The IMF and the World Bank: How Do They Differ? The IMF and the World Bank How Do They Differ? David D. Driscoll [ Purposes ] [ Size and Structure ] [ Source of Funding ] [ Recipients of Funding ] [ World Bank Operations ] [ IMF Operations ] [ Cooperation Between Bank and IMF ] [ IMF and World Bank at a Glance ] If you have difficulty distinguishing the World Bank from the International Monetary Fund, you are not alone. Most people have only the vaguest idea of what these institutions do, and very few people indeed could, if pressed on the point, say why and how they differ. Even John Maynard Keynes, a founding father of the two institutions and considered by many the most brilliant economist of the twentieth century, admitted at the inaugural meeting of the International Monetary Fund that he was confused by the names: he thought the Fund should be called a bank, and the Bank should be called a fund. Confusion has reigned ever since.

Known collectively as the Bretton Woods Institutions after the remote village in New Hampshire, U.S.A., where they were founded by the delegates of 44 nations in July 1944, the Bank and the IMF are twin intergovernmental pillars supporting the structure of the world's economic and financial order. That there are two pillars rather than one is no accident. The international community was consciously trying to establish a division of labor in setting up the two agencies. Those who deal professionally with the IMF and Bank find them categorically distinct. To the rest of the world, the niceties of the division of labor are even more mysterious than are the activities of the two institutions. Similarities between them do little to resolve the confusion. Superficially the Bank and IMF exhibit many common characteristics. Both are in a sense owned and directed by the governments of member nations. The People's Republic of China, by far the most populous state on earth, is a member, as is the world's largest industrial power (the United States). In fact, virtually every country on earth is a member of both institutions. Both institutions concern themselves with economic issues and concentrate their efforts on broadening and strengthening the economies of their member nations.

Staff members of both the Bank and IMF often appear at international conferences, speaking the same recondite language of the economics and development professions, or are reported in the media to be negotiating involved and somewhat mystifying programs of economic adjustment with ministers of finance or other government officials. The two institutions hold joint annual meetings, which the news media cover extensively. Both have headquarters in Washington, D.C., where popular confusion over what they do and how they differ is about as pronounced as everywhere else. For many years both occupied the same building and even now, though located on opposite sides of a street very near the White House, they share a common library and other facilities, regularly exchange economic data, sometimes present joint seminars, daily hold informal meetings, and occasionally send out joint missions to member countries. Despite these and other similarities, however, the Bank and the IMF remain distinct. The fundamental difference is this: the Bank is primarily a development institution; the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations. Each has a different purpose, a distinct structure, receives its funding from different sources, assists different categories of members, and strives to achieve distinct goals through methods peculiar to itself.

Purposes At Bretton Woods the international community assigned to the World Bank the aims implied in its formal name, the International Bank for Reconstruction and Development (IBRD), giving it primary responsibility for financing economic development. The Bank's first loans were extended during the late 1940s to finance the reconstruction of the war-ravaged economies of Western Europe. When these nations recovered some measure of economic self-sufficiency, the Bank turned its attention to assisting the world's poorer nations, known as developing countries, to which it has since the 1940s loaned more than $330 billion. The World Bank has one central purpose: to promote economic and social progress in developing countries by helping to raise productivity so that their people may live a better and fuller life. The international community assigned to the IMF a different purpose. In establishing the IMF, the world community was reacting to the unresolved financial problems instrumental in initiating and protracting the Great Depression of the 1930s: sudden, unpredictable variations in the exchange values of national currencies and a widespread disinclination among governments to allow their national currency to be exchanged for foreign currency.

Set up as a voluntary and cooperative institution, the IMF attracts to its membership nations that are prepared, in a spirit of enlightened self-interest, to relinquish some measure of national sovereignty by abjuring practices injurious to the economic well-being of their fellow member nations. The rules of the institution, contained in the IMF's Articles of Agreement signed by all members, constitute a code of conduct. The code is simple: it requires members to allow their currency to be exchanged for foreign currencies freely and without restriction, to keep the IMF informed of changes they contemplate in financial and monetary policies that will affect fellow members' economies, and, to the extent possible, to modify these policies on the advice of the IMF to accommodate the needs of the entire membership. To help nations abide by the code of conduct, the IMF administers a pool of money from which members can borrow when they are in trouble. The IMF is not, however, primarily a lending institution as is the Bank. It is first and foremost an overseer of its members' monetary and exchange rate policies and a guardian of the code of conduct. Philosophically committed to the orderly and stable growth of the world economy, the IMF is an enemy of surprise.

It receives frequent reports on members' economic policies and prospects, which it debates, comments on, and communicates to the entire membership so that other members may respond in full knowledge of the facts and a clear understanding of how their own domestic policies may affect other countries. The IMF is convinced that a fundamental condition for international prosperity is an orderly monetary system that will encourage trade, create jobs, expand economic activity, and raise living standards throughout the world. By its constitution the IMF is required to oversee and maintain this system, no more and no less. Size and Structure The IMF is small (about 2,300 staff members) and, unlike the World Bank, has no affiliates or subsidiaries. Most of its staff members work at headquarters in Washington, D.C., although three small offices are maintained in Paris, Geneva, and at the United Nations in New York. Its professional staff members are for the most part economists and financial experts. The structure of the Bank is somewhat more complex. The World Bank itself comprises two major organizations: the International Bank for Reconstruction and Development and the International Development Association (IDA).

Moreover, associated with, but legally and financially separate from the World Bank are the International Finance Corporation, which mobilizes funding for private enterprises in developing countries, the International Center for Settlement of Investment Disputes, and the Multilateral Guarantee Agency. With over 7,000 staff members, the World Bank Group is about three times as large as the IMF, and maintains about 40 offices throughout the world, although 95 percent of its staff work at its Washington, D.C., headquarters. The Bank employs a staff with an astonishing range of expertise: economists, engineers, urban planners, agronomists, statisticians, lawyers, portfolio managers, loan officers, project appraisers, as well as experts in telecommunications, water supply and sewerage, transportation, education, energy, rural development, population and health care, and other disciplines. Source of Funding The World Bank is an investment bank, intermediating between investors and recipients, borrowing from the one and lending to the other. Its owners are the governments of its 180 member nations with equity shares in the Bank, which were valued at about $176 billion in June 1995.

