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Bretton Woods: a Later Analysis

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Submitted By LuisLeite
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Academic year: 2013-2014 Degree on Management International Negotiation

“The Bretton Woods Agreement [1944]”

Luís Leite

Teacher in Charge: Carmen Amado Mendes

Index:
“The Bretton Woods Agreement [1944]”........................................... 0 Luís Leite ............................................................................................ 0 1. Introduction ................................................................................ 2 2. Pre-Negotiation ........................................................................... 4 3. Negotiation before the final conference ................................... 11 4. Negotiation: The Bretton Woods Conference ........................... 15 5. Conclusion: Later changes and full analysis ............................. 19 6. Primary Sources and Bibliography ............................................ 22 7. Annexes: .................................................................................... 26

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1. Introduction

The United Nations Monetary and Financial Conference that occurred from the 1st of July to the 22nd in 1944 better known as the Bretton Woods conference gave origin to a ground-breaking system. It was the first time a fully negotiated monetary order came to existence which a new paradigm perspective on how to face economical international relations. This essay will help you understand why the Bretton Woods system happened, its historical context, why it worked throughout the time it did and the motive why it stopped functioning. Paramount to this essay will be its non-biased writing as hundreds of theories from Europeans and Americans exist trying to blame each other for the ending of this system. This is tremendously important because most current articles written about the possibility/impossibility of a well-functioning Bretton Woods-like system, are based solely on one part of the facts. Maybe the existence of a non-partial analysis on the original system might help others to create an article with a more optimal view. A vast collection of studies, essays, articles and books exist on the BW system but most diverge in certain aspects as in the answer to: “Was the USA victory in this negotiation the best outcome?” James M. Boughon(2001) claims that Dexter White was a more optimistic person than John Keynes, who believed in international collaboration, he and a few ,mostly European, experts believe the system could have worked if the plan imposed was the one of Keynes. Per contra economists as Stephen Morris (1999) claim that no system could have endured because no restrictions would stop governments from measuring their own goals with a higher value than international collective values. A third party, as Ph.D. doctorates Ikuo Gonoi and Hiroaki Ataka (2010), believe in none of the above, and that according to the theory of Embedded Liberalism by John Gerard Ruggie, the BW System was doomed to failure. However expert’s thoughts Karl Polanyi who first studied this phenomenon believed prosperity occurs during such phenomena. Anna J. Schwartz (2000) and Stephen Morris
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insist that B.W. system could not be possible due to fixed exchange rates and that the data saying it worked for a certain period is a false illusion created by non-related data. On the other hand economists as Michael D. Bordo and Barry Eichengreen (1993) contest by claiming that it worked during the 9 years it was in full function. To understand why this meeting of 44 countries and respective 730 delegates that lasted three weeks was so relevant we must analyse its historical context. This is a topic that will be approached in the first chapter where the financial situation and mind-set of the biggest potencies in the 1940s will be analysed. Such were heavily affected by the two wars and the Great Depression, which generated a mutual goal for most nations, an agreement where “nations should consult and agree on international monetary changes which affect each other. They should outlaw practices which are agreed to be harmful to world prosperity, and they should assist each other to overcome short-term exchange difficulties.” (U.N.M.F.C.B.W., 1944). On the second and third chapter the negotiation phase will be analysed: (1) the negotiation process before the conference of 1944 and (2) the negotiation during the conference. The conclusion will focus on the changes that occurred to the system in the following years and its collapsing. Albeit its ending, the simple fact the system was in effect, proved that nations were able to overlook their differences and work for a common goal. Although its crumbling being believed to be due to governments not being able to put international goals and wellbeing above national objectives it still proved they are able to cooperate at least for a certain period of time. If you find yourself with the question: why do we not try to apply a new system similar to the original one while correcting its previous flaws, I would suggest reading the master thesis of Antunes Da Silva Baila Madeira. Also quite a number of articles were published by Foreign Policy and Foreign Affairs in the year of 2011, which comment on the pros and cons of a decision to implement such System.
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2. Pre-Negotiation

In the pre-negotiation and negotiation chapters the processes will be analysed with the Formula/Detail model with some light references to the Concession/Divergence model when analysing tactics later on. To further help analyse the actions and procedures being studied Lewivicki’s vision will be used, however later on Zartman’s and others authors work on the ways of international negotiation will also be referred. We can trace the origin of the “The Bretton Woods Conference” to the AngloAmerican coalition that began in the late 1930s, early 1940s. This relation began to develop when Britain understood it was devastated by War and needed help akin to France and most allied nations. The United States of America on the other hand needed an open market to operate again, as both Britain and the France their main importers had formed blocs to operate without having to compete with the vastly superior power market of the USA (Hudson, 2003:119-123; Ikenberry, 1993:4-11). Nations were affected by the Great Depression which was caused by a flawed and poorly managed international gold standard, and it is believed it could have been avoided if governments had cooperated allowing for a worldwide but the disputes over World War I reparations and war debts were still raging on and such was not possible. Every nation was feeling the crisis effects and afraid of continued conflict which triggered an attempt to prevent more dispute resulting in negotiation (Bernanke, 2004:5-20 and 70-108; Eichengreen, 2008: 15-45; Stein, 1989:240). Janice Stein’s defines pre-negotiation as the period that goes from when parties start seeing negotiation as an alternative to their problems to the time they start official communication and negotiation. This process is indispensable so that negotiation might occur. Brian Tomlin and Harold Sunders make a good distinction on the phases of pre-negotiation however Sunders model makes his stages easy to identify in the preceding actions of the Bretton Woods
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conference.

