The experience of World War II was fresh in the minds of public officials. The planners at Bretton Woods hoped to avoid a repeat of the Treaty of Versailles after World War I, which had created enough economic and political tension to lead to WWII. After World War I, Britain owed the U. In the 1920s, international flows of speculative financial capital increased, leading to extremes in balance of payments situations in various European countries and the US.
Britain in the 1930s had an exclusionary trading bloc with nations of the British Empire known as the “Sterling Area”. If Britain imported more than it exported to nations such as South Africa, South African recipients of pounds sterling tended to put them into London banks. This meant that though Britain was running a trade deficit, it had a financial account surplus, and payments balanced. Nazi Germany also worked with a bloc of controlled nations by 1940. Germany forced trading partners with a surplus to spend that surplus importing products from Germany. Thus, Britain survived by keeping Sterling nation surpluses in its banking system, and Germany survived by forcing trading partners to purchase its own products.
When many of the same experts who observed the 1930s became the architects of a new, unified, post-war system at Bretton Woods, their guiding principles became “no more beggar thy neighbor” and “control flows of speculative financial capital”. Preventing a repetition of this process of competitive devaluations was desired, but in a way that would not force debtor nations to contract their industrial bases by keeping interest rates at a level high enough to attract foreign bank deposits. For a variety of reasons, including a desire of the Federal Reserve to curb the U. Also based on experience of the inter-war years, U. The developed countries also agreed that the liberal international economic system required governmental intervention. In the aftermath of the Great Depression, public management of the economy had emerged as a primary activity of governments in the developed states. Employment, stability, and growth were now important subjects of public policy.
In turn, the role of government in the national economy had become associated with the assumption by the state of the responsibility for assuring its citizens of a degree of economic well-being. However, increased government intervention in domestic economy brought with it isolationist sentiment that had a profoundly negative effect on international economics. To ensure economic stability and political peace, states agreed to cooperate to closely regulate the production of their currencies to maintain fixed exchange rates between countries with the aim of more easily facilitating international trade. This was the foundation of the U. Thus, the more developed market economies agreed with the U.
In a sense, the new international monetary system was a return to a system similar to the pre-war gold standard, only using U. Instead, governments would closely police the production of their currencies and ensure that they would not artificially manipulate their price levels. If anything, Bretton Woods was a return to a time devoid of increased governmental intervention in economies and currency systems. 12 August 1941, in Newfoundland resulted in the Atlantic Charter, which the U. Britain officially announced two days later. The Atlantic Charter, drafted during U. Roosevelt’s August 1941 meeting with British Prime Minister Winston Churchill on a ship in the North Atlantic, was the most notable precursor to the Bretton Woods Conference.
The Atlantic Charter affirmed the right of all nations to equal access to trade and raw materials. France and Britain had first threatened U. As the war drew to a close, the Bretton Woods conference was the culmination of some two and a half years of planning for postwar reconstruction by the Treasuries of the U. Without a strong European market for U. In early 1945 Bernard Baruch described the spirit of Bretton Woods as: if we can “stop subsidization of labor and sweated competition in the export markets,” as well as prevent rebuilding of war machines, “oh boy, oh boy, what long term prosperity we will have.