The IBRD obtains most of the funds it lends to finance development by market borrowing through the issue of bonds (which carry an AAA rating because repayment is guaranteed by member governments) to individuals and private institutions in more than 100 countries. Its concessional loan associate, IDA, is largely financed by grants from donor nations. The Bank is a major borrower in the world's capital markets and the largest nonresident borrower in virtually all countries where its issues are sold. It also borrows money by selling bonds and notes directly to governments, their agencies, and central banks. The proceeds of these bond sales are lent in turn to developing countries at affordable rates of interest to help finance projects and policy reform programs that give promise of success. Despite Lord Keynes's profession of confusion, the IMF is not a bank and does not intermediate between investors and recipients. Nevertheless, it has at its disposal significant resources, presently valued at over $215 billion. These resources come from quota subscriptions, or membership fees, paid in by the IMF's 182 member countries. Each member contributes to this pool of resources a certain amount of money proportionate to its economic size and strength (richer countries pay more, poorer less).

While the Bank borrows and lends, the IMF is more like a credit union whose members have access to a common pool of resources (the sum total of their individual contributions) to assist them in times of need. Although under special and highly restrictive circumstances the IMF borrows from official entities (but not from private markets), it relies principally on its quota subscriptions to finance its operations. The adequacy of these resources is reviewed every five years. Recipients of Funding Neither wealthy countries nor private individuals borrow from the World Bank, which lends only to creditworthy governments of developing nations. The poorer the country, the more favorable the conditions under which it can borrow from the Bank. Developing countries whose per capita gross national product (GNP) exceeds $1,305 may borrow from the IBRD. (Per capita GNP, a less formidable term than it sounds, is a measure of wealth, obtained by dividing the value of goods and services produced in a country during one year by the number of people in that country.) These loans carry an interest rate slightly above the market rate at which the Bank itself borrows and must generally be repaid within 12-15 years.

The IDA, on the other hand, lends only to governments of very poor developing nations whose per capita GNP is below $1,305, and in practice IDA loans go to countries with annual per capita incomes below $865. IDA loans are interest free and have a maturity of 35 or 40 years. In contrast, all member nations, both wealthy and poor, have the right to financial assistance from the IMF. Maintaining an orderly and stable international monetary system requires all participants in that system to fulfill their financial obligations to other participants. Membership in the IMF gives to each country that experiences a shortage of foreign exchange--preventing it from fulfilling these obligations--temporary access to the IMF's pool of currencies to resolve this difficulty, usually referred to as a balance of payments problem. These problems are no respecter of economic size or level of per capita GNP, with the result that over the years almost all members of the IMF, from the smallest developing country to the largest industrial country, have at one time or other had recourse to the IMF and received from it financial assistance to tide them over difficult periods. Money received from the IMF must normally be repaid within three to five years, and in no case later than ten years.

Interest rates are slightly below market rates, but are not so concessional as those assigned to the World Bank's IDA loans. Through the use of IMF resources, countries have been able to buy time to rectify economic policies and to restore growth without having to resort to actions damaging to other members' economies. World Bank Operations The World Bank exists to encourage poor countries to develop by providing them with technical assistance and funding for projects and policies that will realize the countries' economic potential. The Bank views development as a long-term, integrated endeavor. During the first two decades of its existence, two thirds of the assistance provided by the Bank went to electric power and transportation projects. Although these so-called infrastructure projects remain important, the Bank has diversified its activities in recent years as it has gained experience with and acquired new insights into the development process. The Bank gives particular attention to projects that can directly benefit the poorest people in developing countries. The direct involvement of the poorest in economic activity is being promoted through lending for agriculture and rural development, small-scale enterprises, and urban development. The Bank is helping the poor to be more productive and to gain access to such necessities as safe water and waste-disposal facilities, health care, family-planning assistance, nutrition, education, and housing.

Within infrastructure projects there have also been changes. In transportation projects, greater attention is given to constructing farm-to-market roads. Rather than concentrating exclusively on cities, power projects increasingly provide lighting and power for villages and small farms. Industrial projects place greater emphasis on creating jobs in small enterprises. Labor-intensive construction is used where practical. In addition to electric power, the Bank is supporting development of oil, gas, coal, fuelwood, and biomass as alternative sources of energy. The Bank provides most of its financial and technical assistance to developing countries by supporting specific projects. Although IBRD loans and IDA credits are made on different financial terms, the two institutions use the same standards in assessing the soundness of projects. The decision whether a project will receive IBRD or IDA financing depends on the economic condition of the country and not on the characteristics of the project. Its borrowing member countries also look to the Bank as a source of technical assistance. By far the largest element of Bank-financed technical assistance--running over $1 billion a year recently--is that financed as a component of Bank loans or credits extended for other purposes. But the amount of Bank-financed technical assistance for free-standing loans and to prepare projects has also increased.

The Bank serves as executing agency for technical assistance projects financed by the United Nations Development Program in agriculture and rural development, energy, and economic planning. In response to the economic climate in many of its member countries, the Bank is now emphasizing technical assistance for institutional development and macroeconomic policy formulation. Every project supported by the Bank is designed in close collaboration with national governments and local agencies, and often in cooperation with other multilateral assistance organizations. Indeed, about half of all Bank-assisted projects also receive cofinancing from official sources, that is, governments, multilateral financial institutions, and export-credit agencies that directly finance the procurement of goods and services, and from private sources, such as commercial banks. In making loans to developing countries, the Bank does not compete with other sources of finance. It assists only those projects for which the required capital is not available from other sources on reasonable terms. Through its work, the Bank seeks to strengthen the economies of borrowing nations so that they can graduate from reliance on Bank resources and meet their financial needs, on terms they can afford directly from conventional sources of capital. The range of the Bank's activities is far broader than its lending operations.

