What Is the International Monetary Fund?
The International Monetary Fund (IMF) was conceived in 1944 to secure international monetary cooperation, stabilize currency exchange rates, and expand global liquidity (access to hard currencies). The World War II Allies and other cooperating countries set up the multilateral organization to help support currencies and trade flows after the war.
What Does the IMF Do?
The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The IMF pursues its mission in the following three fundamental ways:
- Surveillance: A formal system of review monitors the financial and economic policies of member countries. The review system also offers both macroeconomic and financial policy advice.
- Capacity Development: Practical support and training is directed mainly at low- and middle-income countries to help them improve their economies.
- Lending: The Fund makes loans to member countries struggling to meet their international obligations. Sometimes offered as a bailout, financial assistance is provided in return for implementing specific IMF conditions designed to return stability to government finances and to restore growth. Known as “structural adjustments,” IMF conditions have included balancing the budget, ending state subsidies, privatizing state enterprises, liberalizing trade and currency policies, and removing barriers to foreign investment and capital flows.
Has the IMF’s Mission Changed?
Since October 2019, the IMF has been led by Managing Director Kristalina Georgieva, a native of Bulgaria. The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability. The IMF’s expanded mission incorporates the following objectives:
- Fostering global monetary cooperation
- Securing financial stability
- Facilitating international trade
- Promoting high employment and sustainable economic growth
- Reducing poverty around the world
Does the IMF Affect My Daily Life?
The answer to this question depends on your address. If you live in the United States, the United Kingdom, or Germany, for example, the IMF is mostly invisible in your daily life because your country’s economy is generally healthy. In contrast, the IMF significantly impacts the daily lives of the citizens of Ukraine, The Gambia, and Liberia (among others) because it is managing loans to these countries and is working to assist them in improving their struggling economies.
Does the IMF Affect the Markets?
The IMF affects the markets in that its programs are designed to head off economic instability, such as the sovereign debt crises that affected Greece, Portugal, Ireland, and Iceland starting in 2010. IMF actions to develop and support healthy economies around the world contribute to stable and healthy markets.
What Organizations Are Similar to the IMF?
Also known as the Fund, the IMF is one of a group of international economic organizations including the following (among many others):
- The World Bank
- The World Trade Organization (WTO)
- The Organisation for Economic Co-operation and Development (OECD)
- The World Economic Forum (WEF)
How Are the IMF and the World Bank Connected?
Both institutions were founded at the Bretton Woods conference, and they have complementary missions. The World Bank seeks to reduce poverty and increase shared prosperity in developing countries, while the IMF stabilizes the international monetary system and monitors the world’s currencies. The World Bank provides financing, policy advice, and technical assistance to governments and provides programs to strengthen the private sector in developing countries. The IMF monitors the economy both globally and in member countries, lends to countries facing balance-of-payments difficulties, and offers practical help to members. Countries must first join the IMF to be eligible to join the World Bank.
Who Created the IMF?
The twin institutions of the IMF and the World Bank were born on July 1, 1944, as World War II raged in Europe and the Pacific. Delegates from 44 nations came together in the United States at the secluded Mount Washington Hotel in Bretton Woods, New Hampshire. Their purpose was to agree on a system of economic order and international financial cooperation, with the joint aims of helping countries recover from the devastation of the war and fostering long-term global growth. Formally known as the United Nations Monetary and Financial Conference, this gathering is universally referred to as either Bretton Woods or the Bretton Woods conference.
The international delegates also were motivated by more than the devastation caused by World War II. They wanted to prevent a rehash of the currency warfare that helped trigger the Great Depression in 1929. Worldwide economic officials, including Henry Morganthau Jr. and John Maynard Keynes, sought to create new institutions that would encourage sustainable economic growth, promote higher standards of living, and reduce poverty. As one move toward introducing currency stability, the 44 founding signatory countries were required to peg their currencies to the U.S. dollar, which at the time was backed by the gold standard.
The United States, assisted by the United Kingdom, developed the initial plans for the IMF. Additional active participants at Bretton Woods included Mexico, Chile, Brazil, Russia, Belgium, the Netherlands, the former Czechoslovakia, Poland, Canada, China, and India.
Who Funds the IMF?
The IMF functions as a co-op that is funded by, governed by, and accountable to its 190 member countries (of the world’s total 195 countries). The U.S. is the largest contributor to and shareholder in the Fund. The Treasury Department leads U.S. engagement in the IMF, with the Secretary of the Treasury serving as the U.S. Governor to the IMF. The U.S. Executive Director of the IMF is one of 24 directors who exercise voting rights over the strategic direction of the institution.
Based in Washington, DC, the IMF receives funds (called quota subscriptions) from its 190 member nations. Members pay according to the size of their economy, with voting rights based on each member’s quota. Special Drawing Rights (SDRs) are the IMF’s units of account, and the SDR is valued based on a basket of five currencies: the U.S. dollar, the euro, the Japanese yen, the Chinese RMB or yuan, and the British pound sterling. The IMF manages an allocation of about U.S. $650 billion.
Does the IMF Have Critics?
Because its loans or bailouts come with various conditions, the IMF is vulnerable to criticisms from two camps: those who think its loan conditions are too tough and those who say those same conditions are too weak. IMF critics have arisen most noticeably among the Global South and other non-Western countries and cultures.
During the late 1990s, critic Walden Bello focused on the IMF’s and World Bank’s programs of ”structural adjustment.” Even more than 20 years later, the issues Bello raised remain relevant, particularly during times of international economic distress such as the Great Recession (2008–2009) and the COVID-19 global pandemic.
In his book Globalization and Its Discontents, Nobel Prize-winning economist Joseph Stiglitz labeled the Fund a culprit in the failed development policies instituted in some of the world’s poorest countries. He argued that economic reforms such as fiscal austerity, high interest rates, trade liberalization, privatization, and open capital markets have often been counterproductive for borrower economies and devastating for local populations.
These economic reforms also have been called overly ambitious and intrusive. Finally, some have asserted that IMF interventions can end up increasing poverty, widening economic inequality, and even creating dependency.
Is the IMF Working on Today’s Global Problems?
In addition to implementing an expanded mandate in 2012, the IMF has programs that address the financial and economic aspects of the following international challenges:
- Climate change
- Sovereign debt issues
- Income inequality
- Gender economic equality
- Domestic violence
- Economic effects of automation
- COVID-19 and public health in general
The IMF has also become involved in developments surrounding crypto assets and the growing crypto ecosystem. Many crypto organizations lack strong operational, governance, and risk practices; as crypto assets become more mainstream, the potential implications for the wider economy are likely to increase.