Chapter 22: The International Monetary Fund and the World Bank
John Toye The IMF The Fund’s original aims and its modalities The IMF was established in 1947, as an international institution to manage international payments, in the chaotic economic conditions that obtained at the end of World War II. The Fund’s objectives were stated in its Charter. It aimed to restore a system of multilateral payments for current transactions between its members; to reduce the duration and intensity of disequilibrium in member states’ balances of payments; and to promote exchange rate stability. The final (and most usually forgotten) aim was ‘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’ (Articles of Agreement of the IMF, Article 1, item (ii)). In promoting all of these objectives, the Fund operated a set of rules of international monetary behaviour. It managed a system of fixed, but adjustable, exchange rates against the US dollar, which itself was anchored to a unit of gold at a fixed price. To keep exchange rate fluctuations within narrow limits, each member country paid into the Fund a capital sum, determined by a complex formula supposed to measure the country’s global economic importance, and was given a borrowing ‘quota’ related to its capital. Voting power in the organisation is also related to the size of this capital. Under the IMF rules, the onus of adjustment fell on those countries with balance of payments deficits, not those with balance of payments surpluses....
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