Since the Bank's lending decisions depend heavily on the economic condition of the borrowing country, the Bank carefully studies its economy and the needs of the sectors for which lending is contemplated. These analyses help in formulating an appropriate long-term development assistance strategy for the economy. Graduation from the IBRD and IDA has occurred for many years. Of the 34 very poor countries that borrowed money from IDA during the earliest years, more than two dozen have made enough progress for them no longer to need IDA money, leaving that money available to other countries that joined the Bank more recently. Similarly, about 20 countries that formerly borrowed money from the IBRD no longer have to do so. An outstanding example is Japan. For a period of 14 years, it borrowed from the IBRD. Now, the IBRD borrows large sums in Japan. IMF Operations The IMF has gone through two distinct phases in its 50-year history.

During the first phase, ending in 1973, the IMF oversaw the adoption of general convertibility among the major currencies, supervised a system of fixed exchange rates tied to the value of gold, and provided short-term financing to countries in need of a quick infusion of foreign exchange to keep their currencies at par value or to adjust to changing economic circumstances. Difficulties encountered in maintaining a system of fixed exchange rates gave rise to unstable monetary and financial conditions throughout the world and led the international community to reconsider how the IMF could most effectively function in a regime of flexible exchange rates. After five years of analysis and negotiation (1973-78), the IMF's second phase began with the amendment of its constitution in 1978, broadening its functions to enable it to grapple with the challenges that have arisen since the collapse of the par value system. These functions are three. First, the IMF continues to urge its members to allow their national currencies to be exchanged without restriction for the currencies of other member countries. As of May 1996, 115 members had agreed to full convertibility of their national currencies.

Second, in place of monitoring members' compliance with their obligations in a fixed exchange system, the IMF supervises economic policies that influence their balance of payments in the presently legalized flexible exchange rate environment. This supervision provides opportunities for an early warning of any exchange rate or balance of payments problem. In this, the IMF's role is principally advisory. It confers at regular intervals (usually once a year) with its members, analyzing their economic positions and apprising them of actual or potential problems arising from their policies, and keeps the entire membership informed of these developments. Third, the IMF continues to provide short- and medium-term financial assistance to member nations that run into temporary balance of payments difficulties. The financial assistance usually involves the provision by the IMF of convertible currencies to augment the afflicted member's dwindling foreign exchange reserves, but only in return for the government's promise to reform the economic policies that caused the balance of payments problem in the first place. The IMF sees its financial role in these cases not as subsidizing further deficits but as easing a country's painful transition to living within its means. How in practice does the IMF assist its members? The key opening the door to IMF assistance is the member's balance of payments, the tally of its payments and receipts with other nations.

Foreign payments should be in rough balance: a country ideally should take in just about what it pays out. When financial problems cause the price of a member's currency and the price of its goods to fall out of line, balance of payments difficulties are sure to follow. If this happens, the member country may, by virtue of the Articles of Agreement, apply to the IMF for assistance. To illustrate, let us take the example of a small country whose economy is based on agriculture. For convenience in trade, the government of such a country generally pegs the domestic currency to a convertible currency: so many units of domestic money to a U.S. dollar or French franc. Unless the exchange rate is adjusted from time to time to take account of changes in relative prices, the domestic currency will tend to become overvalued, with an exchange rate, say, of one unit of domestic currency to one U.S. dollar, when relative prices might suggest that two units to one dollar is more realistic. Governments, however, often succumb to the temptation to tolerate overvaluation, because an overvalued currency makes imports cheaper than they would be if the currency were correctly priced.

The other side of the coin, unfortunately, is that overvaluation makes the country's exports more expensive and hence less attractive to foreign buyers. If the currency is thus overvalued, the country will eventually experience a fall-off in export earnings (exports are too expensive) and a rise in import expenditures (imports are apparently cheap and are bought on credit). In effect, the country is earning less, spending more, and going into debt, a predicament as unsustainable for a country as it is for any of us. Moreover, this situation is usually attended by a host of other economic ills for the country. Finding a diminished market for their export crops and receiving low prices from the government marketing board for produce consumed domestically, farmers either resort to illegal black market exports or lose the incentive to produce. Many of them abandon the farm to seek employment in overcrowded cities, where they become part of larger social and economic problems. Declining domestic agricultural productivity forces the government to use scarce foreign exchange reserves (scarce because export earnings are down) to buy food from abroad. The balance of payments becomes dangerously distorted. As an IMF member, a country finding itself in this bind can turn to the IMF for consultative and financial assistance.

In a collaborative effort, the country and the IMF can attempt to root out the causes of the payments imbalance by working out a comprehensive program that, depending on the particulars of the case, might include raising producer prices paid to farmers so as to encourage agricultural production and reverse migration to the cities, lowering interest rates to expand the supply of credit, and adjusting the currency to reflect the level of world prices, thereby discouraging imports and raising the competitiveness of exports. Because reorganizing the economy to implement these reforms is disruptive and not without cost, the IMF will lend money to subsidize policy reforms during the period of transition. To ensure that this money is put to the most productive uses, the IMF closely monitors the country's economic progress during this time, providing technical assistance and further consultative services as needed. In addition to assisting its members in this way, the IMF also helps by providing technical assistance in organizing central banks, establishing and reforming tax systems, and setting up agencies to gather and publish economic statistics. The IMF is also authorized to issue a special type of money, called the SDR, to provide its members with additional liquidity.

Known technically as a fiduciary asset, the SDR can be retained by members as part of their monetary reserves or be used in place of national currencies in transactions with other members. To date the IMF has issued slightly over 21.4 billion SDRs, presently valued at about U.S. $30 billion. Over the past few years, in response to an emerging interest by the world community to return to a more stable system of exchange rates that would reduce the present fluctuations in the values of currencies, the IMF has been strengthening its supervision of members' economic policies. Provisions exist in its Articles of Agreement that would allow the IMF to adopt a more active role, should the world community decide on stricter management of flexible exchange rates or even on a return to some system of stable exchange rates. Measuring the success of the IMF's operations over the years is not easy, for much of the IMF's work consists in averting financial crises or in preventing their becoming worse. Most observers feel that merely to have contained the debt crisis of the 1980s, which posed the risk of collapse in the world's financial system, must be counted a success for the IMF.

