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 the value of goods became confused, as did the relation between the value of one national currency and another. Under these conditions the world economy languished. Between 1929 and 1932 prices of goods fell by 48 percent worldwide, and the value of international trade fell by 63 percent.
Several international conferences convened during the 1930s to address world monetary problems ended in failure. Partial and tentative solutions were clearly inadequate. What was required was cooperation on a previously unattempted scale by all nations in establishing an innovative monetary system and an international institution to monitor it. Fortunately, in a happy coincidence, two bold and original thinkers, Harry Dexter White in the United States and John Maynard Keynes in the United Kingdom, put forward almost simultaneously in the early 1940s proposals for just such a system, to be supervised not by occasional international meetings but by a permanent cooperative organization. The system, reacting to the needs of the times, would encourage the unrestricted conversion of one currency into another, establish a clear and unequivocal value for each currency, and eliminate restrictions and practices, such as competitive devaluations, that had brought investment and trade to a virtual standstill during the 1930s. After much negotiation under difficult wartime conditions, the international community accepted the system and an organization to supervise it. Final negotiations for establishing the International Monetary Fund took place among the delegates of 44 nations gathered at Bretton Woods, New Hampshire, U.S.A. in July 1944. The IMF began operations in Washington, D.C. in May 1946. It then had 39 members.
The IMF's membership now numbers 182 countries. Membership is open to every country that conducts its own foreign policy and is willing to adhere to the IMF charter of rights and obligations. All major countries are now members of the IMF. The formerly centrally planned economies of Eastern Europe and the former Soviet Union have become members and are at various stages of completing their transition to market economies. Members can leave the IMF whenever they wish. Cuba, Czechoslovakia (now the Czech Republic and Slovak Republic), Indonesia, and Poland have in fact done so in the past, although all except Cuba eventually rejoined the institution.