228 Hegemonic Stability Theories of the International Monetary System
The White plan acknowledged the validity of the British concern with liquidity,
but was intended to prevent both inflation and deflation rather than to exert an
expansionary influence. It limited the Stabilization Fund’s total resources to $5
billion, compared with $26 billion under the Keynes plan. It was patterned on the
principles of American bank lending, under which decisionmaking power rested
ultimately with the bank; the Keynes plan resembled the British overdraft system,
in which the overdraft was at the borrower’s discretion. The fundamental difference,
however, was that the White plan limited the total U.S. obligation to its $2 billion
contribution, while the Keynes plan limited the value of unrequited U.S. exports
that might be financed by bancor to the total drawing rights of other countries
($23 billion).
It is typically argued that the Bretton Woods agreement reflected America’s
dominant position, presumably on the grounds that the International Monetary
Fund charter specified quotas of $8.8 billion (closer to the White plan’s $5
billion than to the Keynes plan’s $26 billion) and a maximum U.S. obligation
of $2.75 billion (much closer to $2 billion under the White plan than to $23
billion under the Keynes plan). Yet, relative to the implications of simple versions
of hegemonic stability theory, a surprising number of British priorities were
incorporated. One was the priority Britain attached to exchange rate flexibility.
The United States initially had wished to invest the IMF with veto power over a
country’s decision to change its exchange rate. Subsequently it proposed that
80 percent of IMF members be required to approve any change in parity. But
the Articles of Agreement permitted devaluation without fund objection when
needed to eliminate fundamental disequilibrium. Lacking any definition of this
term, there was scope for devaluation by countries other than the United States
to reconcile internal and external balance. Only once did the fund treat an exchange
rate change as unauthorized. If countries hesitated to devalue, they did so as
much for domestic reasons as for reasons related to the structure of the
international monetary system.
Another British priority incorporated into the agreement was tolerance of
exchange control. Originally, the White plan obliged members to abandon all
exchange restrictions within six months of ceasing hostilities or joining the IMF,
whichever came first. A subsequent U.S. proposal would have required a country
to eliminate all exchange controls within a year of joining the fund. But Britain
succeeded in incorporating into the Articles of Agreement a distinction between
controls for capital transactions, which were permitted, from controls on current
transactions, which were not. In practice, even nondiscriminatory exchange controls
on current transactions were sometimes authorized under IMF Article VIII. As a
result of this compromise, the United States protected itself from efforts to divert
sterling bloc trade toward the British market, while Britain protected itself from
destabilization by overseas sterling balances.
In comparison with these concessions, British efforts to restore symmetry to
the international adjustment mechanism proved unavailing. With abandonment of
the overdraft principle, the British embraced White’s “scarce currency” proposal,
under which the fund was empowered to ration its supply of a scarce currency
and members were authorized to impose limitations on freedom of exchange