The Fund has also gained some recognition for assisting in setting up market-based economies in the countries of the former Soviet Union and for responding swiftly to the Mexican peso crisis in 1994, but its main contribution lies in its unobrusive, day-to-day encouragement of confidence in the international system. Nowhere will you find a bridge or a hospital built by the IMF, but the next time you buy a Japanese camera or drive a foreign car, or without difficulty exchange dollars or pounds for another currency while on holiday, you will be benefiting from the vast increase in foreign trade over the past 50 years and the widespread currency convertibility that would have been unimaginable without the world monetary system that the IMF was created to maintain. Cooperation Between Bank and IMF Although the Bank and IMF are distinct entities, they work together in close cooperation. This cooperation, present since their founding, has become more pronounced since the 1970s. Since then the Bank's activities have increasingly reflected the realization that the pace of economic and social development accelerates only when sound underlying financial and economic policies are in place.

The IMF has also recognized that unsound financial and economic policies are often deeply rooted in long-term inefficient use of resources that resists eradication through short-term adaptations of financial policies. It does little good for the Bank to develop a long-term irrigation project to assist, say, the export of cotton, if the country's balance of payments position is so chaotic that no foreign buyers will deal with the country. On the other hand, it does little good for the IMF to help establish a sound exchange rate for a country's currency, unless the production of cotton for export will suffice to sustain that exchange rate over the medium to long term. The key to solving these problems is seen in restructuring economic sectors so that the economic potential of projects might be realized throughout the economy and the stability of the economy might enhance the effectiveness of the individual project. Around 75 percent of the Bank's lending is applied to specific projects dealing with roads, dams, power stations, agriculture, and industry. As the global economy became mired in recession in the early 1980s, the Bank expanded the scope of its lending operations to include structural- and sector-adjustment loans.

These help developing countries adjust their economic policies and structures in the face of serious balance of payments problems that threaten continued development. The main objective of structural-adjustment lending is to restructure a developing country's economy as the best basis for sustained economic growth. Loans support programs that are intended to anticipate and avert economic crises through economic reforms and changes in investment priorities. By using so-called policy-based lending, the Bank stimulates economic growth in heavily indebted countries--particularly in Latin America and in sub-Saharan Africa--that are undertaking, often at much social pain, far-reaching programs of economic adjustment. In addition to its traditional function as provider of short-term balance of payments assistance, the advent of the oil crisis in the mid-1970s and the debt crisis in the early 1980s induced the IMF, too, to rethink its policy of restricting its financial assistance to short-term lending. As balance of payments shortfalls grew larger and longer-term structural reforms in members' economies were called for to eliminate these shortfalls, the IMF enlarged the amount of financial assistance it provides and lengthened the period within which its financial assistance would be available.

In doing so, the IMF implicitly recognizes that balance of payments problems arise not only from a temporary lack of liquidity and inadequate financial and budgetary policies but also from long-standing contradictions in the structure of members' economies, requiring reforms stretching over a number of years and suggesting closer collaboration with the World Bank, which commands both the expertise and experience to deal with protracted structural impediments to growth. Focusing on structural reform in recent years has resulted in considerable convergence in the efforts of the Bank and IMF and has led them to greater reliance on each other's special expertise. This convergence has been hastened by the debt crisis, brought on by the inability of developing countries to repay the enormous loans they contracted during the late 1970s and early 1980s. The debt crisis has emphasized that economic growth can be sustained only when resources are being used efficiently and that resources can be used efficiently only in a stable monetary and financial environment. The bedrock of cooperation between the Bank and IMF is the regular and frequent interaction of economists and loan officers who work on the same country. The Bank staff brings to this interchange a longer-term view of the slow process of development and a profound knowledge of the structural requirements and economic potential of a country.

The IMF staff contributes its own perspective on the day-to-day capability of a country to sustain its flow of payments to creditors and to attract from them investment finance, as well as on how the country is integrated within the world economy. This interchange of information is backed up by a coordination of financial assistance to members. For instance, the Bank has been approving structural- or sector-adjustment loans for most of the countries that are taking advantage of financial assistance from the IMF. In addition, both institutions encourage other lenders, both private and official, to join with them in cofinancing projects and in mobilizing credits to countries that are in need. Cooperation between the Bretton Woods Institutions has two results: the identification of programs that will encourage growth in a stable economic environment and the coordination of financing that will ensure the success of these programs. Other lenders, particularly commercial banks, frequently make credits available only after seeing satisfactory performance by the borrowing country of its program of structural adjustment. Cooperation between the Bank and the IMF has over the past decade been formalized with the establishment in the IMF of procedures to provide financing at below market rates to its poorest member countries.

These procedures enable the IMF to make available up to $12 billion to those 70 or so poor member countries that adjust the structure of their economies to improve their balance of payment position and to foster growth. The Bank joins with the IMF in providing additional money for these countries from IDA. But what IDA can provide in financial resources is only a fraction of the world's minimum needs for concessional external finance. Happily, various governments and international agencies have responded positively to the Bank's special action program for low-income, debt-distressed countries of the region by pledging an extra $7 billion for cofinancing programs arranged by the Bank. The Bank and the IMF have distinct mandates that allow them to contribute, each in its own way, to the stability of the international monetary and financial system and to the fostering of balanced economic growth throughout the entire membership. Since their founding 50 years ago, both institutions have been challenged by changing economic circumstances to develop new ways of assisting their membership. The Bank has expanded its assistance from an orientation toward projects to the broader aspects of economic reform. Simultaneously the IMF has gone beyond concern with simple balance of payment adjustment to interest itself in the structural reform of its members' economies.

