1

Tbe Bretton Woods agreement

TIc IMF was conccivcd in : 1944, wben representatIves oI 4S co:ntrIes
meetIng In tbe town oI Bretton Woods, New HampsbIre, In tbe
nortbeastern UnIted States, agreed on a Iramework Ior InternatIona
economIc cooperatIon, to be estabIsbed aIter tbe Second Word
War. TIcy lclicvcd iIai sucI a framcworl was ncccssary io avoid a rcciiiion
of iIc disasirous cconomic olicics iIai Iad coniriluicd io iIc Crcai
Dcrcssion.
Tbe IMF came Into Iorma exIstence In December 194S, wben Its IIrst 29
member co:ntrIes sIgned Its ArtIces oI Agreement. It began operatIons on
Marcb 1, 194?. Later tbat ear, France became tbe IIrst co:ntr to borrow
Irom tbe IMF.
TIc IMF's mcmlcrsIi lcgan io cand in iIc laic 1950s and during iIc
1960s as many African counirics lccamc indccndcni and alicd for
mcmlcrsIi. Dui iIc Cold War limiicd iIc Fund's mcmlcrsIi, wiiI mosi
counirics in iIc Sovici sIcrc of influcncc noi joining.
Par va:e sstem
TIc counirics iIai joincd iIc IMF lciwccn 1945 and 1971 agrccd io lcc iIcir
ccIangc raics (iIc valuc of iIcir currcncics in icrms of iIc U.S. dollar and, in
iIc casc of iIc Uniicd Siaics, iIc valuc of iIc dollar in icrms of gold} cggcd ai
raics iIai could lc adjusicd only io corrcci a "fundamcnial discquililrium" in
iIc lalancc of aymcnis, and only wiiI iIc IMF's agrccmcni. TIis ar valuc
sysicmalso lnown as iIc Drciion Woods sysicmrcvailcd uniil 1971, wIcn
iIc U.S. govcrnmcni suscndcd iIc convcriililiiy of iIc dollar (and dollar
rcscrvcs Icld ly oiIcr govcrnmcnis} inio gold.
Backgro:nd: TIc InternatIona Monetar F:nd (IMF or F:nd) and iIc
InternatIona Bank Ior Reconstr:ctIon and Deveopment (IBRD or Word
Bank) uere both estab|lshed at the Unlted Natlons Monetar and |lnancla|
Conference, he|d at Bretton Woods, Neu Hamshlre, on ]u| 1-22, 1944. TIc iwo wcrc
crcaicd io ovcrscc sialiliiy in inicrnaiional monciary affairs and io faciliiaic
iIc cansion of world iradc. McmlcrsIi in iIc World Danl rcquircs
mcmlcrsIi in iIc IMF, and iIcy arc loiI sccializcd agcncics of iIc Uniicd
Naiions.
TIc World Danl was givcn domaIn over ong-term IInancIng Ior natIons In
need, wIilc tbe IMF's mIssIon was to monItor excbange rates, provIde
sbort-term IInancIng Ior baance oI paments adj:stments, provIde a
Ior:m Ior dIsc:ssIon abo:t InternatIona monetar concerns, and gIve
tecbnIca assIstance to member co:ntrIes. TIcsc funciions arc siill gcncrally


iruc of loiI organizaiions, aliIougI iIc olicics dcicrmining Iow iIcy arc
carricd oui Iavc lccn modificd and amlificd ovcr iimc
TIc IMF and World Danl wcrc loiI crcaicd ai iIc cnd of World War II in a
oliiical climaic wIicI is vcry diffcrcni from iIai of ioday. NcvcriIclcss, iIcir
rolcs and modaliiics Iavc lccn suiially udaicd io scrvc iIc inicrcsis of iIosc
iIai lcncfii from ncolilcralism.
TIc insiiiuiional siruciurcs of iIc IMF and World Danl wcrc framcd ai an
inicrnaiional confcrcncc in Drciion Woods, Ncw HamsIirc. Iniiially, iIc
rimary focus of iIc IMF was io rcgulaic currcncy ccIangc raics io faciliiaic
ordcrly inicrnaiional iradc and io lc a lcndcr of lasi rcsori wIcn a mcmlcr
couniry ccricnccs lalancc of aymcnis difficuliics and is unallc io lorrow
moncy from oiIcr sourccs. TIc original urosc of iIc World Danl was io lcnd
moncy io Wcsicrn Eurocan govcrnmcnis io Icl iIcm rcluild iIcir counirics
aficr iIc war. In laicr ycars, iIc World Danl sIificd iis aiicniion iowards
dcvclomcni loans io iIird world counirics.

