the Bank will have to be convinced that private capital is not available on reasonable terms, even with its guarantee.
All loans and guaranties must have the consent of the country
whose currency is involved. That is, both direct dollar loans made
by the Bank and guaranteed loans floated in this country must have
the approval of the United States Government.
Direct and guaranteed loans will for the most part be additional
loans, over and above the private loans that would ordinarily be
made, and will serve directly to increase the volume of international
Source of the Bank's capital
The subscribed capital for the International Bank for Reconstruction
and Development will be $9.1 billion. Of this amount, the United
States, the largest single stockholder, will subscribe $3,175 billion.
England will subscribe $1.3 billion, and all British Empire countries
taken together, $2,375 billion. Russia, China, and France, in that
order, will be the next largest subscribers.


Because of the primary emphasis on the Bank's guaranteeing function, participating countries may never be required to pay more than
a fraction of their respective subscriptions. In the first year of the
Bank's operation, members will be required to pay in 10 percent, of
which one-fifth will be in gold and the rest in currency. Another 10
percent will be subject to call at the convenience of the Bank. This
20 percent of total subscriptions will constitute the capital out of which
the Bank may make direct loans.
The remaining 80 percent of the Bank's capital will be held as a
surety fund—an uncalled reserve to back up the Bank's guaranties.
Thus, out of a total of $9.1 billion of subscribed capital, the members
will pay in only $1.82 billion, of which our share will be $635 million.
No call will ever be made on a member government for any part of
the surety fund unless a borrower defaults on a guaranteed loan, and
then only if the Bank is unable to meet its obligations from reserves
accumulated out of commission charges.
Membership in the Bank, in the first instance, is to be limited to
countries that participated in the Bretton Woods conference and
become members of the International Monetary Fund. Other countries may become members after they have been admitted to the
Fund. Membership has been tied in this way because both institutions are designed to solve closely related problems. A country's
adherence to the Fund will mean greater currency stability and the
progressive removal of exchange restrictions, which will in turn
reduce the risks of long-term investment. Furthermore, it is believed
that only those nations that have demonstrated their willingness to
cooperate in the improvement of basic world trade conditions should
be permitted to participate in the operations of the International
Bank for Reconstruction and Development.
A member may be compelled to withdraw from the Bank for failure
to fulfill any of its obligations, and a member may on its own initiative
withdraw at any time. While the withdrawing country will incur no
further liabilities as a result of the Bank's operations, it will not be
relieved of its share of the obligations assumed while it was a member.
Organization and Management
The Bank will come into existence when members subscribing 65
percent of its capital have formally approved both the Fund and Bank
proposals. The management of the Bank will be under the general
guidance of a Board of Governors, composed of a representative
appointed by each member country. Each member will have 250
votes, plus one additional vote for each share of stock subscribed.
The shares will have a par value of $100,000 each. Thus the United

States, with a total of 31,750 shares, will have 32,000 votes out of a
total of 100,750, or 32 percent of the total voting power.
In general, all policy issues will be decided by a majority of the
votes cast. However, the United States will have veto power over
proposals to increase the capital stock of the Bank and over all
Under the Board of Governors, and responsible for the conduct of
the general operations of the Bank, will be a board of 12 Executive
Directors. Five of the Directors will be appointed by the five members
having the largest number of shares, and seven will be elected by the
other members. The Executive Directors will select a President, who
will organize a staff and, under the general guidance of the Executive
Director, serve as the Bank's operating head.
The principal office of the Bank will be located in the United States,
and at least one-half of the gold holdings of the Bank must initially be
held here.
What the Bank Means to the United States
Once the Bank is in operation, the American investor can take
advantage of foreign investment opportunities without assuming the
risks that have had to be assumed in the past. Furthermore, since
we are one of the few nations in a position to export substantial
quantities of heavy materials in the immediate postwar period, a large
proportion of the total loans sponsored by the Bank will necessarily be
used for purchases in this country. The Bank, therefore, will help
to create markets abroad for the output of our capital goods industries.

What the Fund and the Bank Mean to World Peace
Plans for the International Monetary Fund and the International
Bank for Reconstruction and Development represent the cooperative
effort of 44 United and Associated Nations. The plans are based on
the conviction that stability and security in financial and commercial
relationships will remove some of the important causes of war and at
the same time help to open the way for increased trade and prosperity
throughout the world.
The United States now, as never before, occupies a key position
in world affairs. Whether we cooperate in maintaining the peace
as we have in waging war will to a considerable extent shape the
course of history for generations to come. Our acceptance and
support of the Bretton Woods proposals, therefore, will be taken as a
happy augury. It will mean to the rest of the world that instead of
choosing economic isolation, which would inevitably lead to political
isolation, we have determined to do our part toward the attainment
of world peace and prosperity.