Internation monetary fund
Internation monetary fundOrigins
The need for an organization like the IMF became evident during the Great Depression that ravaged the world economy in the 1930s. Most of us are familiar with that era through dramatic photographs of farms eroding away in duststorms and of lines of jobless men waiting to enter soup kitchens. The Depression was devastating to all forms of economic life. Banks failed by the thousands, leaving bewildered depositors penniless, agricultural prices fell below the cost of production, land values plummeted, abandoned farms reverted to wilderness, factories stood idle, fleets waited in harbors for cargoes that never materialized, and tens of millions of workers walked the streets in search of jobs that did not exist.
The devastation was not confined to the visible economy. It was no less destructive of the unseen world of international finance and monetary exchange. A widespread lack of confidence in paper money led to a demand for gold beyond what national treasuries could supply. A number of nations, led by the United Kingdom, were consequently forced to abandon the gold standard, which, by defining the value of each currency in terms of a given amount of gold, had for years given money a known and stable value. Because of uncertainty about the value of money that no longer bore a fixed relation to gold, exchanging money became very difficult between those nations that remained on the gold standard and those that did not. Nations hoarded gold and money that could be converted into gold, further contracting the amount and frequency of monetary transactions between nations, eliminating jobs, and lowering living standards. Moreover, some governments severely restricted the exchange of domestic for foreign money and even searched for barter schemes (for example, a locomotive for 100 tons of coffee) that would eliminate the use of money completely. Other governments, desperate to find foreign buyers for domestic agricultural products, made these products appear cheaper by selling their national money below its real value so as to undercut the trade of other nations selling the same products. This practice, known as competitive devaluation, merely evoked retaliation through similar devaluation by trading rivals. The relation between money and...
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