DeIInItIon: TIc IMF is iIc Inicrnaiional Monciary Fund, Icadquaricrcd in
WasIingion. Ii's a glolal organizaiion madc u of 185 mcmlcr counirics,
foundcd in 1944 wiiI iIc urosc io ovcrscc glolal financial IcaliI and
rovidc assisiancc wIcn nccdcd io iis mcmlcrs. Today, iIc IMF siaics iis goals
as "io romoic inicrnaiional monciary coocraiion, ccIangc sialiliiy, and
ordcrly ccIangc arrangcmcnis; io fosicr cconomic growiI and IigI lcvcls of
cmloymcni; and io rovidc icmorary financial assisiancc io counirics io Icl
casc lalancc of aymcnis adjusimcni." Criiicism of iIc IMF is a corncrsionc of
iIc anii-glolalizaiion movcmcni.

F:nctIons oI IMF
TIc main oljcciivc of IMF is io grani loans in forcign currcncics io mcmlcr
counirics io corrcci any discquililrium in iIcir lalancc of aymcnis, wIcn
discquililrium is of icmorary naiurc and lilcly io lc rcmovcd in iIc carlicsi
ossillc criod. According io iIc Ariiclc 1si of iIc agrccmcni, iIc oljcciivcs of
iIc IMP arc-

(i} To romoic inicrnaiional monciary coocraiion iIrougI a crmancni
insiiiuiion of iIc fund wIicI rovidcs iIc macIincry for Consuliaiion and
Collaloraiion on inicrnaiional monciary rollcms?



(ii} To faciliiaic iIc cansion and lalanccd growiI of inicrnaiional iradc and
io coniriluic iIcrcly io iIc romoiion and mainicnancc of IigI lcvcl of
cmloymcni and rcal incomc;

(iii} To romoic ccIangc sialiliiy and mainiain ordcrly ccIangc
arrangcmcnis among mcmlcrs ly avoiding comciiiivc ccIangc dcrcciaiion;

(iv} To assisi in iIc csiallisImcni of a mulii-laicral sysicm of aymcnis in
rcscci of currcni iransaciions lciwccn mcmlcrs and climinaiion of forcign
ccIangc rcsiriciions wIicI Iamcr iIc growiI of world iradc.

(v} To crcaic confidcncc among mcmlcrs ly maling iIc gcncral rcsourccs of
iIc fund icmorarily availallc io iIcm and roviding ooriuniiy io corrcci
mal-adjusimcnis in iIcir lalancc of aymcnis wiiIoui rcsoriing io iIc
mcasurcs dcsiruciivc of naiional or inicrnaiional roscriiy.





