Postwar and Bretton Woods

The postwar period

The Bretton Woods Agreement of 1944 called for the abolition of the BIS. There was widespread suspicion about BIS wartime activities and some felt that there was little scope for the BIS to play a useful role within the Bretton Woods framework alongside the International Monetary Fund (IMF) and the World Bank.

Swedish economist Per Jacobsson (1894-1963)
Swedish economist Per Jacobsson (1894-1963),
BIS Economic Adviser 1931-1956,
Managing Director of the IMF 1956-1963.
Courtesy of Öffentliche Bibliothek, Universität Basel

In reaction, central banks, particularly in Europe, came out strongly in favour of keeping the BIS alive - it was, after all, their institution, not an institution in the hands of governments. The BIS's credibility was further restored by its full cooperation with the investigation into the looted gold issue and full restitution of all such gold found in its possession.

It became apparent soon after the war that the BIS had an important part to play in the financial reconstruction of Europe. As East-West relations deteriorated into the cold war, the BIS provided a valuable point of contact between central bankers on both sides of the Iron Curtain.

The Bretton Woods era

Central bank cooperation at the BIS between the end of the Second World War and the early 1970s focused on implementing and defending the Bretton Woods international monetary system, which was based on freely convertible currencies at fixed but adjustable exchange rates.

In the 1950s, as Agent of the European Payments Union (EPU), the BIS played a significant technical role in helping European countries make their currencies fully convertible. After the Second World War, foreign exchange controls were in place in all European countries. These controls were a serious obstacle to free trade. The EPU was a mechanism designed to gradually do away with these exchange restrictions and to make European currencies freely convertible on the international markets. It was highly successful, so much so that at the end of 1958 full convertibility was restored across Europe and the EPU was wound up.

After 1958, the Bretton Woods system of freely convertible currencies at fixed exchange rates was fully operational. But it soon became apparent that it required a good deal of international cooperation to keep it running smoothly. The BIS now began to play an important part in coordinating crisis management among central banks, whenever the gold price, the position of the reserve currencies (the dollar and the pound sterling) or other monetary imbalances threatened to undermine the international monetary system. These efforts - Gold Pool, swaps network, sterling support arrangements, etc - were coordinated at the BIS in the context of the newly established Group of Ten (G10) They helped to prolong the lifespan of the Bretton Woods system during a period of unprecedented economic growth, the "silver fifties" and the "golden sixties", but could not prevent its eventual breakdown. By the early 1970s the value of the dollar was in effect determined by the markets, marking the end of the Bretton Woods system. Various attempts to restore the system of fixed exchange rates proved short-lived and by 1973 the era of floating currencies had begun.

Despite this lack of enduring success, the efforts which took place over these years to manage and sustain the Bretton Woods system established a lasting framework of institutionalised cooperation among central banks. Much of this took place in the informal and discreet environment of the BIS, enhancing its role as a forum for central bank cooperation.

 


 1930s and 1940s Towards European Monetary Union 

 

For more on the BIS's history, read Gianni Toniolo (with Piet Clement), Central Bank Cooperation at the Bank for International Settlements, 1930-1973, Cambridge University Press, Cambridge-New York, 2005.