A New Bretton Woods?
| Author | James M. Boughton |
| Position | IMF Historian |
| Pages | 44-46 |
Page 44
History shows that reforming the international fi nancial system requires both leadership and inclusiveness
When French President Nicolas Sarkozy and British Prime Minister Gordon Brown called for a "new Bretton Woods" agreement in October 2008, they were recalling the success of the International Monetary and Financial Conference held in Bretton Woods, New Hampshire, in July 1944. What Sarkozy and Brown envisaged was a new multilateral agreement to stabilize international fi nance in the 21st century, the way the 1944 conference, which established the International Monetary Fund and the World Bank, stabilized fi nancial relations among countries in the second half of the 20th century. The summit meeting of world leaders held in Washington, D.C., in November 2008 started a process that could lead to such an agreement. What would that take to succeed? What kind of leadership, and what kind of commitment, would be needed? History offers some useful lessons.
On several occasions throughout the 20th century, political leaders in major countries sought international agreements on the global economic or financial architecture. Many of those efforts failed, Bretton Woods being the major exception. The central lesson that emerges from these efforts is that successful reform in response to a crisis requires three ingredients: effective and legitimate leadership combined with inclusive participation; clearly stated and broadly shared goals; and a realistic road map for reaching those goals.
A useful starting point to survey such efforts is the Paris peace conference of 1918-19, which followed World War I. Although its main purpose was to redraw political borders and to establish principles for avoiding a repeat of the war, establishing a framework for restoring free trade and the flow of capital was also on the agenda. U.S. President Woodrow Wilson provided leadership by enunciating his "Fourteen Points" as a polestar. All of the victorious allied powers were present. Although only the large countries had a signifi cant impact on the outcome, the inclusion of the other allies lent legitimacy to the proceedings.
The economic goal of open trade and finance was widely shared, but how to achieve it was left unresolved because it was not the top priority at the conference. Agreement on a framework was scuttled by differences on war reparations, on the practical aspects of returning to the gold standard, and on the need for an international institution with oversight powers. The U.S. Congress declined to ratify participation in the new global institution, the League of Nations. A 1920 follow-up conference in Brussels established the League's Economic and Financial Section, but its functions andPage 45 powers were limited. These failings contributed substantially to the ensuing decades of autarky, unstable financial relations among countries, and economic depression.
Between the wars, the most ambitious event was the World Monetary and Economic Conference, held under the auspices of the League of Nations. It was preceded by two relatively successful meetings-one in Genoa in 1922 that re-established the gold standard for a group of mostly...
To continue reading
Request your trial