WHAT THEY DID AT BRETTON WOODS

...A continued deficit in the balance of payments of any country has no remedy except to correct the conditions leading to the deficit...

...Since, however, these are matters of detail they can be readily ironed out if it is agreed to accept the principle laid down by the conference: that we should deal with internal postwar monetary problems by creating institutions which are international in character...

...The critics consequently point out that, while in fact all nations are entitled to borrow, the United States will be the chief creditor and the rest of the world will be debtors...

...Lord Keynes of the Bank of England and Prof...

...It is possible that the task of currency stabilization could be assigned to the various central banks, but if this were done, they would have to come to much the same type of agreement as here proposed...

...Russia, France, and other countries have suffered great devastation and will be anxious to put their money into the Fund to obtain dollars in exchange...

...Full employment within the United States and Great Britain will promote trade everywhere, and trade is better than charity...

...Each country can again try to make its policy alone, in which case the foreign exchanges become chaotic...

...It is moreover specifically provided that no nation can depreciate its currency without consultation with the Fund, and the depreciation is limited to 10 per cent...

...Who should do it, and how, is the only question...

...What are the alternatives ? If nothing is done, it will be difficult to conduct foreign trade, commercial banks will not know upon what terms they can buy or sell foreign bills of exchange, and the exchange market will become thin and highly speculative...

...Each nation will subscribe to this stock and pay for it in gold or currency —in all about eight billion dollars—of which the United States will pay in about a third...

...The proposed commitment is small, but it raises the fundamental question whether we are willing to put our money into the hands of an autonomous international body which can use its own discretion in loaning it to others...

...The amount which a country can borrow in this manner is limited...

...Neither the Fund nor the Bank can succeed if they are looked upon as a substitute rather than as an aid in the development of international trade and the promotion of healthy economic conditions at home...

...but under bad management it might be an instrument of oppression, used to exploit weaker peoples, to promote inflation by wild credit expansion, and in the end breed international hatred and ill will...

...It is as close as we can come today to a supra-national bank whose merits as an anti-deflationary influence Keynes long ago visualized...

...We come now to the Bank...

...We can, however, withdraw at any time and we can refuse to make further commitments...

...Several countries also preferred to contribute currency (paper money) rather than gold to the fund, thus leaving them free to use their gold for other purposes, ^'hat these countries want from the fund is the right to borrow, and the greater amount of their own currency they contribute to the fund, the greater their credit quota...

...Indeed, I believe that the Federal Reserve System already has the power to do everything suggested by the conference...

...Attention should, therefore, be directed to the purpose, function, management, and control of this money and not to the amount of the expenditure...

...The problems which were considered will, however, persist no matter whether we deal with them by the means suggested or by some other, for they have been created not by the men who inaugurated the conference, but by the state of the world in which we now live...

...The Monetary Fund The control over currency is, moreover, an attribute of sovereignty and only government is competent to settle the issues at stake...

...In principle it is simply a currency exchange such as is found in any big bank...

...The "gold standard" cannot, as suggested by some, serve as a substitute for the Fund since this standard, in practice, becomes a managed currency, and under adverse conditions simply breaks down...

...Hence, if France needs dollars it will bring in francs to the Fund and get dollars in exchange...

...Lord Keynes has already said that the present plan lacks some of "the elegance, clarity, and logic" of his original Clearing Union presented a year ago, but he still thinks it desirable...

...Should Congress wish to go slow with this experiment and retain some control over it, it can limit the amount of the American subscription, thus making the Fund come to Congress for additional money...

...Similarly, in the United States these institutions must deal only with the Treasury, the Federal Reserve Banks, or any similar body authorized by Congress...

...Men everywhere want an opportunity to earn their living, not a dole...

...T3he may be in need of American dollars and other foreign currencies until such time as her trade is restored...

...America's Role While in form, this transaction is an exchange of francs for dollars, in substance it is a loan...

...The Russians, however, desired a larger quota because they hoped to play a much larger role in postwar than in prewar trade...

...The effect of the combined institutions is greatly to increase the world's monetary reserves for use in case of emergency, and it would be well if they were used only in an emergency...

