Foreign Exchange Market and Financial System during World War II: Bretton Woods Conference
Many books and analyses have been done about the Second World War, however, much less investigation has been done about the Foreign Exchange Market (FOREX) and Financial Systems used by the main Allied and Axis powers during the war. Here we summarize some of the main strategies, and systems used by the powers to drive their economies and future control of the world economy and forex trading.
Germany financial system during early stages of WW2
For example, the Nazi Germany organised her efforts working with a bloc of controlled nations. By early 1940, Germany forced trading partners with a surplus to spend that surplus importing products from Germany. Therefore, Germany was relying on internal demand of occupied countries. In this scenario, How did Britain organise her economy?
Britain Economy in WW2 early stages
Britain survived by keeping Sterling nation surpluses in its banking system. And, as we suggested above, Germany survived by forcing trading partners to purchase its own products.
What did US do in the same period?
The United States was concerned about a sudden drop-off in war spending which might return the nation to unemployment levels of the 1930s, and so wanted Sterling nations and everyone in Europe to be able to import from the US, hence the US supported free trade and international convertibility of currencies into gold or dollars.
How did the World War II influence the Foreign Exchange Market (FOREX)?
By July 1944, after the D-Day, the war was clearly on the Allied side. Germany was defending her own territory and it was clear it was a matter of time that Allied and Russian force conque the entire Germany. In order to prepare and rebuild the international economic system, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference.
Bretton Woods Conference: Designing the post-war FOREX and Global Economy
This meeting was held in July 1944. The delegates deliberated during 22 days, and signed the Bretton Woods agreement on its final day. Setting up a system of rules, institutions, and procedures to regulate the international monetary system, these accords established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group.
United States was a clear winner
The United States, which controlled two thirds of the world’s gold, insisted that the Bretton Woods system rest on both gold and the US dollar. Soviet representatives attended the conference but later declined to ratify the final agreements, charging that the institutions they had created were “branches of Wall Street.” These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.