International Monetary Fund - History

History

The International Monetary Fund was originally created as part of the Bretton Woods system exchange agreement in 1944. During the Great Depression, countries sharply raised barriers to foreign trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade. This breakdown in international monetary cooperation created a need for oversight. The representatives of 45 governments met in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire in the United States, and agreed on a framework for international economic cooperation to establish post-World War II. The participating countries were concerned with the rebuilding of Europe and the global economic system after the war.

There were two views on the role the IMF should assume as a global economic institution at the Bretton Woods Conference. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped governments and to act as the US government had during the New Deal in response to World War II. American delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time. Most of White’s plan was incorporated into the final acts adopted at Bretton Woods.

The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement. The International Monetary Fund was one of the key organizations of the international economic system; its design allowed the system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism.

In 1947, France became the first country to borrow from the IMF. The IMF’s influence in the global economy steadily increased as it accumulated more members. The number of IMF member countries has more than quadrupled from the 44 states involved in its establishment, reflecting in particular the attainment of political independence by many African countries and more recently the 1991 dissolution of the Soviet Union because most countries in the Soviet Sphere of influence did not join the IMF.

The Bretton Woods system prevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold. This is known as the Nixon Shock. As of January 2012, the largest borrowers from the fund in order are Greece, Portugal, Ireland, Romania and Ukraine.