THE COLLAPSE OF THE
BRETTON WOODS SYSTEM HAS
MADE REDUNDANT THE WELL-DEFINED
PURPOSE OF THE IMF
WHEN IT WAS CREATED IN 1944.
DO YOU THINK THE IMF HAS STILL A ROLE TO PLAY IN THIS 21ST CENTURY?
Table of ContentPg
1.Introduction: History and role of the International Monetary Fund2 2.The IMF after the collapse of Bretton Woods System6
3.Criticisms of IMF 8
4.The world still need the IMF13
1.INTRODUCTION - History & Role of IMF
The IMF was founded to help restore economic stability and growth in the repercussion of the World War II. Half a century later, the institution is still working to promote these goals, but in a world that has changed. In particular, the international economy is now dominated by massive private capital flows, flows that are opening new opportunities for investment, trade, and growth to an ever larger number of countries. Net private capital flows to emerging market economies continued to increase while maturities lengthened and spreads declined. So, one may well ask: in this day, do we still need the IMF?
The evolution of the International Monetary System was such that, in the early days by the end of 7th century B.C, there was the use of gold and silver coins to enable trade between nations and it also constituted a particular economy’s reserve. After the gold coin standard, came into existence the International Gold Standard- 17th-19th century, which also witnessed some turbulence during the years 1901-1932.
After World War I most countries wanted to return to the old financial security system and stable situation of pre-war times as soon as possible. Discussions about a return to the gold standard began and by 1926 all leading economies had re-established the system, according to which every nation’s circulating money had to be backed by reserves of gold and foreign currencies to a certain extent. But there were several mistakes in implementing the gold standard mainly that a weakened Great Britain had to take the leading part and that a number of main currencies were over or undervalued. This led to a collapse of the economic and financial relations, peaking in the Great Depression in 1929. Every single country tried to increase the competitiveness of its export products in order to reduce its payment balance deficit by deflating its currency
This strategy only led to success as long as a country was deflating faster and more strongly than all other nations. This fact resulted in an international deflation competition that caused mass unemployment, bankruptcy of enterprises, the failing of credit institutions, as well as hyper inflations in the countries concerned. In the 1930s several conferences dealing with the world monetary problems caused by the Great Depression had ended in failure. But after World War II the need for a stabilising system that avoided the mistakes, which had been made earlier, became evident. Plans were made for an innovative monetary system and a supervising institution to monitor all actions.
Also during World War II, where there were much devastation of the world economy, there needed a system and the necessary funds to reconstruct the doomed economies, mostly the European countries. There was an attempt to prepare to rebuild the international economic system as the war was still raging. Under this preparation, in July 1944, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference. They had set up a system of rules, institutions, and procedures to regulate the international monetary system and we saw the establishment of the International Bank for Reconstruction and Development (IBRD), now the World Bank and the International Monetary Fund (IMF).
Globally the main purpose of this conference was to make each...