Academic journal article New England Economic Review

The International Monetary Fund 50 Years after Bretton Woods

Academic journal article New England Economic Review

The International Monetary Fund 50 Years after Bretton Woods

Article excerpt

In July 1944 at Bretton Woods, New Hampshire, delegates from 44 nations concluded an agreement outlining an international monetary system to be established following World War II. At the heart of that system was a proposed international organization, the International Monetary Fund, which was to monitor the system. The IMF, or Fund, began operations in Washington, D.C., in May 1946 with 39 members.

At this writing the IMF has 178 members and a record extending over nearly half a century. The purpose of this article is to survey the functioning of the institution, focusing on recent experience. Although evaluation is not the primary purpose, any seeming opportunities for substantial improvement will be considered. The article discusses the purposes of the IMF, the means and methods employed to achieve those purposes, the degree of success, and then some changes that might be desirable.

I. The Purposes of the IMF

The purposes of the IMF are set forth in the Articles of Agreement of the International Monetary Fund, adopted in July 1944 and amended in 1969, 1978, and 1992. They are ambitious:

(i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

(ii) 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 and to the development of the productive resources of all members as primary objectives of economic policy.

(iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depredation.

(iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

(v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

(vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

These were the original purposes of the Fund, and they remain its purposes today. Their formulation was strongly influenced by the experience of the prewar depression years, when countries raised barriers against imports and devalued their currencies in an effort to improve their balances of international payments and raise their national incomes and employment. Since one country's payments balance could be improved only at the expense of other countries, the end result was simply more instability and restrictions and less world trade and income. Drawing on this experience, the Bretton Woods delegates incorporated in the Articles of Agreement a cooperative approach toward enhancing world trade, income, and employment--an approach that eschews exchange restrictions and competitive exchange depreciation and offers loans to countries with payments difficulties so that they can refrain from these and other measures inimical to prosperity.

Nearly all of the purposes to be served by the IMF are means to a greater goal, essentially the goal of fostering economic well-being, as expressed in clause (ii) above. While it would hardly be feasible to quantify the Fund's overall contribution to economic well-being, or even to the growth of world trade, one can take encouragement from the growth in trade, which clause (ii) calls upon the Fund to facilitate. For example, between 1967 and 1993 the volume of world trade expanded at a compound annual rate of 5.3 percent, which was 1.8 percentage points faster than the growth rate of world output. …

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