He identifies the first phase as the one in which parties start

conceiving the problem they have in hands and on how they may solve it. In the following paragraphs the way the two main parties framed the problem for this negotiation will be analysed using Liwicki’s vision (Stein, 1989: IX-VIV and 1-7). The USA and the UK started then framing their problem and defining what was important. The American Negotiation Style is known for their effectiveness however those who write about it also claim Americans are impatient negotiating, which affected their frame-work. The way they framed the problem is easily analysed by the Cognitive Heuristic approach on frames – also known as cognitive biased - their perception is rather static along the process even when presented with evidences by opposite parts that their plan may fail they refuse them by presenting whatever information is available to contradict them but without further research on all problems presented; this was due to isolation, characteristic of this type of frame, they refused to believe in information provided by others and excludes it (Lewicki,1999:29-45). The UK acted differently during the negotiation and also during problemframing which will be analysed by a well-known theory: “Frames as Categories of Experience”, one that suggests the British used an Outcome type of framing. During the full pre-negotiation and negotiation process the British show a highconcern with the outcome of the negotiation, aiming for one that would help the recovery process of Britain. The British were so focused in their preferred outcome that they continuously moulded all their strategy and tactics reacting to the new information and strategy and tactics chosen by others (Lewicki, 1999:29-45). The USA made the first move in 1941, when the Atlantic Charter was drafted by their President Franklin D. Roosevelt's and British Prime Minister Winston Churchill during their meeting on a ship in the North Atlantic. The USA defended a liberal international economic system which in their opinion would increase the chance of an “everlasting” peace (Cordell, 1948). This is the best
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known precursor to the Bretton Woods meeting establishing the rights of all nations to equal access to trade and raw materials - one of the main USA foreign policy aims - (Cull, 1996: 14-26). This defined the USA initial strategy goals: obtaining a free trade deal that would allow them to once again trade with European potencies. By then they started formulating a future international monetary plan. By Sanders logic such move is considered the beginning of the second phase: the development of a compromise on starting a negotiation between parties. From the day the Atlantic Charter was written both parties started preparing for the negotiations to come (Lewicki, 1999: 45-47; Stein, 1989: 2-3). Parties began communicating and planning a negotiated monetary plan due to their lack of a strong Best Alternative to a Negotiated Agreement or BATNA to any of the parties. BATNA can be defined as the path to follow if a Negotiation fails. (Fisher, 2011:108-110). In this case the UK had already agreed in the Atlantic Charter not to form trading blocs and had no way to compete with the USA in terms of production leaving them with no choice but to make a negotiation in which the USA would commit to help in the reconstruction of Europe. USA were in a similar situation for different reasons: they needed to export their products but the situation in which former most powerful European countries were in did not allow them to import products from the USA and nondeveloped countries did not have enough demand for the huge USA supply chains. None of the parties that first began drafting plans for the agreement had options they could work into possible tangible or partial alternatives. Harry White begun drafting his plan in December 1941, in his memorandum to Morgenthau he defended that currency convertibility was realistic and effective. Morgenthau was at the time secretary of the US treasury and White asked him to submit his proposal to the Rio conference in January 1942 for it to be given to all the UN members but such request was denied (Mikesell, 1994: 7-10). From February 1942 until the Bretton Woods conference, official