Some overlapping by both institutions has inevitably occurred, making cooperation between the Bank and the IMF crucial. Devising programs that will integrate members' economies more fully into the international monetary and financial system and at the same time encourage economic expansion continues to challenge the expertise of both Bretton Woods Institutions. A Brief History of Bretton Woods System - TIME Follow @TIME Since the end of World War II, the U.S. dollar has enjoyed a unique and powerful position in international trade. But perhaps no more. Before boarding a plane on Saturday to meet President George W. Bush, French President Nicolas Sarkozy proclaimed, "Europe wants it. Europe demands it. Europe will get it." The "it" here is global financial reform, and evidently Sarkozy won't have to wait long. Just hours after their closed-door meeting had finished, Bush and Sarkozy, along with European Commission President Jose Manuel Barroso, issued a joint statement announcing that a summit would be held next month to devise what Barroso calls a "new global financial order." The old global financial order is, well, old.

Established in 1944 and named after the New Hampshire town where the agreements were drawn up, the Bretton Woods system created an international basis for exchanging one currency for another. It also led to the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, now known as the World Bank. The former was designed to monitor exchange rates and lend reserve currencies to nations with trade deficits, the latter to provide underdeveloped nations with needed capital  although each institution's role has changed over time. Each of the 44 nations who joined the discussions contributed a membership fee, of sorts, to fund these institutions; the amount of each contribution designated a country's economic ability and dictated its number of votes. In an effort to free international trade and fund postwar reconstruction, the member states agreed to fix their exchange rates by tying their currencies to the U.S. dollar. American politicians, meanwhile, assured the rest of the world that its currency was dependable by linking the U.S. dollar to gold; $1 equaled 35 oz. of bullion. Nations also agreed to buy and sell U.S. dollars to keep their currencies within 1% of the fixed rate.

And thus the golden age of the U.S. dollar began. For his part, legendary British economist John Maynard Keynes, who drafted much of the plan, called it "the exact opposite of the gold standard," saying the negotiated monetary system would be whatever the controlling nations wished to make of it. Keynes had even gone so far as to propose a single, global currency that wouldn't be tied to either gold or politics. (He lost that argument). Though it came on the heels of the Great Depression and the beginning of the end of World War II, the Bretton Woods system addressed global ills that began as early as the first World War, when governments (including the U.S.) began controlling imports and exports to offset wartime blockades. This, in turn, led to the manipulation of currencies to shape foreign trade. Currency warfare and restrictive market practices helped spark the devaluation, deflation and depression that defined the economy of the 1930s.

The Bretton Woods system itself collapsed in 1971, when President Richard Nixon severed the link between the dollar and gold  a decision made to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands. By 1973, most major world economies had allowed their currencies to float freely against the dollar. It was a rocky transition, characterized by plummeting stock prices, skyrocketing oil prices, bank failures and inflation. It seems the East Coast might yet again be the backdrop for a massive overhaul of the world's financial playbook. U.N. Secretary-General Ban Ki-moon publicly backed calls for a summit before the new year, saying the agency's headquarters in New York  the very "symbol of multilateralism"  should play host.

Sarkozy concurred, but for different reasons: "Insofar as the crisis began in New York," he said, "then the global solution must be found to this crisis in New York." BBC News - Profile: IMF and World Bank Profile: IMF and World Bank IMF headquarters in Washington DC The International Monetary Fund, or IMF, and the World Bank's forerunner were set up to manage the post-World War II global economy. They were conceived in 1944 at a conference in Bretton Woods, in the US state of New Hampshire. By fostering economic cooperation and helping countries with balance of payments problems the founders hoped to avoid a repeat of the 1930s Great Depression. OVERVIEW The IMF aims to preserve economic stability and to tackle - or ideally prevent - financial crises. Over time, its focus has switched to the developing world. IMF's role in the developing world has been scrutinised 2005: IMF stresses developing country role The World Bank's predecessor - the International Bank for Reconstruction and Development - was set up to drive post-war recovery. Now, it is the world's leading development organisation, working for growth and poverty reduction.

Owned by the governments of its 185 member states, the Bank channels loans and grants and advises low and middle-income countries. The IMF is funded by a charge - known as a "quota" - paid by member nations. The quota is based on a country's wealth and it determines voting power within the organisation; those making higher contributions have greater voting rights. The Fund acts as a lender of last resort, disbursing its foreign exchange reserves for short periods to any member in difficulties. Crisis response The IMF and World Bank attempt to help countries or regions in economic turmoil. In October 2008 the IMF activated an emergency funding scheme for countries facing economic distress resulting from the global financial crisis. As of August 2010, it had committed around $200 billion in lending to a number of economies affected by the crisis. The biggest borrowers were Hungary, Romania and Ukraine. The eurozone crisis of 2010 also triggered extensive IMF intervention, including hefty bail-outs for countries such as Greece and Ireland. Past interventions by the IMF have included providing funds for countries caught up in the 1997 Asian financial crisis, and loans to help South American countries such as Argentina and Brazil stave off debt default crises.

The IMF can also grant emergency loans following natural disasters; these have included the 2004 Asian tsunami. Developing countries The IMF and World Bank set up the Poverty Reduction and Growth Facility in 1999. The scheme grants loans with conditions attached. A strategy paper - called a Letter of Intent - specifies the elements of a country's recovery plan. In return, loans are agreed as and when the targets laid down in the letter are met. The IMF may demand reforms to promote good governance and to tackle corruption. The Fund maintains that a good climate for business is essential for growth and poverty reduction. The World Bank funds specific infrastructure projects. One of its agencies, the International Development Association, focuses on the world's poorest nations. The Bank has pledged its support for UN-backed Millenium Development Goals to reduce key indicators of poverty by 2015. Debt relief The Highly Indebted Poor Countries Initiative (HIPC), launched by the IMF and the World Bank in 1996, aims to reduce the debt owed by the world's poorest countries in return for economic reform. States are eligible if their debt is unsustainable and cannot be tackled by traditional methods. The reforms they have to undertake often include privatisations.

