International Monetary Fund and World Bank

Francis J. Gavin

If the success of institutions were judged by the breadth and passion of their critics, then both the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank) would count among the most effective multilateral organizations in the world. Beginning in the late 1990s it became an annual ritual for tens of thousands of anti-globalization protesters to descend upon Washington, D.C., in late September to disrupt their annual meetings. But the left has had no monopoly on criticism of the IMF and World Bank. Republican U.S. congressmen and free-market economists have long derided both entities as misguided and even corrupt. Furthermore, these protests were nothing new: both the left and the right in the United States vehemently objected to the Bretton Woods agreements that created the IMF and World Bank near the end of World War II.

Do the arguments made against the Bretton Woods institutions, both now and in the past, have any merit? And why do these multilateral institutions, created for the noble goals of preventing international monetary turmoil and alleviating global poverty, incite such heated responses, both in the United States and abroad? Finally, are the IMF and World Bank simply tools of American foreign policy, as is often claimed? At first glance these criticisms are puzzling, especially since protesters have vastly overestimated the power and effect these institutions have had on the world economy. The second half of the twentieth century witnessed tremendous changes in all parts of the domestic and global economy, including in those areas that are the responsibility of the two Bretton Woods institutions: international monetary relations and economic development. But a strong case could be made that other forces—the Cold War, macroeconomic reform, technology, the massive increase in capital and trade flows—were far more crucial to unleashing and sustaining these changes than either the IMF or the World Bank.

In fact, in order to understand the influence and development of these organizations during their first few decades, it is more useful to talk about a "Bretton Woods system" rather than dissecting the specific institutional histories of the IMF and World Bank. The agencies themselves were both anemic and ineffective during their early years. For example, the World Bank was established in order to aid postwar European reconstruction but was quickly supplanted when the United States established the European Recovery Plan and the Marshall Plan. Only later did it embrace the mission of funding development, infrastructure, and anti-poverty programs in the underdeveloped countries of the world. The IMF was similarly pushed to the side during its early years, as bilateral negotiations, currency blocs (like those for sterling and the franc), or Marshall Plan institutions such as the European Payments Union drove postwar international monetary relations.

Still, while the IMF and World Bank were moribund for some time, and are not particularly influential in the early twenty-first century, the Bretton Woods agreements did set down certain "rules of the game" that, if not always enforced by the IMF and World Bank, certainly have animated much of the spirit of international economic activity since World War II. Furthermore, in spite of their weaknesses, it is important to remember that at the time of their inception, the idea of creating such multilateral economic institutions was truly revolutionary. The logic behind these organizations and their mission emerged from a powerful if sometimes flawed causal and historical logic. After the economic collapse of the 1930s and destructive war of the 1940s, the conventional wisdom held that unfettered capitalism was unstable, prone to crisis, and unfair in its international distribution of wealth. Just as the U.S. federal government intervened in the domestic economy through the New Deal to eliminate the extremes of market capitalism while maintaining the benefits, so too were the newly formed global organizations formed to regulate, but not stifle, the global economy.

Depression and war had ushered in a profound shift in the relationship between governments, national economies, and the global economic order by the time representatives of forty-four nations met at Bretton Woods, New Hampshire, in July 1944. Before World War I, international monetary relations were not considered the province of national governments. Rarely did any entity intervene in foreign exchange markets, and when one did, it was nongovernmental banks such as the House of Morgan or the still private Bank of England. There were several attempts at monetary cooperation and collaboration among international private bankers during the late nineteenth century, but it was sporadic. And while the idea of providing aid to rebuild the devastated, war-torn economies had been considered after World War I, the notion of a permanent international bank to guide global efforts to increase living standards and eliminate global poverty was truly remarkable.