representatives of both the UK and USA began laying concrete plans for
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international economic stability. The future heads of delegations: Harry White, a Special Assistant to the US Secretary of the Treasury, and John Keynes, an advisor to the British Treasury elaborated totally independent plans for organizations that would provide financial support to countries experiencing short-term deficits in their balance of payments. Such would ensure countries would not put in practise protectionist predatory policies to improve their balance of payments (Office of the Historian, 2013). The goals of both plans coincided in aiming for a world of fixed exchange rates, believing that it would better help to the expansion of world trade than floating exchange rates which was a facilitator factor. However they disagreed in the liberty to be conceived to each country, on how the credit/deficit balances should work, which institutions should be in the core of the system and the British believed in an international single currency (Lewicki, 1999: 40-43 and 128-130). The plan purposed by White was revealed to Roosevelt in May 1942 being the only one to be discussed until early in the year of 1943 when Keynes plan was formally presented. White’s plan suffered modifications to ensure the satisfaction of other nations, though most governmental representatives accepted core principles as the establishment of the ISF, or International Stabilization Fund – now Known as International Monetary Fund - along with a system of subscriptions , composed of national currencies and gold. This was all decided between informal meetings, as formal contact was only made after 1943. Whites plan received strong support from other countries representatives as the Canadians (Mikesell, 1994: 8-10). This plan was the “formula” preferred by the USA, formula is a concept defined as the group of subjects to be approached and those which are to be discussed or not. As this was the first time such a monetary order was to be installed there were no previous formulas to be studied and the definition process was longer than expected. This plan would satisfy all of USA goals, (1) their shortterm objectives of creating a mandatory free trade system and their long term
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needs (2) becoming the World’s biggest economic potency at the time. Gaining the trust and support of Canada and other countries was also of importance to the USA strategy. (Duzert, 2007:24-34;Hopmann, 1998:76-79; Lewicki, 1999:267-270 and 30-33). Keynes, however, started drafting his “Plan for an International Clearing Union”, the ICU, in 1941 being informally presented to the USA and the remaining UN early 1943. A number of points on this project were the opposite of what the USA government wanted to achieve as the automatic extension of credit to nations suggested by the British. Keynes disagreed with the American economist on: the rigidity regarding exchange-rate stability, the elimination of exchange restrictions and the discriminatory payment practises being far less generous and ambiguous on the balance-of-payments subject. John’s plan was superior in providing balance-of-payments assistance but it was imprecise in setting obligations regarding exchange-rate stability and control. Unlike White, Keynes planned to create an international currency the Bancor instead of White’s Unita which was just a unit of account, alongside with this currency the British planned the World Central Bank so that the crediting and debiting of nations could be easier to control.(Mikesell, 1994: 12-21; Eichengreen,19, 94111). The British formula was quite different of the USA, wanting to introduce a new currency and creating different debt control methods. The negotiation process can be divided in three parts, the first was diagnosis which occurred during prenegotiation when parties started framing the problem; the second is the formula design now being described and finally the discussion of details closer to the final conference during the fully fledged negotiation stage (Duzert, 2007:24-34; Hoppman,1998:78-79 ). The UK opposed White’s plan due to the hardships Britain would have dealing with the balance-of-payment problems. As an initial strategy the UK planned to “force” the UN to accept their plan as replacement for the American one,

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defending it would further help Europe reconstructing after the calamity of the war. The last phase of pre-negotiation according to Saulders is the phase of arrangements, as in this case study many formal and informal negotiations occurred it will not be possible to comment on all of them. However the final conference that occurred in July was in Bretton Woods due to its remoteness, quietness, easiness to control security and the media. Such control is the reason why so very few press-releases, interviews and articles were written during the conference’s time-spawn. The countries that participated in such conference were the UN members and Australia, 44countries in total (Stein, 1989:2-4). The functions of this pre-negotiation were: analysing and reducing the risks, specifically those associated with cooperation between parties; forming a perception of costs both the ones that could occur if the negotiation failed and those that could occur while compromising in the negotiation process; evaluation of requitement or the belief in reciprocity, they would have not advanced in the negotiation if they thought other would not be able to compromise as much as they were; support gathering, domestic support from the people was of wide importance when partaking in negotiation at the time as people were still fearing the war; alternatives rating which occurred for each party individually each choosing the best solution in their opinion; selecting participants was also important with each party choosing those that would support them and form a coalitions with allowing for stronger statement during negotiation and finally and at the core of this pre-negotiation stage was the construction of bridges either by changing perceptions or mentalities, negotiators understood that cooperation would be key in order to achieve their goals (Stein, 1989,6-15). There was a huge divergence in power between the USA the UK. Power may be defined as when someone has “the ability to get things done the way [they want] them to be done” (Salacnick and Pfeffer,1977). This definition considers
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power as the ability to influence an outcome and in a negotiation such ability comes from leverage. The USA were the world leading force having an enormous military power and European countries as the UK were counting on its help to reconstruct. Britain had all its principle industries burnt down by war asking the USA government for a 4,4billion dollar loan( Bordo, 1994:33-40). Negotiations for this loan occurred during the BW negotiation process which might have been an influential factor to the UK’s behaviour as warnings and threats may have discretely or implicitly stated. As such the UK knew they had less leverage than their counterpart but through the establishment of relations with other European countries and thanks to choosing Mayard Keynes who at the time was already a renowned expert, and whose opinion carried weight in every discussion on macro-economics, allowed them to slightly balance the negotiation weight-scale (Zartman, 2003,271-295;Mikesell,1999:47-50;, Hopmann,1998: 101-116).).

