World Bank Founded: Global Economy Rebuilds After War

Twenty-nine nations signed the Articles of Agreement on December 27, 1945, formally establishing the International Bank for Reconstruction and Development and the International Monetary Fund, the twin pillars of a postwar economic order designed to prevent the catastrophic financial nationalism that had deepened the Great Depression and helped cause World War II. The institutions had been conceived sixteen months earlier at the Bretton Woods Conference in New Hampshire, where 730 delegates from forty-four Allied nations spent three weeks arguing about the architecture of global capitalism. The intellectual force behind Bretton Woods was John Maynard Keynes, who proposed an International Clearing Union that would have created a global currency and penalized countries running trade surpluses. The American delegation, led by Harry Dexter White, rejected Keynes vision in favor of a system cementing American financial dominance. The dollar became the global reserve currency, pegged to gold at $35 per ounce, and the World Bank and IMF were headquartered in Washington rather than London, a geographic statement of power that infuriated Keynes. The World Bank original mandate was financing the reconstruction of war-devastated Europe, but the Marshall Plan quickly absorbed that role, pushing the bank toward development lending in the Third World. The IMF was designed to maintain exchange rate stability and provide short-term loans to countries facing balance of payments crises, preventing the competitive devaluations that had wrecked international trade in the 1930s. Both institutions evolved dramatically. The World Bank became the largest source of development financing, lending over $300 billion while facing criticism that its structural adjustment programs imposed austerity on the poorest populations. The IMF abandoned fixed exchange rates in 1971 when Nixon ended dollar-gold convertibility but remained the lender of last resort for nations in crisis.