...Both the Fund and the Bank must confine themselves to transactions with governments, central banks, or similar institutions...

...This quota was computed by taking into account the pre-war volume of trade, national income, and gold stocks...

...It will have a capital stock of 10 billion dollars to be subscribed to by the various governments, each of which will have voting rights in proportion...

...Inasmuch as the conference lacked plenary power, its recommendations are purely advisory, and to become effective, must be approved by the 44 participating nations...

...Under present quotas the United States will have the largest, though still a minority vote...

...Congress might also specify the location of the Fund and make additional suggestions regarding management...

...Harry White of the Treasury, no doubt, have considered the alternative schemes which are bound to be suggested: loans by the Export-Import Bank, the guaranty of American bank loans, and other devices which retain control over American money...

...They will have to meet the challenge that they have created a vast and grandiose structure where something smaller and more simple would suffice...

...The International Bank is a lending institution designed to make loans for reconstruction and development...

...Some conflict arose in the conference over the amount to be contributed by each country...

...They will consequently come before the British Parliament and American Congress in the months ahead...

...But other countries are in a different position : Great Britain owes currently about three billion pounds sterling in "blocked funds," and has lost most of her foreign investments...

...exchange stabilization breaks down and loans prove worthless...

...Great financial mechanisms without great human purposes become sterile and even oppressive...

...The question is simply whether the agreement should be made by the New York banks, the Treasury, and the Federal Reserve with the bankers of other countries, or whether it should be made by Congress through the new institutions...

...It would be permissible for France, let us say, to buy dollars with francs for the purpose of paying for American cotton or wheat, but it could not obtain funds to rebuild a city or erect a factory...

...While agreeing upon basic principles, several of the participants made reservations regarding some of the proposals, particularly those prescribing the contribution and the borrowing quota of each nation...

...It is intended, however, that this exchange shall be used only for commercial purposes and not to finance capital transactions...

...Some kind of international agreement is necessary under any circumstances...

...In matters of this importance, it is, however, in the best democratic -tradition to have Congress make the policy...

...Issue Before Congress Congress will also need to inquire how the Bank at all times can be kept subject to democratic control, and whether its operations are being conducted in the public interest...

...Compared to' the need for an investment program of 20 to 30 billions annually at home, the proposed commitment for international purposes is a relatively small matter...

...otherwise a nation could obtain dollars from the Fund simply by running its own printing presses and exchanging its inflated money for good money...

...Hence the Fund and the Bank can deal with the British Government, the Bank of England, or the Exchange Equalization Fund, but it cannot deal with any British commercial bank or business concern...

...This proposal places squarely before Congress whether it is willing to appropriate money for the purposes of making foreign loans...

...Everything depends upon the monetary policy which governments will adopt when the war is over...

...Today foreign exchange markets are practically nonexistent, rates are purely conventional, currencies are of uncertain value, the great international banks can give no assurance that in the future they will buy or sell exchange at any specific price...

...When one country needs the currency of another, it will take to the Fund some of its own money and exchange it for foreign currency...

...Regardless of formal control, the United States will probably remain in the driver's seat, because American money is in great demand...

...What They Did At Bretton Woods By WALTER MORTON THE recent United Nations Monetary and Financial Conference at Bretton Woods, N. H., has proposed two new institutions for the postwar financial world: the International Monetary Fund and the International Bank for Reconstruction and Development...

...or all can do so together by agreement, thus maintaining monetary order and stability...

...we have a plethora of gold, and anticipate a large demand for our exports...

...The International Monetary Fund is designed primarily to promote exchange stability by buying and selling currency at rates to be agreed upon...

...In either case we will have to do much the same thing—make multilateral agreements with all nations...

...The United States is not likely to be a borrower...

...In any event, somebody, somehow, must reestablish the foreign exchange markets...

...The International Monetary Fund will obtain its funds by the issue of capital stock...

...Whereas the purpose of the Fund is to provide temporary loans, the Bank is intended to make long-term commitments as loans and guarantees...

...In financial matters, no nation can live to itself alone...

...Under good management the Bank could be a blessing, by promoting higher standards of living, income, and employment among all of the peoples of the world...