The chance to begin anew seldom occurs. Yet the nearly complete breakdown of the world economy between 1939 and 1945, together with the extraordinarily dominant position of the United States at the end of the war, provided just this opportunity. Policy-makers in the US were determined to convince-and, if necessary, to compel-other nations to join them in building a new economic order on the ruins of the old.
The aim of the US (and to a lesser extent of Britain and Canada) was to establish a new scheme for international payments, which would have as its primary objective the avoidance of the competitive exchange rate depreciations of the 1930s, and, accompanying this, a new set of rules for international trade which would be designed to promote non-discrimination and the free exchange of goods and services. The first part of this twin approach was the Bretton Woods agreement (named after the place where the US plan was finally ratified by the United Nations), which set up the International Monetary Fund (IMF), and the International Bank for Reconstruction and Development (the World Bank). The second part, on which the US had less of its own way, became the General Agreement on Tariffs and Trade (GATT). This joint system, for good or ill and despite periods of non-operation, determined how most of the countries discussed in this book interacted with one another for much of the postwar period. This chapter therefore describes the initial establishment of the system, its evolution since 1945, and the main strains to which it has been subjected.
There are four main themes. First of all, from the late 1940s until the early 1970s, a system of fixed but adjustable exchange rates was in operation. However, as initially designed at Bretton Woods, this was supposed to be accompanied by freedom of capital movements-currencies were to be freely convertible-but this did not occur, even for the majority of the main currencies, until the late 1950s. In short, the Bretton Woods system was not fully operational until long after 1945. In addition, both before and after it was in full operation, it was subject to a series of crises,