Book Review: The Battle of Bretton Woods


With the inclusion of China’s yuan in the Special Drawing Right (SDR) and possible reset of the international monetary system in 2017 I thought it would be a perfect time to do a review of Benn Steil’s book, The Battle of Bretton Woods. If you haven’t read it yet you should definitely do it as soon as possible. With constant talk of a reset of the international monetary system and people in high places talking of the need for an update of the international monetary system, a refresher course of the last one negotiated at Breton Wools in 1944 and that ended in 1971 is an excellent place to start. The first thing that struck me while reading the book was the resemblance of the passage from United Kingdom and the British pound to United States and the dollar in the first half of the 1900s to today’s reset from the US dollar to a new system with China as the main challenger.

Preparing to rebuild the international economic system while World War II was still raging, 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. The delegates deliberated during the month of July 1944, 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. The United States, which controlled two thirds of the world’s gold, insisted that the Bretton Woods system rest not only on gold but on both gold and the US dollar.


In 1945 Harry Dexter White, the architect of the dollar’s privileged place in the Bretton Woods monetary system told US congress that “The dollar and gold are synonymous.” The Bretton Woods system collapsed in 1971 when the US ended the convertibility of the dollar in gold. Benn Steil says that this should, as Harry White believed, have meant the end of the dollar’s international hegemony. “There are some who believe that a universally accepted currency not redeemable in gold . . . is compatible with the existence of national sovereignties,” White wrote in 1942. “A little thought should, however, reveal the impracticability of any such notion.” Countries, he said, would never “accept dollars in payment of goods or services” unless they were “certain [they] could convert those dollars in terms of gold at a fixed price.” Actually we have been in a dollar standard non-convertible in gold system since the collapse in 1971 but since 2008 it is evident we are coming to an end of this de facto dollar system.

Benn Steil recounts the negations in great detail and the battle between the old world power, United Kingdom, and the new world power, United States. The two most important Bretton Woods negotiators being from the United States side Harry Dexter White and from the United Kingdom side famous British economist John Maynard Keynes.

With so many central banks’ insiders today talking about the unsustainability of the present de facto dollar system, it looks to me we are very close to a collapse and a reset again. Recently past Fed chairman Ben Bernanke said about the present system that “the system is incoherent”, past Bank of Canada and present Bank of England governor Marc Carney said that the system lives its “Minsky moment”. We also see that the IMF’s president Christine Lagarde is working hard behind the scene for an update of the international monetary system since the 2008 financial crisis and to push the SDR as an alternative to the US dollar, with strong support from China but also Russia and the EU. IMF states on its website that, “A strengthened International Monetary System (IMS) – one that is resilient to future turmoil – is a key goal of the world community as it recovers from the global economic crisis.”

Ignore history at your own peril. Michel de Nostredame, (Nostradamus), Johannes Kepler and Francesco d’Assisi were excellent futurologists precisely because they were exceptional students of history. History does repeat itself even if not exactly in the same way.

Contrary to popular believe that the Bretton Woods accords were the product of an amiable Anglo-American collaboration, Benn Steil shows that the accord in reality was an ambitious geopolitical agenda of the United States to eliminate the United Kingdom as an economic and political rival. Sounds familiar? Today we have a similar situation but United States today is the United Kingdom of 1944 and China is what United States was then. China has expressed several times its objective of eliminating America’s “exorbitant privilege” in the international monetary system. China today doesn’t have the advantages US had in 1944 so it is trying to build a coalition through international institutions. We are seeing it now with the push by China and the IMF for the SDR. People’s Bank of China (PBOC) chairman Dr. Zhou Xiaochuan said in 2009 in an article, right after the 2008 financial crisis that “Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency” but he also adds “The desirable goal of, therefore, is to create an international reserve currency that is disconnected from individual nations.” His main target being the United States, that China calls the “hegemon”, and the dollar with its “exorbitant privilege”.

Today we hear more and more calls for a similar conference as in 1944 to reset the international monetary system. Let’s hope it will not happen after a total collapse and a new world war. The leadership being with the G20 and the IMF to avoid such a collapse.

Paul Volker, past Fed chairman, says it best on the back cover of the book when he says “The book [The Battle of Bretton Woods] is full of lessons that are relevant today in a world that still resists international monetary reform.”

In conclusion, if there is a timely book you should read as background to the reset of the international monetary system, it is certainly Benn Steil’s The Battle of Bretton Woods. I believe it will help you understand better what the future will look like for the international monetary system.