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3. Negotiation before the final conference

After an ISF draft by Barry Dexter White was sent to a number of nations, formal meetings were able to begin in spring 1943. A meeting was held in Washington in April, 1943, with 17 countries partaking in it. Later that year in June several proposals were analysed such as the ISF from White, the ICU from Keynes and a Canadian counterpart similar to the ISF plan, along with other memoranda and minor proposals from other participants. (Polak, 1992:CH. 1 and I-III). A series of multilateral formal and informal meetings between the United Nations countries followed. Being a multilateral negotiation made the negotiation process more complicated, but most involved were worried with the relational and substantive outcome which took to a collaboration strategy from the beginning. However this did not mean that the main opposing parties were to agree either in the formula or in the details right from the beginning and both started seeking support from other negotiators. Entering a bargaining stage, both countries allied with outsiders, the USA promptly persuaded Canadians and Mexicans to side with them when on the other hand most former powerful European countries sided with the UK (Lewicki, 1999: 40-43, Hopmann, 1998: 80-84). In spite of all differences both plans aimed: for an international liquidity to enable countries to stabilize their currencies, eliminated exchange restrictions and outlawed bilateral payments arrangements. According to Mikesell (1994) the British proposal was rejected by the U.S. in 1943 due to the following arguments: (1)not stating the limit of Bancor that the USA would have to provide ;(2) the clearing-union principle being foreign to the USA and therefore unacceptable. Americans claimed that Keynes formulae to calculate quotas was off the mark predicting that (e.g.) Iceland would have to provide foreign credits equivalent to 300 times its produced GDP. Suggestions were made by Keynes as (policy tools that would limit export surplus, ability of the ICU board to
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require certain monetary moves of their members) but such were dismissed by the U.S.A. alleging Americans were not able to accept foreign diplomacy so easily and White’s plan triumphed. This denial of proposal from the US is easily explained by the kind of frame they were acting in - explained in the previous chapter - the arguments used by the Americans were also a basic Distributive Bargaining move: modifying the other party’s perception, they refuted a full theory by proving that a small part of it was at the moment unconceivable such “counter-offensive” move was not as effective as desired and the USA had to refute such proposition by claiming it was unacceptable due to cultural motives. (Mikesell, 1994: 12-16; Lewicki, 1999: 76-90; Brito, 2004: 2-5). This was an asymmetrical negotiation, where one party was much stronger than the other and we can see that the unequal power situation leads to a more effective negotiation by allowing faster resolutions to a certain extent. As in Zartman’s theory the stronger party tries to dominate their less powerful counterparts. The weaker party, the UK, answered with counter-arguments on the US proposal, and by gaining the support of other countries which them to leverage their power a bit. Keynes also argued that his politics issued for fullemployment which should be a world-wide concern and that tried to change the American perception by defending that the “Unita”, unit of measure conceived by White, could become a worldwide currency corresponding to his Bancor idea (Zartman, 2003:271-295; Hopmann, 1998:110-112). Along 1943 several meetings took place with Keynes triying to stand his ground defending his ICU plan, however, during the summer, when he saw no budging from the USA representatives he tried a different approach. Instead of completely replacing White’s plan he purposed that some of his plan’s features would be added to the currently subscribed ISF plan. This concession and proved fruitful as some of Keynes’s previsions were included in the final Bretton Woods System. He was able to do such not only due to the respect people had for him ,already being a notorious economist at the time, but also due to strong support from Europeans. (Lewicki, 1999: 70-75; Mikesell, 1994: 14-20).

