By July 1944, it was becoming clear that the Allied nations would ultimately prevail in World War II. It was equally clear that the old global financial system would no longer work, especially now that Europe, including former financial giants like Great Britain and France, had few resources to pay for its own reconstruction.
Statesmen understood the danger. The Great Depression of the 1930s with its mass unemployment and poverty had helped demagogues like Adolf Hitler achieve power.
U.S. Treasury Secretary Jacob Lew recently recounted how then-President Franklin Roosevelt and others saw the need for new international financial institutions that would improve economic growth and liberalize international trade in the postwar world.
“Recognizing that rampant economic nationalism and protectionism deepened the Great Depression and the slide to war, [Roosevelt] said these international institutions would make the difference between ‘a world caught again in the maelstrom of panic and economic warfare … and a world in which the members strive for a better life through mutual trust, cooperation and assistance,’” Lew told the Asia Society in March.
Delegates from 44 countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire, July 1–22, 1944, to create the architecture for a new international monetary and financial order. They set up the U.S. dollar as the global reserve currency and the International Monetary Fund to help nations with balance-of-payments problems and with difficulties maintaining financial reserves.
The Bretton Woods Conference also created the International Bank for Reconstruction and Development, part of the World Bank Group. The Bank provided loans to finance reconstruction in Europe and then expanded to finance new development projects worldwide.
“These financial institutions and other organizations, such as the United Nations and the Organisation for Economic Co-operation and Development, laid the foundation for globalization … [and] the foundation for economic growth, free markets, and financial stability around the globe,” Lew said.
“That architecture has made possible an extraordinary period of worldwide growth and prosperity that has lasted for generations. And with the help of these institutions, millions of people have been lifted out of poverty.”