Bretton Woods, a small town in New Hampshire, was the host, in July 1944, for a major economic summit that has since transformed international economic relations. In economic discussions, the phrase “ever since Bretton Woods” means ever since the creation of the INTERNATIONAL MONETARY FUND (IMF) and International Bank for Reconstruction and Development (IBRD, also called the WORLD BANK), which were created at the Bretton Woods conference at the Mount Washington Hotel. Planning for the conference began in 1942 in the midst of World War II. Most world leaders agreed that weaknesses in the fixed EXCHANGE RATE system had contributed to the global depression and the rise of fascism. In response to the depression, governments expanded spending on public goods. But under the gold standard, where each country’s currency was convertible to a specified amount of gold, government spending could over-stimulate an economy and result in a BALANCE OF PAYMENTS crisis. Over-stimulation led to increased IMPORTS and to price increases for export PRODUCTs. This resulted in a larger trade deficit and balance-of-payments problem. The gold standard, which was in effect during this time, required a country to send gold to trading partners, decreasing the country’s MONEY SUPPLY. This constricted growth in the economy through higher INTEREST RATES. What was needed was an international monetary system that would allow domestic Keynesian economic stimulation without creating a monetary crisis. British and American political and economic leaders proposed changes in the international monetary system. The British—led by John Maynard Keynes, by then the most widely acclaimed economist in the world—proposed a system with an international agency and a new currency, “bancors.” Bancors would replace gold and U.S. dollars as the basic reserve currency for all national banks. The British, and most of the 45 participating nations at Bretton Woods, recognized that the United States would be one of the few economically strong countries after World War II and would have a significant trade surplus with the rest of the world. Keynes proposed increasing the value of the dollar as a means of reducing the impending trade surplus and stimulating exports from war-torn countries. U.S. negotiators, led by Treasury Secretary Henry M. Morgenthau and Harry Dexter White, proposed that the trade deficit countries would have to devalue their currencies and/or cut government spending in order to balance international trade. At Bretton Woods, the American proposal won out, resulting in the creation of the IMF. The IMF would assist countries with short-term problems in their international debt problems Funds for IMF operations were created by subscription. The United States, being the largest subscriber, became the dominating force in the organization. Discussions over the creation of the World Bank were less controversial. While the IMF would minimize shortterm trade problems, an organization was needed to provide long-term CAPITAL for INVESTMENT, particularly in developing countries. As envisioned, the World Bank would finance redevelopment of European economies and expand into assistance for other areas of the world. Like the IMF, the World Bank was established with funds by subscription, and the United States was the largest contributor. As planned, it would primarily guarantee loans made by private banks, thus stimulating investment in financially viable projects. The United States became the major source of funding for postwar European redevelopment. Over time the World Bank became a leading source of funds for ECONOMIC DEVELOPMENT as well as a symbol of U.S. dominance in international economic affairs. The IMF, while initially created to support government deficit spending, later became the international “watchdog” against excessive government spending. The IMF continues to provide short-term international finance assistance but with stringent requirements. Countries in need of IMF assistance are often required to reduce spending and raise interest rates in order to put their financial affairs in order. This is usually accepted begrudgingly, adding to developing countries’ disdain for the power of the United States and other industrialized countries over their economic affairs.