By 2005 nearly 40 countries had started programmes under the HIPC. Debt relief kicks in when a country meets what is called the "decision point". The end of the process is known as the "completion point". By the end of 2010, 32 countries had reached their completion points and were receiving full debt relief from the IMF and other creditors under proposals drawn up in 2005 by the finance ministers of the G8 group. FACTS OVERVIEW | FACTS | LEADERS | ISSUES IMF managing director: Christine Lagarde Christine Lagarde is the first woman to head the IMF in the 65 years of the organisation's history. Ms Lagarde has promised to make the IMF more credible and connected She trained as a lawyer and for over two decades worked for a Chicago-based international law firm, where she specialised in major labour and anti-trust cases. She served as French trade minister from 2005 to 2007, when she was made finance minister, becoming the first woman to hold such a post in any of the G8 major industrial countries.

Ms Lagarde took over the helm of the IMF in July 2011 at a time when the organisation was facing some extremely tough challenges, with the eurozone in a state of deep crisis and fears looming that countries such as Greece could default on their loans. Never afraid of speaking her mind, she has blamed the 2008 worldwide financial crisis partly on the male-dominated, testosterone-fuelled culture at global banks. She is viewed with high regard in the international arena and in 2009 was named best finance minister in Europe by the Financial Times. She has pledged to improve diversity at the IMF and to push ahead with reforms to give emerging economies more influence in the organisation. However, with the eurozone crisis likely to absorb a considerable amount of her energies for some time to come, it will be a tough call to persuade emerging markets that their interests do not come second. Within weeks of her appointment, however, Ms Lagarde found herself in trouble at home. A French court is to investigate her over alleged abuse of authority during her term as finance minister in relation to President Nicolas Sarkozy's election campaign.

World Bank president (outgoing): Robert Zoellick Robert Zoellick The US nominated Robert Zoellick to replace former US deputy defence secretary Paul Wolfowitz, who stepped down in June 2007 after becoming embroiled in a scandal over alleged favouritism. Mr Zoellick's previous experience of international finance included a spell as a senior executive at the Wall Street investment bank Goldman Sachs. He also served as US Trade Representative from 2001 to 2005, in which capacity he completed negotiations to bring China and Taiwan into the World Trade Organisation and also pushed for a Central American Free Trade Agreement. As Deputy Secretary of State under George W. Bush (2005-6), he was seen as a major architect of the US administration's policies regarding China. He also took a strong interest in the conflict in Sudan's Darfur region, and was involved in negotiating the May 2006 peace accord between the government of Sudan and the Sudan Liberation Movement.

World Bank president-designate: Jim Yong Kim The USA nominated Jim Yong Kim for the post of World Bank president in March 2012, and he saw off challenges from Nigerian and Venezuelan candidates to win the support of the Bank's member-states in April. Dr Kim, an American of Korean descent, is a physician who has worked in developing countries on alleviating problems of health and poverty. Critics have registered his lack of direct experience in finance, but supporters, including outgoing World Bank President Robert Zoellick, have praised his work in tackling poverty. Dr Kim will take office for a five-year term on 1 July 2012. World Bank observers say that the appointment continues a tacit agreement by which the World Bank president is a US citizen and the IMF managing director a European. ISSUES OVERVIEW | FACTS | LEADERS | ISSUES The Fund and the Bank serve as a rallying point for disparate causes - from environmentalists to anarchists - and meetings have occasionally been accompanied by violent street protests. Protesters and critics are largely united in their distaste for globalisation: broadly speaking, the integration of world economies.

They cite the exploitation of the poor and the environment and argue that freer trade threatens the livelihoods of millions of people. IMF and World Bank policies have stoked opposition The IMF has admitted that forcing developing countries to open their markets to foreign investors can increase the risk of financial crises. Its former managing director Horst Koehler said in 2002 that the benefits of globalisation had not been equally shared. But he added that "the objective should not be less globalisation but more and better globalisation." Campaigners also argue that loans and long-term agreements can lock countries into aid dependency. Representation Developing countries - as well as some of Asia's rapidly-growing economies - have voiced dissatisfaction with what they say is their lack of influence in the IMF and World Bank. They have called for changes to the quota system in which votes in the IMF are weighted in line with member nations' financial contributions. Under this system, the US has 17% of the vote in the Fund, whereas India, with more than three times the population of the US, has less than one third. And because constitutional changes in the IMF require 85% of the vote, the US has a veto.

The long-standing arrangement under which the IMF is usually led by a European, while the World Bank is led by an American, has also been called into question. IMF Managing Director Christine Lagarde has declared her intention to improve diversity within the organisation, and one of her first steps on taking office was to appoint Zhu Min - a former deputy governor of the People's Bank of China - to the newly created post of deputy managing director. Bookmark with: City, University of London Abstract The Breton Woods System was the precursor that led to the formation of the International Monetary Fund. It was named after a small New Hampshire town where the agreement was drawn up in 1944 and its primary purpose was to create an International basis for a system to exchange one currency for another. It also led to the creation of the International Monetary Fund and the International National Bank for Reconstruction and development now known as The World Bank. The IMF was designed to monitor exchange rates and lend reserve currencies to nations with trade deficits (the latter to provide underdeveloped nations with capital) Forty four nations who joined discussions contributed a type of membership fee to fund the IMF and World Bank. The amount contributed dictated a country’s economic ability and the number of votes it wielded.

In order to free international trade and fund post war reconstruction all the member states agreed to fix exchange rates by tying their currencies to the US dollar. The IMF.docx 2.docx BRICS Nations Plan New Bank to Bypass World Bank, IMF - Bloomberg Bloomberg the Company & Its Products Bloomberg Anywhere Remote LoginBloomberg Anywhere Login Bloomberg Terminal Demo Request Bloomberg Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Customer Support Advertising Bloomberg Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Customer Support BRICS Nations Plan New Bank to Bypass World Bank, IMF Mike Cohen and Ilya Arkhipov The biggest emerging markets are uniting to tackle under-development and currency volatility with plans to set up institutions that encroach on the roles of the World Bank and International Monetary Fund. The leaders of the so-called BRICS nations -- Brazil, Russia, India, China and South Africa -- are set to approve the establishment of a new development bank during an annual summit that began today in the eastern South African city of Durban, officials from all five nations say.