One criticism is, however, quite justified. Both the World Bank and especially the IMF have often been tools for U.S. foreign policy and foreign economic goals. Part of this has to do with the nature of constituent power within these organizations. Unlike the United Nations, where each state has an equal vote, representation within the Bretton Woods institutions is established by the size of the financial contribution. Since the United States is by far the largest contributor, it has the principal voice in determining the policies and procedures of both institutions. Furthermore, the United States is able to pressure many of the other large contributors, like Japan, Germany, Saudi Arabia, and Kuwait, into following their policy preferences.

In fact, it is fair to say that America has dominated both of these institutions since their founding. To give just a few examples: in the 1940s, it was the United States bypassing these institutions through the Marshall Plan and regional aid schemes. In the 1950s and 1960s, the United States used the IMF to bail out sterling, the currency of its close ally Great Britain, and the World Bank to promote its modernization schemes. During the 1990s the relationship between the IMF and the Clinton administration's Treasury Department was downright incestuous, as both institutions forged the now controversial "Washington consensus" in its aid and economic reform packages. Rarely has either Bretton Woods institution pursued policies at odds with U.S. foreign policy goals.


Argy, Victor. The Postwar International Money Crisis: An Analysis. London, 1981.

Aronson, Jonathan David. Money and Power: Banks and the World Monetary System. London and Beverly Hills, Calif., 1977.

Block, Fred L. The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present. Berkeley, Calif., 1977.

Bordo, Michael D., and Barry Eichengreen, eds. A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform. Chicago, 1993.

Brown, Brendan. The Flight of International Capital: A Contemporary History. London and New York, 1987.

Caincross, Alec, and Barry Eichengreen. Sterling in Decline: The Devaluations of 1931, 1949, and 1967. Oxford, 1983.

Calleo, David P. The Imperious Economy. Cambridge, Mass., 1982.

Cassis, Youssef. Finance and Financiers in European History, 1880–1960. Cambridge and New York, 1992.

Cohen, Benjamin J. Organizing the World's Money: The Political Economy of International Monetary Relations. New York, 1977.

Cooper, Richard N. The International Monetary System: Essays in World Economics. Cambridge, Mass., 1987.

Corden, W. M. Inflation, Exchange Rates and the World Economy: Lectures on International Monetary Economics. 3d ed. Chicago, 1986.

De Grauwe, Paul. International Money: Post-War Trends and Theories. Oxford and New York, 1989.

De Vries, Margaret Garritsen. The International Monetary Fund 1966–1971: The System Under Stress. Vols. 1–2. Washington, D.C., 1976.

——. Balance of Payments Adjustment 1945 to 1986: The IMF Experience. Washington, D.C., 1987.

Dormael, Armand van. Bretton Woods: Birth of a Monetary System. New York, 1978.

Eckes, Alfred E. A Search for Solvency: Bretton Woods and the International Monetary System, 1941–1971. Austin, Tex., 1975.

Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. New York, 1992.

——. International Monetary Arrangements for the 21st Century. Washington, D.C., 1994.

Fischer, Stanley. "Stability and Exchange Rate Systems in a Monetarist Model of the Balance of Payments." In Robert Z. Aliber, ed. The Political Economy of Monetary Reform. London and Montclair, N.J., 1977.

Friedman, Milton. "The Case for Flexible Exchange Rates." In his Essays in Positive Economics. Chicago, 1953.

——. Money Mischief: Episodes in Monetary History. New York, 1992.

Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States: 1867–1960. Princeton, N.J., 1963.

Gallarotti, Giulio. The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880–1914. New York, 1995.

Gardner, Richard N. Sterling-Dollar Diplomacy: The Origins and the Prospects of Our International Economic Order. New ed. New York, 1980.

Gavin, Francis J. "The Legends of Bretton Woods." Orbis (spring 1996).

Gilbert, Martin. Quest for World Monetary Order: The Gold-Dollar System and Its Aftermath. New York, 1980.

Gilpin, Robert. The Political Economy of International Relations. Princeton, N.J., 1987.

Gowa, Joanne. Closing the Gold Window: Domestic Politics and the End of Bretton Woods. Ithaca, N.Y., 1983.

Hogan, Michael. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947–1952. Cambridge and New York, 1987.

