From Bretton Woods to World Inflation

February 5, 1945

After careful studies by several committees, the American Bankers Association has published a report in which it contends that congress should not approve the proposed International Monetary Fund, but that it should approve, with modifications, the proposed International Bank for Reconstruction and Development. The bankers recommend also an expansion of the American Government’s Export-Import Bank, the repeal of the Johnson act, the removal of hampering barriers to international trade, and “the firm stabilization of the United States dollar in relation to gold.”

The Association’s report is well reasoned, lucidly written, and conciliatory in tone. It is clear that the authors have made every compromise that they thought could safely be made so that the proposed program might be considered with a minimum of essential changes.

The rejection of the proposed Fund is based on reasons that for the most part have already become familiar. The Fund is too big, too elaborate, too complicated, too difficult for the public to understand. The language of the agreement is so vague as to be susceptible to widely different interpretations. It grants credit automatically, as a matter of right. It does not stipulate that the loans shall be good loans. It provides no real control over the policies of borrowers. It may tempt borrowing countries to continue on the easy political path, instead of making the maximum effort to put their economic affairs in order. It threatens a repetition on a large scale of the errors we made after the First World War, when we lent too much and too carelessly. It overlooks the fact that the outside world as a whole already has more gold and dollar exchange than ever before; that our own gold stock has been going down; and that we are about to be forced to lower our legal reserve requirements. It would force us to supply dollars even to countries with which we might be having serious political differences, or countries whose trade policies discriminated against us.

The bankers believe, however, that if the proposed International Bank for Reconstruction and Development were adopted by Congress, and authorized also to make loans for the purpose of aiding countries to stabilize their currencies, it would accomplish every good purpose that the Fund would accomplish without its accompanying dangers. For the Bank agreement provides that the loans made must be for specific purposes; that they must be examined by a special committee; that they must offer promise of repayment; that the country whose currency is lent will have a veto power and that the Bank will not make loans which can be reasonably made through private channels. If the Bank were adopted, moreover, and the Fund rejected, the world would avoid the danger of jurisdictional conflicts and potential confusion and rivalry between two separate institutions. Acceptance of the Bank would also avert the psychological danger to world cooperation of a total rejection of the Bretton Woods proposals.

The American Bankers Association committees have brought in a constructive and statesmanlike report. It is to be hoped that not only Congress but the Administration itself will study the report in the same spirit.

The Administration seemed to be following slavishly the decisions of Lord Keynes and Harry Dexter White. Secretary Hans Morgenthau told a news conference that if the advice of the American Bankers Association were followed the chances were that it would kill the whole Bretton Woods Monetary Agreement. That implied that Treasury officials would take an all-or-nothing attitude before Congress regarding those agreements.