Many international conferences convened during the 1930s to address world monetary problems ended in failure. What the world needed was cooperation on a previously attempted scale by all nations in establishing an innovative monetary system and an international institution to monitor it. Harry Dexter White and John Maynard Keynes put forward almost simultaneously in the early 1940s proposals for just such a system, to be supervised not by occasional international meetings but a payment cooperative organization. Final negotiations for establishing the IMF took place among the delegates of 44 nations gathered at Bretton Woods in 1944. The IMF began operations in Washington, D.C. in 1946.
The purposes of the IMF are to promote international monetary cooperation through a permanent institution, to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income. It is also to promote exchange stability, and to maintain orderly exchange arrangements among the members, and to avoid competitive exchange depreciation. The other purposes are to assist in the establishment of multicultural system of payments, to give confidence to members by making the general resources of the IMF, and finally, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.
The operations in the IMF are dealt through each member’s Treasury, central bank, stabilization fund, or other similar fiscal agency and the IMF deal only with or through the same agencies. A member country undertakes to keep other members informed about its arrangements for determining the value of its money in relation to the money of other countries, to refrain from restricting the exchange of its money for foreign money. And also, they pursue economic policies that will increase in an orderly and constructive way its own national wealth and that of the whole membership. Members obligate themselves to follow this code of conduct. The IMF has no means of coercing them to live up to these obligations, although it can and does exert moral pressure to encourage them to conform to the rules and regulations they have freely agreed to observe. If a country persistently ignores its obligations to the IMF, the rest of the membership working through the IMF may declare the offending member ineligible to borrow money or, as a last resort, can ask the member to resign from the institution. Over the years the membership has assigned to the IMF a variety of duties appropriate to the changing needs of the times and the IMF has adapted flexibly within its mandate in carrying out these duties.
The IMF is now known to the general public for lending billions of dollars to the countries at the center of the Asian financial crisis and to Russia. The IMF lends money only to member countries with payments problems, that is, to countries that do not take in enough foreign currency to pay for what hey buy from other countries. The money a country takes in comes from what it earns from exports, from providing services, and from what tourists spend there. Money also comes from overseas investment and, in the case of poor countries, in the form of aid from better-off countries. However, countries can spend more than they take in, making up the difference for a time by borrowing until their credit is exhausted. A country in the situation can turn for assistance to the IMF, which will for a time lend it foreign exchange to help it put right what has gone wrong in its economic life, with a view to stabilizing its currency and strengthening its trade.
The change from the par value to the current open exchange system may seem to imply a loss of influence by the IMF. The current approach requires the IMF to be even more involved with members’ economic policies that have bearing on money’s exchange value. The current system demands greater transparency of members’ policies and permits more scope for the IMF to monitor these policies. The IMF calls this activity “surveillance,” or supervision, over members’ exchange policies.
As well as supervising the international monetary system and providing financial support to member countries, the IMF assists its membership by making technical assistance available to member countries in certain specialized areas of its competence by running an educational institute in Washington and offering training courses abroad; and by issuing a wide variety of publications relating to all aspects of international monetary matters and the IMF operations. They sometimes lack experience in highly technical areas of public finance and central banking, or wish to have a second opinion, many countries turn to the IMF for assistance in solving problems in these areas or in providing an expert to work with government financial agencies until sufficient domestic expertise is developed.
The collapse of the international gold standard, the inter-war rise of trade policies, and the self-interest of bankers and politicians gave birth to the IMF in Bretton Woods. The IMF lends to member countries with balance-of-payments problems. The IMF operates many financing facilities, each with its own lending policies. The IMF also monitors the economic policies and performance of member countries in an effort to promote world economic growth. The IMF provides technical assistance to tits members through consultation, education, and research reports.
Works Cited
Article of Agreement of IMF. 7/24/2003.
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Hoover Institution Public Policy Inquiry: International Monetary
Fund. 7/24/2003. <>
The International Monetary Fund- Financial Medic to the World? A Primer on Mission. 7/24/2003. <>
