ABSTRACT
The 1930s witnessed the collapse of the multilateral trade and payments system which had emerged in the late nineteenth century. In the field of commercial policy, severe restrictions, often of a discriminatory nature, tended to prevail, while the international payments system degenerated into a multitude of exchange controls. In consequence, international flows of capital and labour were severely retarded, and the future of world trade appeared to be particularly gloomy. With the outbreak of war the financial and commercial restrictions on trade were intensified and trade between nations was further reduced. Even while the war was still in progress, however, it was realized that strenuous efforts to reduce trade and exchange barriers would be needed to ensure the proper functioning of the international economy in the postwar years. Preliminary discussions along these lines followed the signing of the Mutual Aid Agreement between the United States and Britain in 1941, which, although predominantly concerned with lend-lease arrangements, also committed the two countries to co-operate in international economic affairs after the war. Subsequently, numerous discussions were held in Washington and London with a view to producing a set of rules or a code of conduct in international monetary affairs to be implemented after the war. At the beginning of these discussions, two plans submitted by the British negotiators (the Keynes Plan) and the American negotiators (the White Plan) were considered. The first proposed the establishment of a clearing union and the creation of a large amount of credit (bancor) to be allotted among all trading nations. It was envisaged that the $35 billion of bancor to be created would not only be used for financing balance of payments deficits but would also serve to help the financing of postwar reconstruction. This plan was unacceptable to the U.S. negotiators who claimed it had inflationary tendencies and because its operations would be too automatic, and not allow member country governments enough discretion in their balance of payments policies. The White Plan, which concentrated on the setting-up
of international institutions under the control of member countries, was then debated and out of the many discussions in which compromises were reached, emerged the International Monetary Fund and the International Bank for Reconstruction and Development. At an international conference held at Bretton Woods, New Hampshire, in July 1944, the agreements to set up these institutions were finalized by the delegates from 44 nations.
