Money Matters: An IMF Exhibit -- The Importance of Global Cooperation

Destruction and Reconstruction (1945-1958)

Part 1 of 6


Conflict &
(1871 - 1944)

Destruction &
(1945 - 1958)
The System
in Crisis

(1959 - 1971)
the System

(1972 - 1981)
Debt &

(1981 - 1989)
Globalization and Integration
(1989 - 1999)

The Post War World

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The Most Destructive War in History

By the end of World War II, much of Europe and Asia, and parts of Africa, lay in ruins. Combat and bombing had flattened cities and towns, destroyed bridges and railroads, and scorched the countryside. The war had also taken a staggering toll in both military and civilian lives.

Shortages of food, fuel, and all kinds of consumer products persisted and in many cases worsened after peace was declared. War-ravaged Europe and Japan could not produce enough goods for their own people, much less for export.

What was needed to pull Europe and Asia back into the international economy? The answer was money - but what kind? The currencies of war-torn countries? Gold? Dollars?

Berlin in ruins

The Most Expensive War in History

In addition to the toll in human lives and suffering, countries spent more money on World War II than in all previous wars put together. By 1945, exhausted countries faced severe economic problems that frustrated reconstruction efforts:
  • Inflation
  • Debt (mostly owed to the United States)
  • Trade deficits
  • Balance of payments deficits
  • Depleted gold and dollar supplies


The Dollar Gap

The devastated countries needed gold or U.S. dollars (the only currency considered to be "as good as gold") to pay for imports and make debt payments. However, both dollars and gold were alarmingly scarce in the war-scarred countries.

Many countries retreated from the market. Communist Eastern Europe abandoned it altogether. The world’s multilateral financial and trading system faced a serious threat. Only the United States had emerged from the war with the strength and resources to help. But would it step forward?

Who's got the Gold?


Worldwide Gold Shortage

By 1947, the United States had accumulated 70% of the world’s gold reserves. The United Kingdom had gone from being the world’s greatest creditor to the world’s greatest debtor. Countries had sold off most of their gold and dollar reserves, as well as their foreign investments, to pay for the war. What few reserves remained were now quickly running out. Trade deficits meant there was little hope of replenishing them.


Five cigarettes for an egg?
A carton of cigarettes for a piano?


Severe inflation plagued the weakened economies. By 1948, wholesale prices were 200% higher in Austria, 1,820% higher in France, and a massive 10,100% higher in Japan than they had been before the war. In 1948, the French government devalued the franc by 80%, making a 5,000 franc note practically worthless. In some countries like Germany, the monetary system collapsed. People resorted to barter, often using cigarettes as money.


The Post War World Cooperation Tested Cooperation
Cooperation for Recovery: The Marshall Plan U.S. Dollars: Fueling
the Economy
Economic Miracles
in the 1950s

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