CVLkVILW CI 1nL IMI
Mandate
1he lMl ls an lndependenL lnLernaLlonal organlzaLlon lL ls a cooperaLlve of 183 member counLrles
whose ob[ecLlve ls Lo promoLe world economlc sLablllLy and growLh 1he member counLrles are Lhe
shareholders of Lhe cooperaLlve provldlng Lhe caplLal of Lhe lMl Lhrough quoLa ln reLurn Lhe lMl
provldes lLs members wlLh macroeconomlc pollcy advlce flnanclng ln Llmes of balance of paymenLs
need and Lechnlcal asslsLance and Lralnlng Lo lmprove naLlonal economlc managemenL
1he lMl ls one of several auLonomous organlzaLlons deslgnaLed by Lhe unlLed naLlons (un) as
Speclallzed Agencles" wlLh whlch Lhe un has esLabllshed worklng relaLlonshlps1he lMl ls a permanenL
observer aL Lhe un 1he ArLlcles of AgreemenL LhaL creaLed Lhe lMl and govern lLs operaLlons were
adopLed aL Lhe unlLed naLlons MoneLary and llnanclal Conference ln 8reLLon Woods new Pampshlre
on !uly 19 and enLered lnLo force on uecember 193
ArLlcle I seLs ouL Lhe mandaLe of Lhe lMl as follows
- 1o promoLe lnLernaLlonal moneLary cooperaLlon Lhrough a permanenL lnsLlLuLlon whlch provldes Lhe
machlnery for consulLaLlon and collaboraLlon on lnLernaLlonal moneLary problems
- 1o faclllLaLe Lhe expanslon and balanced growLh of lnLernaLlonal Lrade and Lo conLrlbuLe Lhereby Lo
Lhe promoLlon and malnLenance of hlgh levels of employmenL and real lncome and Lo Lhe developmenL
of Lhe producLlve resources of all members as prlmary ob[ecLlves of economlc pollcy
- 1o promoLe exchange sLablllLy Lo malnLaln orderly exchange arrangemenLs among members and Lo
avold compeLlLlve exchange depreclaLlon
- 1o asslsL ln Lhe esLabllshmenL of a mulLllaLeral sysLem of paymenLs ln respecL of currenL LransacLlons
beLween members and ln Lhe ellmlnaLlon of forelgn exchange resLrlcLlons whlch hamper Lhe growLh of
world Lrade
- 1o glve confldence Lo members by maklng Lhe general resources of Lhe lMl Lemporarlly avallable Lo
Lhem under adequaLe safeguards Lhus provldlng Lhem wlLh opporLunlLy Lo correcL malad[usLmenLs ln
Lhelr balance of paymenLs wlLhouL resorLlng Lo measures desLrucLlve of naLlonal or lnLernaLlonal
prosperlLy and
- 1o shorLen Lhe duraLlon and lessen Lhe degree of dlsequlllbrlum ln Lhe lnLernaLlonal balances of
paymenLs of members
1hls mandaLe glves Lhe lMl lLs unlque characLer as an lnLernaLlonal moneLary lnsLlLuLlon wlLh broad
overslghL responslblllLles for Lhe orderly funcLlonlng and developmenL of Lhe lnLernaLlonal moneLary
and flnanclal sysLem

3

Iunct|ons
1he lMl pursues Lhe varlous faceLs of lLs mandaLe ln a number of ways 1hese are summarlzed below
Survelllance over Members' Lconomlc
o||c|es
ln becomlng members of Lhe lMl counLrles agree Lo pursue economlc pollcles LhaL are conslsLenL wlLh
Lhe ob[ecLlves of Lhe lMl 1he ArLlcles of AgreemenL confer on Lhe lMl Lhe legal auLhorlLy Lo oversee
compllance by members wlLh Lhls obllgaLlon maklng Lhe lMl Lhe only organlzaLlon LhaL has a mandaLe
Lo examlne on a regular basls Lhe economlc clrcumsLances of vlrLually every counLry ln Lhe world"
I|nanc|ng 1emporary 8a|ance of ayments Needs
1he ArLlcles of AgreemenL enable Lhe lMl Lo lend Lo member counLrles LhaL have a balance of paymenLs
need Lo provlde Lemporary resplLe and enable counLrles Lo puL ln place orderly correcLlve measures and
avold a dlsorderly ad[usLmenL of Lhe exLernal lmbalance Such lendlng ls usually underLaken ln Lhe
conLexL of an economlc ad[usLmenL program lmplemenLed by Lhe borrowlng counLry Lo correcL Lhe
balance of paymenLs dlfflculLles whlch also safeguards lMl resources ln addlLlon Lo provldlng dlrecL
flnanclng Lo lLs member counLrles Lhe lMl plays an lmporLanL caLalyLlc role ln helplng member
counLrles Lo moblllze exLernal flnanclng for Lhelr balance of paymenLs needs
Combat|ng overty |n LowIncome Countr|es
1he lMl provldes concesslonal loans Lo lowlncome member counLrles Lo help supporL Lhese counLrles'
efforLs Lo eradlcaLe poverLy ln Lhls venLure Lhe lMl works closely wlLh Lhe World 8ank and oLher
developmenL parLners ln Lhls area Lhe lMl also plays a crlLlcal caLalyLlc role Lo moblllze exLernal
flnanclng and donor supporL for Lhe counLrles' balance of paymenLs and developmenL needs 1he lMl
also parLlclpaLes ln Lwo lnLernaLlonal lnlLlaLlves Lo provlde debL rellef Lhe Peavlly lndebLed oor
CounLrles (PlC) lnlLlaLlve and Lhe MulLllaLeral uebL 8ellef lnlLlaLlve (Mu8l)
Mob|||z|ng Lxterna| I|nanc|ng
lMl endorsemenL of a counLry's pollcles serves as an lmporLanL caLalysL for moblllzlng resources from
bllaLeral and mulLllaLeral lenders and donors 1hey rely on an lMl endorsemenL of a counLry's economlc
pollcles or mlghL even requlre a formal lMlsupporLed economlc program before commlLLlng or
dlsburslng Lhelr own resources Lo LhaL counLry or granLlng debL rellef lMl pollcy assessmenLs and
recommendaLlons also provlde lmporLanL slgnals Lo lnvesLors and flnanclal markeLs regardlng a
counLry's economlc fuLure and lmpacL on lnvesLor and markeL confldence ln Lhe economy




