Lord Keynes, the Principal Author of Bretton Woods, Boasted That They Set Up “the Exact Opposite of a Gold Standard” (They Set Up a “Gold-Exchange” Standard)

Let us, at the cost of repetition, remind ourselves of what really went wrong. The Bretton Woods agreements never seriously considered the return of each signatory nation to a gold standard. Lord Keynes, their principal author, even boasted that they set up “the exact opposite of a gold standard.” In any case, what Bretton Woods really set up was what used to be called a “gold-exchange” standard. Every other country in the scheme undertook simply to keep its own currency unit convertible into dollars. The United States alone undertook (on the demand of foreign central banks) to keep its own currency unit directly convertible into gold.

Neither the politicians of foreign countries, nor unfortunately of our own, realized the awesome responsibility that this scheme put on the American banking and currency authorities to refrain from excessive credit expansion. The result was that when President Nixon closed the American gold window on August 15, 1971, our gold reserves amounted to only about 2 per cent of our outstanding currency and demand and time bank deposits ($10,132 million of gold vs. $454,500 million of M2). In other words, there was only $2.23 in gold to redeem every $100 of paper promises. But this takes no account of outstanding “Eurodollars,” or even of the outstanding currency and bank deposits of all the foreign signatories to Bretton Woods. The ultimate gold reserves on which the conversion burden could legally fall under the system must have been only some small fraction of 1 per cent of the total paper obligations against them. Even if the American Congress, and our own banking and currency authorities, had acted far more responsibly, the original Bretton Woods system was inherently impossible to maintain.

—Henry Hazlitt, introduction to From Bretton Woods to World Inflation: A Study of Causes and Consequences (Chicago: Regnery Gateway, 1984), 11-12.

Lord Keynes Tells the House of Lords: This Bretton Woods Plan Is the Exact Opposite of a Gold Standard

Mr. Boothby is a Member of Parliament and chairman of the Monetary Policy Committee in London.

In both letters Mr. Boothby pointed to what he called certain "major obscurities" in the Bretton Woods Monetary Fund agreement, and he pointed out that regarding several of them precisely the opposite interpretations had been made in Great Britain from those generally made here:

You have been led to believe that the Bretton Woods proposals take us all back along the road to a gold standard, currency stability, non-discrimination and multilateral trade. We have been assured that they constitute the exact reverse of a gold standard, that exchange rates will be flexible and that reciprocal trade agreements involving discrimination will be permissible.

Treasury spokesmen, discussing Mr. Boothby's contentions before the House Banking and Currency Committee, do not appear to have dealt with them very satisfactorily. They questioned Mr. Boothby's motives and his purpose in being in this country at this time. Such personal considerations do not meet the real issue, which is, Do the obscurities and ambiguities which Mr. Boothby alleges to be in the Bretton Woods agreement in fact exist?

There can be not the slightest doubt that they do. Widely different interpretations have been made of the Fund agreement here and in London. It was Lord Keynes, leader of the British delegation at Bretton Woods, who declared before the House of Lords: "If I have any authority to pronounce on what is and what is not the essence and meaning of a gold standard, I should say that this plan is the exact opposite of it." It is Lord Keynes, also, who in a letter to The Times of London contended that the Bretton Woods plans would still permit Britain to make purely regional trade and currency arrangements, a view that has been disputed in the United States. There has developed in addition a vital difference of opinion concerning whether the credit granted by the Fund is automatic, regardless of unsound currency or other economic policies in the borrowing countries, or whether the Fund has a right to withhold credit because of such policies.

--Henry Hazlitt, From Bretton Woods to World Inflation: A Study of Causes and Consequences (Chicago: Regnery Gateway, 1984), 109-110.