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This concession was made in the light of the frame in which Britain was working. They were so worried the outcome would be prejudicial to the already delicate situation of Britain that they thought their change of strategy would allow them to reach their primordial goal of helping Britain paying its debt. It proves once again Zartman’s theory that negotiating parties are indeed effective to the extent that they adjust their behaviour to the relative power of the other side, the British was a classic example of such strategizing. (Zartman, 2003:271-295) The reason why the USA accepted the modifications suggested was because they wanted to reach their goals as soon as possible and considered a final agreement of extreme importance. This negotiation was an almost classical distributive bargaining, also called winlose bargaining negotiation where for one party to win the other needs to lose, in this case losing meaning making concessions in their ideal formula. There was no understanding between negotiating parties on major issues with parties retaining information from each other, and the British repeatedly testing the USA resistance point, or “value” expected for this negotiation outcome, when trying to replace their plan entirely. However and even though they seemingly failed they were able to push the USA’s delegacy resistance point resulting in the introduction of some of the British desired changes. (Lewicki, 1999, 70106). On June 22-23, 1943 British and American representatives planned a Joint Statement with previsions for an International Monetary Fund, previous ISF, that would later be presented. Such agreed on the expansion of international trade, exchange stability, elimination of exchange restrictions, and shortening period of disequilibrium in international balance payments. (Mikesell, 1944: 2830). Before this statement negotiations were at a “lock” as opposite parties pressed into different directions without thought for its adversaries worries but due to this compromise negotiations able to proceed. This happened due to the use of
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a well-studied tactic: desegregation, by fragmenting the problems of a deal parties were able to agree in some issues limiting disagreements to those they really could not come to terms with. (Hopmann,1998: 79-81). The Joint Statement shows us that this negotiation truly interactive and that even opposite forces were trying to work co-operatively due to the importance of striking an arrangement. This Satement was an attempt of understanding negotiators needs empathising the commonalties between parties while minimizing differences. (Lewicki, 1999: 106-130). From this point on, meetings were to discuss the details of the formula. As in most negotiations this one also followed a deductive path, now that a final formula aroused resulting from the converging of two “opposite” formulas the one from the US and the one from the UK, negotiations could proceed to a new level (Duzert, 2007:24-34). The Atlantic City meeting in mid-June 1944, where 17 countries were represented, was the final encounter to precede the Bretton Woods conference. It was set to define the agenda for Bretton Woods. However it was mostly compromised of discussions related to changes to the Join Statement and Boat Draft of the Bank proposed by Keynes. In the end 17 amendments were made. Several concerns were stated as: the quotas determination, where White at the time decided to stick with the formulae; Soviet Union desires of having a lower gold subscription and a non-regulated exchange-rate; and many countries claiming quotas being proportional to voting power were unfair. To solve the this problems previous proposal was reformulated as to eliminate the power of the Fund to set conditions other than quantitive limits to the use of its resorts, Soviet Units desires were not discussed (Mikesell, 1994: 30-34). There was not much concern from the, at the time, developing countries. Such is easily explained by Michael D. Bordo(1993), who claims these still considered themselves raw material producing countries, and had no development plans or strategies. As a fact, the primordial White’s draft did not even include the word development
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4. Negotiation: The Bretton Woods Conference