trengthen|ng the Internat|ona| Monetary ystem
1he lMl ls Lhe cenLral lnsLlLuLlon ln Lhe lnLernaLlonal moneLary sysLem lL serves as a forum for
consulLaLlon and collaboraLlon by members on lnLernaLlonal moneLary and flnanclal maLLers and works
wlLh oLher mulLllaLeral lnsLlLuLlons Lo devlse lnLernaLlonal rules LhaL would faclllLaLe Lhe prevenLlon and
orderly resoluLlon of lnLernaLlonal economlc problems
Increas|ng the G|oba| upp|y of Internat|ona| keserves
1he lMl ls auLhorlzed Lo lssue an lnLernaLlonal reserve asseL called Lhe Speclal urawlng 8lghL (Su8) lf
Lhere ls a global need Lo supplemenL exlsLlng reserve asseLs 1hese allocaLed Su8s are parL of Lhe neL
lnLernaLlonal reserves of members and can be exchanged for converLlble currencles 1hey are noL a
clalm on Lhe lMl 1he Su8 ls also Lhe lMl's unlL of accounL for all flnanclal LransacLlons wlLh members
8u||d|ng Capac|ty through 1echn|ca| Ass|stance and 1ra|n|ng
1echnlcal asslsLance and Lralnlng are provlded ln Lhe core areas of lMl experLlse Lo help member
counLrles deslgn economlc pollcles and lmprove economlc managemenL capablllLles whlch ln Lurn can
help reduce Lhe rlsk of pollcy fallures and Lhe counLrles' reslllence Lo shocks and faclllLaLlng program
deslgn and lmplemenLaLlon 1hese acLlvlLles are parLlcularly lmporLanL ln developlng counLrles where
resources are scarce and lnsLlLuLlons ofLen weak
D|ssem|nat|on of Informat|on and kesearch
1he lMl ls a premler source for economlc analysls of lLs member counLrles' economlc pollcles and
sLaLlsLlcal lnformaLlon lnformaLlon ls dlssemlnaLed Lhrough lLs numerous economlc reporLs and
research sLudles on member counLrles as well as speclallzed sLaLlsLlcal publlcaLlons 1he lMl also
conducLs research ln areas relevanL Lo lLs mandaLe and operaLlons malnly Lo lmprove lLs economlc
analysls and lLs advlce Lo member counLrles 1he resulLs of Lhls research are dlssemlnaLed Lhrough
books lMl and academlc [ournals and worklng papers occaslonal papers and Lhe lnLerneL