RutgersModelUnitedNations 3 these issues while maintaining the level of economic support necessary for these countries to become economically viable. Chronology 1944: Bretton Woods Conference The Bretton Woods Conference was held in 1944 in Bretton Woods, New Hampshire. All forty-four members of the Allied Nations attended the conference, which aimed to establish a stable world economy after the destruction of the Second World War. This conference set up funds for the stabilization of global currencies, the IMF; and a reconstruction bank, the International Bank for Reconstruction and Development (IBRD), which later becomes a part of the World Bank. 1 These two institutions are now the largest international lending institutions in the world, and work with the UnitedNations, but the largest stakes in these organizations belong to the United States and Western European states. The Unites States and Western Europe established the funds, and these countries had a considerable amount of input as to the operations of these two international financial institutions. Therefore, the focus of the IMF was global financial stability, and the regulation of exchange rates came down to an international regulatory body such as the IMF because the countries who established the Bretton Woods System of financial management were the countries that had been most deeply impacted by the worldwide economic depression of the 1930s. This depression had been caused in part by Germany printing more money to pay off reparations imposed upon them by the Treaty of Versailles. The Bretton Woods attendees realized that in an emerging world economy, currencies must remain consistent relative to each other in order to fairly pay all debts. The IMF’s primary function, therefore, was to make currency stabilization loans to 1 Devesh Kapur and Moises Naim, The IMF and Democratic Governance, Journal of Democracy. 16.1 2005.
RutgersModelUnitedNations 4 countries that were having trouble keeping their exchange rates in line with the global standards. The IBRD, which later fell under the World Bank umbrella organization, was charged with improving conditions with redevelopment loans in specific countries, as opposed to the IMF’s more global-oriented focus. The IBRD was responsible for the reconstruction of Europe, East Asia, and the Pacific Islands, which had been devastated by World War II. The World Bank, which quickly came to bring the IBRD and several similar institutions together as one group, remained focused on this sort of development. The World Bank was charged with using its funds for specific economic development projects, 90 per cent going out as loans and 10 per cent being distributed as grants. 2 1965: IMF Gives Currency Stabilization Loan to Great Britain In 1965, Great Britain took a currency stabilization loan from the IMF, sacrificing some financial sovereignty but overall benefiting from the loan because the money aided the British in keeping the pound steady and covering the temporary imbalance of trade. Great Britain took the loan not because of overall financial insolvency, but to give itself time to address economic difficulties. This is a classic example of the IMF’s original role in this time period. 3 The IMF operated here solely in its original capacity, regulating international currencies and preventing major fluctuations in currency rates. In this time, the IMF lent frequently to developed countries for short term currency stabilization, and their policies sought to keep currencies within one per cent of their pegged values. The job of the IMF was primarily a regulatory one from the start, and this incident is indicative of that role in the global marketplace. 4 Accessed through Acadmic Search Premier, 2 The World Bank, Grants, Date Accessed 4/20/08, 3 CLYDE H. FARNSWORTH, New York Times, May 13, 1965, < http://select.nytimes.com/gst/abstract.html?res=FB0A1FFE3D5F147A93C1A8178ED85F418685F9> 4 Norman S. Fieleke, The International Monetary Fund 50 years after Bretton Wood, New England Economic Review, 00284726, Sep/Oct94, Academic Search Premier.