International Monetary Fund
| Author | Bernard Newman |
| Pages | 419-422 |
Page 419
The International Monetary Fund was established to foster international trade and currency conversion, which it does through consultation and loan activities. When it was created in 1946, the IMF had thirty-nine member countries. By November 1999 membership in the IMF had grown to 182 member countries and by the mid-2000s membership included every major country, the former communist countries, and numerous small countries. The only exception were Cuba and North Korea.
To join the IMF, a country must deposit a sum of money called a quota subscription, the amount of which is based on the wealth of the country's economy. Quotas are reconsidered every five years and can be increased or decreased based on IMF needs and the prosperity of the member country. In 2005, the United States contributed the largest percentage of the annual contributions—18 percent—because it had the largest, richest economy in the world. Voting rights are allocated in proportion to the quota subscription.
The Depression in the 1930s devastated international trade and monetary exchange, creating a great loss of confidence on the part of those engaged in international business and finance. Because international traders lost confidence in the paper money used in international trade, there was an intense demand to convert paper money into gold—a demand beyond what the treasuries of countries could supply. Nations that defined the value of their currency in terms of a given amount of gold were unable to meet the conversion demand and had to abandon the gold standard. Valuing currencies in terms of given amounts of gold, however, had given currencies stable values that made international trade flow smoothly.
The relationship between money and the value of products became confused. Some nations hoarded gold to make their currency more valuable so that their producers could buy raw materials at lower prices. Other countries, desperate for foreign sales of their goods, engaged in competitive devaluations of their currencies. World trade became difficult. Countries restricted the exchange of currency, and even encouraged barter. In the early 1940s Harry Dexter White (1892–1948) of the United States and John Maynard Keynes (1883–1946) of the United Kingdom proposed the establishment of a permanent international organization to bring about the cooperation of all nations in order to achieve clear currency valuation and currency convertibility as well as to eliminate practices that undermine the world monetary system.
Finally, at an international meeting in Bretton Woods, New Hampshire, in July 1944, it was decided to create a new international monetary system and a permanent international organization to monitor it. Forty-four countries agreed to cooperate to solve international trade and investment problems, setting the following goals, for the new permanent, international organization:
Unrestricted conversion of currencies
Establishment of a value for each currency in relation to others
Removal of restrictive trade practices
In 1946 in Washington, D.C., the international...
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