The IMF and its barbarous relic.

• Author: Shelton, Judy
• Position: International Monetary Fund - Essay

The International Monetary Fund has a wonderful heritage, a priceless legacy. It was created for the loftiest of economic purposes--to provide a stable monetary foundation to facilitate free trade and international capital flows--and to provide hope to a world beset by vicious and destructive war. Its architects, Harry Dexter White and John Maynard Keynes, surmounted personality clashes and political strains to carry out the mission that garnered their mutual respect: to establish optimal conditions for achieving world prosperity and world peace.

The emphasis, from the beginning, was to set up an international monetary system. For White, the chief goal was to stabilize exchange rates to obtain the maximum productive benefits of foreign trade and investment; for Keynes, it was important to keep capital resources circulating rather than allow them to sit idle. Both men were intrigued with the idea of a universal currency, a global monetary unit that would transcend the vagaries of individual national monies. And both men favored the formation of supranational organizations to ensure orderly economic arrangements across borders and to bring about what Keynes (1942) described as global "financial disarmament."

Fall from Grace

Sixty-five years after the International Monetary Fund came into being at the United Nations Monetary and Financial

Conference--which took place in the resort area of Bretton Woods, New Hampshire, during the first three weeks of July 1944--and 38 years after the United States, under President Richard Nixon, ended the "Bretton Woods system" of exchange rate management that permitted foreign central banks to redeem dollar holdings at the fixed conversion rate of $35 per ounce of gold, it seems reasonable to question whether the IMF still has a legitimate role to play in the global monetary and financial arena.

A quick look at the IMF website reveals what the organization itself believes are its main functions--and presumably, its reason for continued existence. In a section "About the IMF," one finds a concise paragraph describing the organization:

The International Monetary Fund (IMF) is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world [IMF 2009a].

Less concise are the words themselves, with nebulous adjectives preceding high-minded objectives. What does it mean, exactly, to "foster" global monetary cooperation in a world that has lacked any kind of international monetary system since August 1971? And what should we make of the IMF's stated claim that it is working to "secure" financial stability? As the world struggles in the aftermath of a financial crisis that is compared to the Great Depression, does the IMF take any responsibility for the less-than-secure conditions of global finance that permitted it? To "facilitate" international trade would seem to encroach on the mission of the World Trade Organization--likewise initiated in the immediate postwar years as a UN effort to fight protectionism through the General Agreement on Tariffs...