In July 1944, 730 representatives from 44 nations met at the Mount Washington Hotel in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference (Mikesell, 1994: 34-42). This final meeting was in truth a drafting meeting with most substance having been arranged in the meeting that preceded Bretton Woods (Mikesell, 1994: 34-42). The drafting process was conducted mainly by the USA delegation and even though representatives of other nations were interested in changing certain points, the USA delegation was promptly prepared to refute such introductions into the charters. This was a brilliant tactic by the USA as they were able: to manipulate the schedule, to make the opening offers on what regarded the details discussions to be followed. They could negotiate with people who were still suffering from jetlag or had not adapted to the conditions of the place where they were, allowing them to increase pressure during negotiations. Also, all beginning proposals as for example quotas and the quota calculating formula – which was secretly kept by the US - were made by Americans allowing them to take the first step, and the first move is always a powerful one (Lewicki,1999:78-85). The main negotiations that occurred in the conference were related to the gold subscriptions or quotas to the Fund of certain individual countries and such were not even discussed in open meetings but during more private discussions between conference leaders. The conference was conducted by three commissions: Commission I on the Fund, chaired by Dexter White, as it was his plan’s main institution; Commission II on the Bank chaired by John Keynes as he was the one that suggested the introduction of such entity and Commission III on other aspects of international negotiation chaired by Eduardo Suares of Mexico. The work delegated to
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commissions was in its turn done by committees in charge of specific topics (Bretton Woods Meeting Transcripts). In this chapter I aim to analyse the work done by the Committee on Quotas of the Fund, Commission I, chaired by Fred M. Vinson as it seems to me to have been the most relevant topic being discussed. As most suggestions made by representatives were not during the nine Commission 1 official Meetings, and they are not in the transcripts the following analysis is based on the memoirs of participants in the BW conference. Quotas distribution was a sensible topic because: (1) some countries wanted their quota lowered due to not having enough gold reserves to make a big contribution ;(2) others wanted a bigger quota so that they could have a bigger voting power. Due to these when the quota formula, that was supposed to be a secret, leaked to other delegacies it generated controversial currents between representatives of all countries. (Mikesell, 1994:34-42). The quotas of the biggest countries had been determined before the BW conference, however when the list of the remaining countries were revealed by Raymond Mikesell, representatives understood that the quotas were not as scientifically calculated as they were political. The USA had already predicted this and had convinced Raminsky of Canada to speak in their behalf, claiming the list was completely acceptable in his opinion. This communal relationship was an important strategy step for the USA - based on a calculus trust- the USA promised a certain quota to Canada and Canada promised to support the quotas purposed by USA to other countries, both new there would be repercussions if they had not followed through with their plan (Lewicki,1999: 275-289). Australia appealed for a greater account of seasonal trade fluctuation in the quota formula, and reached its goal by increasing its quota in 50millions. Brazil and India claiming their perspectives of growth should weight more insisted they also deserved an increased quota. After the USA commission leader
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cracked to the pressure and authorised Australia’s quota increase, Brazil and India understood they could push USA so that they could gain a more favourable position, and that was what they did being to reach their goal of an increased quota (Lewicki, 1999: 70-78; Mikesell, 1994: 35-42). Bargaining did not occur in formal meetings. The biggest quota changes were only made in most influential countries and in the fifteen countries represented in the Quota committee group. These countries were able to change their quotas easier than the others due that during informal meetings the negotiation even though still multilateral occurred in a much smaller group allowing for a bigger understanding between parties and easier satisfaction of joint goals (Mikesell, 1994: 34-39). After this first quota changes were approved some countries as Australia, Greece, Iran, and Yugoslavia still did not agree with the distribution, however there worries were latter satisfied without having to change quotas, due to some further explaining of the calculation methods. France did not have a good relation with the USA and insisted that there quota should be increased from there current 450million share however such did not happen, maybe due to the lack of negotiation skills by Mendes - chief of the France department, in this negotiation. Mendes in a talk with Mikesell insisted that they had only been given such low quota due to political reasons based on a bad relationship history between the Americans and the French, something that Mikesell agreed to but did not refer at the time, as he was a USA representative. However Morgenthau a senior member of the USA delegation at the time was able to convince him that such was the only possible quota as the USA had promised China they would be the country with the fourth highest quota –following the US, Soviet Russia and the UK- Mendes ended accepting this deal without knowing at the time that the initial predicted quota for France was actually higher, and only then reformulated during Bretton Woods to accommodate to other country’s needs. (Mikesell,1994:34-42; Dominique 1994:17).
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This process can be analysed by the model of Marcelo Brito, the decision of Mendes on confronting Mikesell occurred due to the external pressure from the French government, which wanted a larger quota. Mendes developed an interest in achieving a better deal, and expecting to get one, he took an action and approached Mikesell to better know how the formula worked and explain his worries with the quota attributed to his country. However as almost all people Mendes did not use a fully rational process and became increasingly angry until Morgenthau intervened. Morgenthau a senior member of the US delegation had a pre-conceived concept that made him think little of the French but and was feeling less external pressure approaching the topic more rationally. (Brito, 2004: 2-8) Studies on warm communication specifically the one on emotion/anger by Daly(1991) show that it affects perception in two ways: (1) it changes people’s perception, making them narrow their focus and perceive fewer alternatives and (2) it changes people parties. The first was very decisive in the outcome of the French negotiation, as perception is key in communication and as such in negotiation. By having his perception obstructed Mendes was not able to fully analyse his options when debating with Morgenthau and inevitably lost. (Lewicki, 1999: 141-164;Mikesell, 1994:34-42) Many countries aimed for higher quotas but others who had large gold reserves like Venezuela and Union of South Africa wanted lower quotas as it was stated countries had to contribute with gold equalling 25% of their quota or 10% of their net official holdings of gold and US dollars. Also quotas to the Bank members were the same as for the Fund so larger quotas meant a larger capital subscriptions to the Bank (Mikesell, 1994:34-42). Most countries were satisfied with the quotas attributed to them, with White formally defended his formula pretending the all formula calculation process was indeed completely scientific and not political. However delegates involved including some from the USA claimed that the formula played a smaller roll and that decisions were political. (Mikesell,1994:34-42).
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5. Conclusion: Later changes and full analysis

After much discussion before and during the Bretton Woods conference an agreement was finally signed and the BW system could begin. Nonetheless as the war ending drew closer most countries that not the USA or the UK, felt the Institutions to be created were not up to the task of supporting the reconstruction of most Europe and Asia devastated countries. (Schwartz, 1987: 1-17) Even in America people were divided, The American Bankers Association along with the leading New York bankers agreed that the Fund was premature and undesirable due the lack of security of its resources or by other words the huge USA subscription, also the complete lack of experience of such institution was a risk, bankers claimed only private banks were capable of international loans of such order. The loaning of money to poor and unstable countries from the bank’s Fund was the same as wasting money in the opinion of bankers and even though the USA government repeatedly explain them that the power they had inside the Fund to restrict the loans to countries that were not following strict domestic and foreign-exchange policies they were not able to convince them. (Schwartz, 1987: 1-17; Mikesell 1994: 44-54) Most of the Bankers commentaries would be later verified, but at the time the USA government perceived there suggestions as biased due to the interest of private banks in remaining as the only “loaners” of foreign countries so that they could maintain their interest fees income. In the UK Keynes was having problems as well trying to explain the Parliament the that the Fund’s power to control intern policies could be avoided and that Britain would have an easiness of dealing with both its domestic and balance of payment problems. (Mikesell, 1994: 42-55) Representatives of both countries were trying to justify their decisions to their compatriots giving them totally opposite ideas, trying to manipulate their perception in a way they would find their actions and decisions acceptable.
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Communication once again is key to negotiation even when it’s negotiating between the people and its government. (Lewicki, 1999: 141-152) Mobilizing Public support was certainly not, as Americans were not ready to accept helping foreign countries that not allies, however by relating the Bretton Woods agreement to an ever-lasting peace concept the government was able to lead their people into better accepting such system (Mikesell, 1994: 42-55) From 1944 to the mid 1950s the USA focused in encouraging an outflow of dollars, arranging loans and financial support to countries from Europe devastated by war so they could reconstruct and by such start importing products from the USA, creating a new more stable market and monetary order. The ISF was however not much involved in this process; in a matter of fact the most well known action of the US at the time was the Marshall Plan, a plan of grants and loans that heavily helped Europe post-war. Along this years some quotas were also re-arranged due to the concern of other countries, the pound of gold was valued at a fixed price of 35 dollars, PEG rates were determined according to economic formulae. The dollar became a key currency not only due to its convertibility but also due to the fall of the Sterling value (Hudson, 2003: CH.6). With the turmoil around the system it was only possible to fully start its in1958 when. However the system was already heavily modified not resembling the one originally architected: the USA leadership was about to be challenged by a growing Europe ,the IMF did not have a prestigious status, the dollar rose as a key currency with the Sterling devaluation, the adjustable peg system soon became a de facto fixed exchange regime, a mobility of capitals that was not as great as expected (Eichengreen, 1993: 40-70). However and even though its future did not seem bright as some of the sine

