up of contributions from each member country
in gold and currencies in proportion to the
strength of its economy. The US supplied by far
the biggest single contribution. Each country
could draw on the Fund to make up a shortfall in
foreign currency if its trade was not in balance;
but if it drew on the Fund beyond a certain limit
the IMF could prescribe conditions for its loan
and demand that measures it thought necessary
should be adopted to correct the trade imbal-
ances. The decision-making apparatus of the IMF
was a crucial feature. Members did not each have
an equal vote with decisions by majority on
important issues. It was intended that rates of
exchange, for instance, could be changed only by
a four-fifths majority of the Fund’s board of direc-
tors. Each member country appointed one direc-
tor, but his vote was weighted in accordance with
his country’s share in the IMF. This gave the US
a preponderant influence, and the IMF is appro-
priately located in Washington. In return for the
large US contribution to the resources of the
IMF, conditions were agreed that were aimed at
preventing discrimination in world trade, and
thus discrimination against the US for lack of
dollars. A twin to the IMF is the World Bank,
which provides development loans, but it has
played a much less important role than the IMF
in post-war international trade and the world
economy. But the hopes placed in these institu-
tions for facilitating the free flow of world trade
and the free convertibility of currencies were only
partially realised after 1945.
It is curious that, in the pursuit of freer trade,
import duties or tariffs did not play a more
important role in American thinking. The US
retained its own high tariffs against imports and
thought only in terms of their gradual inter-
national reduction by international agreement.
The bargaining for reductions of tariffs began in
April 1947 when twenty-three countries met in
Geneva; in October that year they concluded the
General Agreement on Tariffs and Trade (GATT).
What the US particularly wanted to achieve was
the elimination of large trading blocks which
traded among themselves preferentially, erecting
higher tariffs against outsiders. The British
Commonwealth had set up such a system in 1932
by the Ottawa Agreement, which established
imperial preference. The American negotiators
offered large reductions in US tariffs, but Britain –
faced with myriad financial difficulties – clung to
imperial preferences until obliged to eliminate
most of them when joining the European
Economic Community in 1973. Further rounds
of trade bargaining continued under the auspices
of GATT without resulting in the freeing of all
trade barriers as originally envisaged.
The arrangements worked out at Bretton
Woods did not, however, solve Britain’s or
Western Europe’s immediate problems. With the
US alone able to supply what Britain and the
Western European nations needed for their
reconstruction, and with inadequate recovery in
Europe producing insufficient exports to the US,
not enough dollar funds were available to make
the necessary purchases in America. This was
called the ‘dollar gap’.
In fighting Nazi Germany, Britain had subor-
dinated all its economic policies to just one aim,
to maximise the war effort. As a result its export
trade had dwindled to a third of the pre-war level;
not enough was produced at home to match
wages, so inflation resulted; Britain’s dollar and
gold reserves and its large overseas assets had
been used to finance the war; Britain had also
accumulated large sterling debts as a result of
wartime expenditure; the national debt had
tripled and Britain’s industry, adapted to produce
armaments, now had to be transferred to peace-
time manufacture for the domestic and export
markets. The dislocation was enormous, in Britain
as elsewhere. Millions were still in the services and
could only gradually be demobilised. The
dilemma for Britain was that it had to import
food and raw materials to supply its people and
industry, and to pay for them it needed to export
manufactured goods as well as to earn returns
from the city of London’s financial and insurance
services (invisible earnings). It was impossible to
achieve such a turnaround from wartime produc-
tion instantly. During the war itself, Britain’s
essential needs had been met by American Lend-
Lease. Then came the crunch. In August 1945,
with the president’s economic advisers judging
that the special circumstances of war were now