Convened in July 1944, the Bretton Woods Conference became operative only in 1959, with European currency becoming convertible. It considered challenging issues of international monetary and finance systems, regarded as important to prosperity and peace. The members of the conference have agreed on urgent problems requiring attention, measures that should be taken and forms of organization and international co-operation that are required.
The Bretton Woods Conference promoted the establishment and development of the International Bank for Reconstruction and Development and the International Monetary Fund - two influential international organizations for regulation of the international monetary and financial order.
As foreign trade is believed to affect the standard of living in each country, all nations are interested in a well-functioning system of exchange of national currencies, and regulations governing this successful functioning. Since these monetary transactions are the international exchanges, some basic rules must be adopted by all nations, which govern exchanges for the system to work properly. In case small groups and single nations attempt by different regulations of foreign exchanges, this will cause a reduced volume of foreign trade and damage national economies.
Such actions, in turn, are likely to endanger the world's peace. Therefore, the Bretton Woods Conference agreed upon the necessity of broad international action for maintenance of the international monetary system that will promote foreign trade. According to the Bretton Woods Agreement, the nations had to consult on international monetary changes affecting each other, outlaw practices that are harmful to world prosperity, and assist each other to battle against difficulties.
Established for this purpose was the International Monetary Fund with resources and powers sufficient to perform the tasks assigned to it.
Another international organization established during the Bretton Woods Conference, the International Bank for Reconstruction and Development was created with the vision that all nations are interested in the rapid post-war reconstruction. Thus, introduced programs of reconstruction and development were believed to foster peace, aid political stability and speed economic progress worldwide. The Conference agreed that the expansion of international investment is of vital importance for providing the capital necessary for reconstruction and development.
As a result, the nations have agreed to establish a permanent international body that would perform these functions - the International Bank for Reconstruction and Development, whose main task was to provide capital at reasonable interest rates, through normal channels and for such projects that will contribute to economic development of the borrowing country.
According to the agreement, the IBRD should guarantee loans made by other organizations and through subscriptions of capital share with the country in guaranteeing such loans.