qua non conditions did not seem to exist the system triumphed for 9 years probably due to the degree of exchange rate stability in place and the growth of international trade and investment in such a way that no supply shocks were observed at the time (Schwartz, 1987: 1-17).
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Nonetheless the system faced several weaknesses: through Governmental restriction international capital movement was constringed; the system was made to work in and adjustable peg system however the US and UK were reluctance in accepting adjustments of peg rates of countries that were suffering enormous pressures; devaluation was resisted as an admission of failure, under this system only the US was forced to convert its domestic currency into gold, resulting in a dollar-standard much like the previous goldstandard regime (Antunes,1992: 52-77; Eichengreen, 1993: 40-70). Non-surprisingly when the US understood they would not be able to supply the World’s gold demand as it understood that if the gold reserves kept reaching lower and lower values the dollar would undervalue. From such understanding and due to a bigger worry with domestic economic objectives than with its obligations as the centre country of the international monetary system, the US through the voice of president Nixon declared the ending of the dollar to gold convertibility at the previous fixed rate, one the 15th of August 1971, thus terminating the Bretton Woods System (Nixon, 1971: speech; Schwartz, 1987: 10-15). During the negotiation process I believe parties were reasonable on an ethic level as I have read no records or memoirs that referred bluff, manipulation through higher hierarchy connections or emotional retraction. We can however note that Morgenthau took advantage of Mendes emotional state during their discussion in there BW conference which is frowned upon, much like White’s decision to keep the quota formula for him. Realists defend that ethic thinking is a dangerous luxury while negotiating as it may alter domestic interest of which the international system is dependent on. In this case as in most domestic policies interest definitely spoke higher during and after the negotiations and that is why the system was doomed to failure, governments were not ready to accept International interests above their own agenda. (Leal, 2007: 40-47)

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6. Primary Sources and Bibliography
Primary Sources: Cordell, Hull (1948). The Memoirs of Cordell Hull: vol. 1. New York: Macmillan. p. 81. Dexter White, Harry (April 1942) Preliminary Draft Proposal for a

United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations.
Washington DC: U.S. Secretary of the Treasury Dexter White, Harry (1943) Preliminary Draft Outline of a Proposal

for an International Stabilization. Washington DC: U.S. Secretary of the Treasury Franklin D. Roosevelt (1941); Winston S. Churchill The Atlantic

Charter.
F. Mikesell, Raymond(1994) The Bretton Woods Debate: A

Memoir. New Jersey: Prince University, Financial Division Press
Hull,Cordell (1948) The Memoirs of Cordell Hull, vol. 1 (New York: Macmillan, 1948), p. 81. M. Keynes, John (1944) Statement by Lord Keynes on the proposed Bank for Reconstruction and Development, Meeting on the Clearing Union M. Keynes, John (April,1943) Proposals for an International

Clearing Union, London: British Treasury
M. Keynes, John (February 11, 1942 ) Proposals for an

International Currency (or Clearing) Union., London British
Treasury U.S. Secretary of the Treasury (1944) Bretton Woods Commission

I meeting Excerpts : Bretton Woods, later releases
U.S. Secretary of the Treasury (1944) Bretton Woods Proceedings

and Documents vol.1-2 , Bretton Woods, later releases

FEUC – Negociação Internacional – 2013-14 22

-

Secretary of the Treasury (July 10,1943) Fund of the United and

Associated Nations. Washington DC: U.S. Secretary of the
Treasury United Nations Secretariat (November 15, 1947) Agreement