They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises. “The deepest rationale for the BRICS is almost certainly the creation of new Bretton Woods-type institutions that are inclined toward the developing world,” Martyn Davies, chief executive officer of Johannesburg-based Frontier Advisory, which provides research on emerging markets, said in a phone interview. “There’s a shift in power from the traditional to the emerging world. There is a lot of geo-political concern about this shift in the western world.” The BRICS nations, which have combined foreign-currency reserves of $4.4 trillion and account for 43 percent of the world’s population, are seeking greater sway in global finance to match their rising economic power. They have called for an overhaul of management of the World Bank and IMF, which were created in Bretton Woods, New Hampshire, in 1944, and oppose the practice of their respective presidents being drawn from the U.S. and Europe. Reform Needed “We need to change the way business is conducted in the international financial institutions,” South African International Relations Minister Maite Nkoana-Mashabane said in a March 15 speech in Johannesburg. “They need to be reformed.” The U.S.

has failed to ratify a 2010 agreement to give more sway to emerging markets at the IMF, while it secured Jim Yong Kim, an American, as head of the World Bank last year over candidates from Nigeria and Colombia. Finance ministers and central bank governors from the BRICS nations, who met in Durban today, agreed to set up currency crisis fund of about $100 billion, Brazilian Finance Minister Guido Mantega told reporters today. He didn’t give details of proposed funding for the new bank, which Brazil wants established by 2014. The nation’s leaders are due to sign a final accord tomorrow. FDI Inflows Goldman Sachs Asset Management Chairman Jim O’Neill coined the BRIC term in 2001 to describe the four emerging powers he estimated would equal the U.S. in joint economic output by 2020. Brazil, Russia, India and China held their first summit four years ago and invited South Africa to join their ranks in December 2010. Trade within the group surged to $282 billion last year from $27 billion in 2002 and may reach $500 billion by 2015, according to data from Brazil’s government.

Foreign direct invesment into BRICS nations reached $263 billion last year, accounting for 20 percent of global FDI flows, up from 6 percent in 2000, the United Nations Conference on Trade and Development said on its website yesterday. “If they announce a BRICS bank it will be quite something,” O’Neill said in an e-mailed reply to questions on March 15. “At a minimum it symbolizes they can achieve something as political group and means lots of other things could follow in the future. It also means that they will have their own kind of special World Bank, which may aid infrastructure and trade projects.” Currency Pool While BRICS leaders may approve the creation of a development bank in principle at the summit, details on funding and operations may take longer to finalize. Russia favors capping each side’s initial contribution at $10 billion, Mikhail Margelov, President Vladimir Putin’s envoy to Africa he said in a March 15 interview in Moscow. “It will be some time before it will be feasible for this bank to start financing say, a railway project,” Simon Freemantle, an analyst at Standard Bank Group Ltd., Africa’s biggest lender, told reporters in Durban yesterday.

“That is some way out.” Interest rates near zero in the U.S., Japan and Europe have fueled foreign investors’ appetite for higher-yielding assets, driving up currencies from Brazil to Turkey. Brazil has warned of a global currency war as nations take reciprocal action to weaken their currencies and protect export industries. African Leaders Brazil’s real has gained 1.9 percent against the dollar since the beginning of the year, while South Africa’s rand has dropped 8.7 percent in the period. The most important business stories of the day. Get Bloomberg's daily newsletter. ka the World Bank were both drawn up by the United Nations - BUS - 311 View Full Document Reconstruction and Development – a.k.a. the World Bank – were both drawn up by the United Nations Monetary and Financial Conference – a.k.a. Bretton Woods Conference, from the New Hampshire (USA) town where it was held – in July 1944. They have been in effect, with only minor changes, since the 27 th of December 1945.

5 The complementarity between the two organizations is further shown by the decision to locate the two organizations in the same country and in the same city, the capital city of the largest shareholder; by the two organizations’ mirroring capital subscriptions, and finally by Art. II of the Bank’s statute that says only Fund’s members can join in. 6 The Articles of Agreement of the two organizations were written by the same conference, The United Nations Monetary and Financial Conference, commonly known as the Bretton Woods conference, gathering of 730 delegates from 44 nations in Bretton Woods,( New Hampshire, United States), to regulate the international monetary and financial order after the conclusion of World War II. 7 The IMF and the WB cooperate on many levels in the implementation of their respective activities. In 1989, a specific Concordat ( IMF and World Bank Concordat , SM/89/54, March 31, 1989) was signed. It details the two institutions’ cooperative conditions and responsibility partitioning. This preview has intentionally blurred sections. Sign up to view the full version. View Full Document life.This growing intrusion is today’s most controversial side of their activity.

8 Hence the increasing focus on ensuring that their interventions originate from democratic processes and provide for an equitable balance of all needs and requests. I concede that the notion of democracy in an international organization isn’t quite ripe yet, but citizens and states have growing and solid expectations in this sense. I take for granted that these expectations should be met by international (or, preferably, supranational) institutions that are better equipped to respond to those needs, and not by falling back to an antihistorical – in my opinion – revival of the merely national dimension. 9 The two institutes must therefore be re-balanced to reflect the new economic situation and reformed to confront the challenges of the new millennium. Another good reason for reforms is the evolving role of the IFM and World Bank. After the Second World War, it was utterly impossible to imagine the growing complexity and fragmentation of the context in which the two organizations would have to operate, that is an international community made up of a larger number of subjects, defined by a then inconcievable degree of interconnection and by highly contagious economic phenomena (and everything that goes under the name “globalization”).

