10 Events That Shaped the IMF
| Author | James Boughton |
| Position | Assistant Director in the IMF's Policy Development |
| Pages | 6-10 |
Page 6
The International Monetary Fund was created toward the end of World War II as part of an attempt to build a new, more stable international economic system and avoid the costly mistakes of the previous decades. Over the past 60 years, it has continued to change and adapt.
But since its inception, it has been shaped by history and molded by the economic and political ideas of the time.
When delegations from 44 countries met at Bretton Woods, New Hampshire, in July 1944 to establish institutions to govern international economic relations in the aftermath of World War II, avoiding a repeat of the failings of the Paris Peace Conference that had ended World War I was very much on their minds. Creation of an International Bank for Reconstruction and Development would help restore economic activity, while creation of an International Monetary Fund would help restore currency convertibility and multilateral trade. For both John Maynard Keynes, the economist who headed the British delegation, and Harry Dexter White, the chief drafter of the IMF charter for the U.S. delegation, the motivating principle for creating the IMF was to engender postwar economic growth by establishing an institution that would prevent a relapse into autarky and protectionism, not just to avoid a recurrence of the Great Depression.
This article looks at some of the key 20th-century events that had the greatest influence on the IMF and draws some general conclusions about the force of history on the international monetary system that now prevails.
Page 7
The Paris Peace Conference of 1918 did consider a blueprint for restoring prosperity and world peace, in the form of U.S. President Woodrow Wilson's 14 Points. But six months later, when delegates agreed on the terms of what became known as the Treaty of Versailles, key parts of the blueprint had been cast aside. Within a decade, prosperity was lost. In another decade, peace was gone as well. The most famous failure was Wilson's inability to convince the U.S. Senate to confirm the country's membership in the League of Nations. Arguably the most disastrous, however, was the failure to lay the groundwork for economic cooperation among the world's great trading nations.
The Great Depression that began in 1929 amplified the negative consequences of Versailles, as an implosion of international trade interacted with domestic policy errors to deflate both output and prices around the world. It severely tested the confidence of analysts and voters in the efficacy of free markets and strengthened belief in an activist role for the public sector in economic life. It thus became easier and more natural to start discussions on a post-World War II framework from the assumption that an intergovernmental agency with substantive powers would be beneficial and even essential for the international financial system.
The Second World War provided both the impetus and the context for reforming the international system. When the United States entered the war in response to the bombing of Pearl Harbor in December 1941, Treasury Secretary Henry Morgenthau, Jr., put White in charge of international economic and financial policy and asked him to come up with a plan for remaking the system once the war was over. As it happened, White had already sketched out a rough plan for an international stabilization fund, and he was able to produce a first draft within a couple of months. On the other side of the Atlantic, Keynes was developing a plan for an international clearing union to be run jointly by Britain and the United States as "founder states." Though less overtly multilateral than White's scheme, and based on the British overdraft system rather than on White's rather complicated proposal for currency swaps, Keynes's scheme was similar in its essence to White's. Over the next two years of discussion and negotiation, the two plans would meld into a draft for the IMF charter.
One major consequence of the war was that it left the United States in virtual control of the world economy. The financial structure...
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