Between the United Nations and the International Monetary Fund.
Washington DC: U.S. Secretary of the Treasury Wilson, (1967) Wilson defends 'pound in your pocket. recorded by BBC, Bilbliography:  Books: A. Pollard, Robert Economic Security and the Origins of the Cold

War, 1945-1950 (New York: Columbia University Press, 1985),
p.8. Anna J. Schwartz , “Do we need a New Bretton Woods?” Cato Journal, Vol. 20, No. 1 Spring/Summer 2000 D. Bordo, Michael ; Simard, Dominique; White, Eugene (February,1994) France and the Bretton Woods International

Monetary System: 1960-1968. Massachusetts: NBER’s research
Program working paper no. 4642 D. Bordo, Michael; Barry Eichengreen (1993) A Retrospective on

the Bretton Woods System: Lessons for International Monetary Reform, University Of Chicago Press : NBER Project Report
Fisher, Roger; Ury, William; Patton,Bruce (2011) ,Getting to Yes:

Negotiating Without Giving In, Harvard: Harvard University press
Release Henry, Hazlitt (1984) From Bretton Woods to World Inflation: A

study of causes and consequences. Regnery Gateway, Inc: Library of Congress Cataloging in Publication Data Hopmann, P. Terrence (1998), The Negotiation process and the

Resolution of International Conflicts, South Carolina: University of
South Carolina Press
FEUC – Negociação Internacional – 2013-14 23

-

Hudson, Michael (2003) Super Imperialism: The Origin and

Fundamentals of U.S. World Dominance, 2nd ed. London and
Sterling, VA: Pluto Press, ch. 5. Jacques J. Polak (1992) International Policies Coordination and

the Functioning of the International Monetary System – A Search for Realism. International Monetary Fund (IMF)
John Gerard Ruggie (1982) International Regimes Transactions

and change: Embedded Liberalism in the Post-War Economic Order. International Organization 1982 MIT Press
Liwicki, Roy. J; Saunders, David M.; Winton, John W (1999)

Negotiation, McGraw-HILL : Internation Editions – Management
Series O'Sullivan, Christopher D. (2008). Sumner Welles, Post-War

Planning and the Quest for a New World Order 1937–1943 . New
York: Columbia University Press. P. Calleo, David; M. Rowland ,Benjamin(1973) American and

World Political Economy Bloomington, Indiana: University of
Indiana: Columbia University Press Stein, Janice Gross (1989) Getting to the Table, Baltimore and London: The John Hopkins University Press Zartmanm, William; Rubin, Jeffrey Z. (2003) Power & Negotiation, Michigan : University of Michigan Press  Articles: Ahamed, Liaquat “ Currency Wars: Then and Now” Foreign Affairs, March-April 2011 ed. Lusófona: Cooper, Richard “A Retrospective on the Bretton Woods System.” Foreign Affairs, September-October 1993 Madeira, Antunes (1992) Coordenação Internacional de Políticas

-

Macroeconómicas:

Algumas

Questões.

Coimbra:

FEUC-

FEUC – Negociação Internacional – 2013-14 24

Dissertação de Mestrado em Economia Europeia pela Faculdade de Economia da Universidade de Coimbra De Brito, Marcelo Henriques,”Breve estudo do impacto da razão e da emoção nos Negócios”, Trabalho apresentado ao VII SEEMAD –FEA/USP, 2004 Esteves, João “ Porque faz falta uma moeda única Global” Foreign Affairs, March-April 2011 ed. Lusófona: Gonoi, Ikuo; Ataka ,Hiroaki (2010) Conceptual Relevance of

“Embedded Liberalism “and its Critical Social Consequences. PAIS
Graduate Working Papers Gray, William “Floating the System: Germany, the United States, and the Breakdown of Bretton Woods, 1969–1973”. March, 2007 Online Publication: Diplomatic History - Vol 31 Issue 2 Leal, Natália; Sobral, Filipe “Vale Tudo' em Nome da Nação ou há 'Regras do jogo’?” Negócios Estrangeiros, Fevereiro 2007 M. Bernstein, Edward (May 1945) “Reflections on Bretton Woods”. Brooking.- Brooking Institution, isolated works from independent scholars M. Boughon “Harry Dexter White and the International Monetary Fund”, IMF Quarterly Magazine: September 1998,volume 35, Number 3 M. Boughton, James “Harry Dexter White and the International Monetary Fund” Rajan, Ragburam “ Currencies aren’t the problem” Affairs, March-April 2011 ed. Lusófona: S. Bernanke (2004), Ben Essays on the Great Depression. Princeton: Princeton University Press US Department of State (2013), Milestones 1939-1947 Bretton Foreign

Woods, Department of Historian – Online

FEUC – Negociação Internacional – 2013-14 25

7. Annexes:

Image one [Front Cover]: Photo of Lord Keynes addressing the Bretton Woods Conference Source: Bretton Woods Project of CFS, Centre for Financial Stability

FEUC – Negociação Internacional – 2013-14 26

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