10 The IMF was created in 1944 as a credit union, towards which every state could be debtor or creditor, according to their needs. It changed into a borrower from developed countries and a lender to developing ones that are experiencing temporary cash-flow problems, and then devoted itself to more and more structural interventions. This is the end of the preview. Sign up to access the rest of the document. TERM Spillovers through backward linkages and the export performance of business services. Revised_Manuscript City, University of London Abstract The Breton Woods System was the precursor that led to the formation of the International Monetary Fund. It was named after a small New Hampshire town where the agreement was drawn up in 1944 and its primary purpose was to create an International basis for a system to exchange one currency for another. It also led to the creation of the International Monetary Fund and the International National Bank for Reconstruction and development now known as The World Bank. The IMF was designed to monitor exchange rates and lend reserve currencies to nations with trade deficits (the latter to provide underdeveloped nations with capital) Forty four nations who joined discussions contributed a type of membership fee to fund the IMF and World Bank.

The amount contributed dictated a country’s economic ability and the number of votes it wielded. In order to free international trade and fund post war reconstruction all the member states agreed to fix exchange rates by tying their currencies to the US dollar. The IMF.docx 2.docx The IMF and the World Bank The IMF and the World Bank September 26, 2016 The International Monetary Fund (IMF) and the World Bank are institutions in the United Nations system. They share the same goal of raising living standards in their member countries. Their approaches to this goal are complementary, with the IMF focusing on macroeconomic issues and the World Bank concentrating on long-term economic development and poverty reduction. What are the purposes of the Bretton Woods Institutions? The International Monetary Fund and the World Bank were both created at an international conference convened in Bretton Woods, New Hampshire, United States in July 1944. The goal of the conference was to establish a framework for economic cooperation and development that would lead to a more stable and prosperous global economy. While this goal remains central to both institutions, their work is constantly evolving in response to new economic developments and challenges. The IMF’s mandate.

The IMF promotes international monetary cooperation and provides policy advice and technical assistance to help countries build and maintain strong economies. The IMF also makes loans and helps countries design policy programs to solve balance of payments problems when sufficient financing on affordable terms cannot be obtained to meet net international payments. IMF loans are short and medium term and funded mainly by the pool of quota contributions that its members provide. IMF staff are primarily economists with wide experience in macroeconomic and financial policies. The World Bank’s mandate. The World Bank promotes long-term economic development and poverty reduction by providing technical and financial support to help countries reform particular sectors or implement specific projects—such as, building schools and health centers, providing water and electricity, fighting disease, and protecting the environment. World Bank assistance is generally long term and is funded both by member country contributions and through bond issuance. World Bank staff are often specialists in particular issues, sectors, or techniques. Framework for cooperation The IMF and World Bank collaborate regularly and at many levels to assist member countries and work together on several initiatives. In 1989, the terms for their cooperation were set out in a concordat to ensure effective collaboration in areas of shared responsibility. High-level coordination.

During the Annual Meetings of the Boards of Governors of the IMF and the World Bank, Governors consult and present their countries’ views on current issues in international economics and finance. The Boards of Governors decide how to address international economic and financial issues and set priorities for the organizations. A group of IMF and World Bank Governors also meet as part of the Development Committee , whose meetings coincide with the Spring and Annual Meetings of the IMF and the World Bank. This committee was established in 1974 to advise the two institutions on critical development issues and on the financial resources required to promote economic development in low-income countries. Management consultation. The Managing Director of the IMF and the President of the World Bank meet regularly to consult on major issues. They also issue joint statements and occasionally write joint articles, and have visited several regions and countries together. Staff collaboration. IMF and Bank staffs collaborate closely on country assistance and policy issues that are relevant for both institutions. The two institutions often conduct country missions in parallel and staff participate in each other’s missions. IMF assessments of a country’s general economic situation and policies provide input to the Bank’s assessments of potential development projects or reforms. Similarly, Bank advice on structural and sectoral reforms is taken into account by the IMF in its policy advice.

The staffs of the two institutions also cooperate on the conditionality involved in their respective lending programs. The 2007 external review of Bank-Fund collaboration led to a Joint Management Action Plan on World Bank-IMF Collaboration (JMAP) to further enhance the way the two institutions work together. Under the plan, Fund and Bank country teams discuss their country-level work programs, which identify macro-critical sectoral issues, the division of labor, and the work needed in the coming year. A review of Bank-Fund Collaboration underscored the importance of these joint country team consultations in enhancing collaboration. Reducing debt burdens. The IMF and World Bank have also worked together to reduce the external debt burdens of the most heavily indebted poor countries under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) . They continue to help low-income countries achieve their development goals without creating future debt problems. IMF and Bank staff jointly prepare country debt sustainability analyses under the Debt Sustainability Framework (DSF) developed by the two institutions. Reducing poverty.

In 1999, the IMF and the World Bank launched the Poverty Reduction Strategy Paper (PRSP) approach as a key component in the process leading to debt relief under the HIPC Initiative and an important anchor in concessional lending by the Fund and the Bank. While PRSPs continue to underpin the HIPC Initiative, the World Bank and the IMF adopted in July 2014 and July 2015, respectively, new approaches to country engagement that no longer requires PRSPs. The IMF streamlined its requirement for poverty reduction documentation for programs supported under the Extended Credit Facility (ECF) or the Policy Support Instrument (PSI). Setting the stage for the 2030 development agenda. Between 2004 and 2015 the IMF and the Bank jointly published the annual Global Monitoring Report (GMR) , which assessed progress towards meeting the Millennium Development Goals (MDGs) . In 2015, with the replacement of the MDGs with the Sustainable Development Goals (SDGs) under the 2030 Global Development Agenda, the IMF and the Bank have actively engaged in the global effort to support the Agenda.

Each institution has committed to new initiatives , within their respective remits, to support member countries in reaching their SDGs. They are also working together to better assist the joint membership, including by an enhanced support of stronger tax systems in developing countries . Assessing financial stability. The IMF and the World Bank are also working together to make financial sectors in member countries resilient and well regulated. The Financial Sector Assessment Program (FSAP) was introduced in 1999 to identify the strengths and vulnerabilities of a country's financial system and recommend appropriate policy responses. More detailed information can be found on the institutions’ websites: and .

Question: In 1944, in which New Hampshire town was an agreement drawn up to establish the IMF and World Bank?
Answer: BRETTON WOODS