Unfiltered

Explainer – The International Monetary Fund (IMF) & The World Bank

If you’re confused by the difference between the International Monetary Fund, the IMF, and the World Bank, you’re not the only one. Economist John Maynard Keynes, who was a founding father of both institutions, said that he was confused just by their names.

The IMF and World Bank are closely linked. So close that their headquarters are across the street from each other in Washington. So what’s the difference between them?

It all started at Mount Washington hotel in New Hampshire in July 1944, where 44 countries gathered for the Bretton Woods Conference. The goal of the conference was to agree on a new framework for the international monetary system, which is the rules and institutions that keep the global economy running smoothly.

After World War II, most people agreed that the old system had failed. It had seen the Great Depression, unfair trade policies and unstable currencies. After three weeks of heated negotiations at Bretton Woods, especially between Keynes who was representing the United Kingdom and Harry Dexter White, the U.S. Treasury representative, a deal was reached.

The agreement created the IMF and the International Bank for Reconstruction and Development, soon to be known as the World Bank. Each institution was given a distinct role. The IMF’s job was to oversee a system of fixed exchange rates, which tied the value of a country’s currency to the U.S. dollar, which was pegged to gold. The main purpose of this was to make sure exchange rates stayed stable to encourage global trade. The IMF was also tasked with providing short-term loans to countries struggling to pay their debts.

Meanwhile, the main goal of the World Bank was to give financial assistance to countries, mainly in Europe, that needed to rebuild after the war.

The roles of both the IMF and the World Bank have changed a lot since the days of Bretton Woods. President Nixon unpegged the U.S. dollar from gold in 1971, essentially dissolving the fixed exchange rate system that the IMF oversaw.

Since then the IMF has taken on a bigger role fighting financial crises around the world. It keeps tabs on the global economy and puts economic policies in place in member countries.

The World Bank focuses its efforts on development and reducing poverty. It provides funding and resources in projects in some of the poorest countries in the world.

Both institutions include 189 member countries but the IMF has around 2,700 employees, compared to the World Bank’s staff of 10,000. The IMF is funded mainly by quotas, basically subscription fees, from member countries. It receives about $675 billion in quotas, with the U.S., Japan, China and Germany contributing the most.

The World Bank is financed mostly by issuing bonds to global investors. The group’s lending commitments reached nearly $59 billion in fiscal year 2017.

The IMF has committed $160 billion under its current lending arrangements. Today the IMF’s biggest borrowers include Greece, Ukraine, Portugal and Pakistan.

The places where the World Bank is running the most projects are in Africa and East Asia.

One thing the IMF and World Bank have in common is that they both have some opponents. Critics point to the conditions attached to their loans, saying they don’t always address the specific economic issues within a country.

The IMF has come under fire for continuing to bail out Greece even as the country has failed to clean up its finances.

Human rights groups have criticized the World Bank for ignoring the environmental and social impacts of some of its projects in countries like Ethiopia or Myanmar.

But the IMF and World Bank say they promote global economic stability, they make countries less vulnerable to crises, promote higher living standards and provide vital help to countries that need it.

Collins Valentin

Collins is a blockchain enthusiast, who spends his time between documenting the blockchain revolution in Africa, and writing the latest on the cryptocurrency space. Collins contributes guests posts to BlockPublisher. Email: editor.news@blockpublisher.com

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