A World Bank for the Axis, too

In “Questions and Answers on the Bank for Reconstruction and Development,” which the U.S. Treasury prepared for distribution at the Bretton Woods conference. it is mentioned that the proposed capital for the organization now better known as the World Bank was $10 billion. The document does not offer a breakdown by country, but in the run-up to Bretton Woods, the organizers of the conference had in mind to reserve $2 billion notionally for the countries that did not participate in the Bretton Woods conference. These were a few neutral countries, such as Spain, Sweden, and Turkey, and, more important, the Axis powers. It was envisioned that after a suitable period of postwar occupation and rehabilitation, Germany, Japan, and Italy would join the World Bank as well as the International Monetary Fund. (Membership in the World Bank was only open to members of the IMF.)

As it turned out, the World Bank received pledges for $9.1 billion in capital subscriptions, $800 million more than the organizers had hoped for. The Soviet Union at the last minute pledged $1.2 billion, more than expected. It later decided not to join the IMF or the World Bank, though, so they began without Soviet participation. The influence of the United States correspondingly increased, since it had more than 40 percent of the remaining subscriptions, and still more of the truly effective capital of the bank given that many countries paid their subscriptions in national currencies that were not readily usable internationally. Italy joined the World Bank in 1947, while Germany and Japan joined in 1952.

The U.S. economy was $225 billion in 1944 dollars. The World Bank’s proposed capital was therefore 4.4 percent of the size of the U.S. economy. Today the U.S. economy is  $16.7 trillion and the World Bank’s total subscribed capital is $223 billion (see Table 15 of this), or 1.3 percent of the size of the U.S. economy. The rest of the world has grown faster than the United States since 1944, so in proportion to the world economy the World Bank’s capital is smaller still, about 0.5 percent today versus 2-2.5 percent in 1944. As my previous post mentioned, postwar international finance was stronger and more dynamic than the organizers of Bretton Woods hoped, and the World Bank has had a correspondingly small role than they expected.

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About Kurt Schuler

Kurt Schuler, co-editor of The Bretton Woods Transcripts, is Senior Fellow of Financial History at the Center for Financial Stability and an economist in the Office of International Affairs at the United States Department of the Treasury.