Horsefield, J. Keith, ed. The International Monetary Fund, 1945–1965: Twenty Years of International Monetary Cooperation. Washington, D.C, 1969.

Ikenberry, John G. "A World Economy Restored: Expert Consensus and the Anglo-American Postwar Settlement." International Organizations 46 (winter 1992).

James, Harold. International Monetary Cooperation Since Bretton Woods. New York, 1996.

Johnson, H. G. "Theoretical Problems of the International Monetary System." In Richard N. Cooper, ed. International Finance . Baltimore, 1969.

Kaplan, Jacob J., and Günter Schleiminger. The European Payments Union: Financial Diplomacy in the 1950s. Oxford and New York, 1989.

Kapur, Devesh, John P. Lewis, and Richard Webb. The World Bank: Its First Half Century. Washington, D.C., 1997.

Kelly, Janet. "International Monetary Systems and National Security." In Klaus Knorr and Frank N. Trager, eds. Economic Issues and National Security. Lawrence, Kans., 1977.

Kenen, Peter B., Francesco Papadia, and Fabrizio Saccomanni, eds. The International Monetary System. Cambridge and New York, 1994.

Keohane, Robert O. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton, N.J., 1984.

Keynes, John M. The Collected Writings of John Maynard Keynes. Vol. 25. Edited by Donald Moggridge. London and New York, 1980.

Kindleberger, Charles. A Financial History of Western Europe. 2d ed. Oxford and New York, 1993.

Kirshner, Jonathan. Currency and Coercion: The Political Economy of International Monetary Power. Princeton, N.J., 1995.

Kunz, Diane. Butter and Guns: America's Cold War Economic Diplomacy. New York, 1997.

Maier, Charles. "The Two Postwar Eras and the Conditions for Stability in Twentieth-Century Western Europe." American Historical Review 86 (April 1981).

Mason, Edward, and Robert E. Asher. The World Bank Since Bretton Woods. Washington, D.C., 1973.

Meier, Gerald M. The Problems of a World Monetary Order. 2d ed. Oxford and New York, 1982.

Milward, Alan S. The Reconstruction of Western Europe, 1945–1951. London and Berkeley, Calif., 1984.

Newton, Scott. "The Sterling Crisis of 1947 and the British Response to the Marshall Plan." Economic History Review 37 (August 1984).

——. "The 1949 Sterling Crisis and British Policy Toward European Integration." Review of International Studies 11 (July 1985).

Odell, John S. U.S. International Monetary Policy: Markets, Power, and Ideas as Sources of Change. Princeton, N.J., 1982.

Pollard, Robert A. Economic Security and the Origins of the Cold War, 1945–1950. New York, 1985.

Rueff, Jacques. Balance of Payments: Proposals for Resolving the Most Pressing World Economic Problem of Our Time. New York, 1967.

Salda, Anne C. M. Historical Dictionary of the World Bank. Lanham, Md., 1997.

Shelton, Judy. Money Meltdown: Restoring Order to the Global Currency System. New York, 1994.

Solomon, Robert. The International Monetary System, 1945–1976: An Insider's View. New York, 1977.

Stern, Robert M. The Balance of Payments: Theory and Economic Policy. Chicago, 1973.

Strange, Susan. Sterling and British Policy: A Political Study of an International Currency in Decline. New York, 1971.

——. International Economic Relations of the Western World: 1959–1971. Vol. 2. London and New York, 1976.

Temin, Peter. Lessons from the Great Depression. Cambridge, Mass., 1989.

Tew, Brian. The Evolution of the International Monetary System, 1945–1988. 4th ed. London, 1988.

Triffin, Robert. Gold and the Dollar Crisis. New Haven, Conn., 1960.

Wee, Herman van der. Prosperity and Upheaval: The World Economy During 1945–80. New York, 1985.

See also Balance of Power ; Economic Policy and Theory ; Foreign Aid ; International Organization ; Post–Cold War Policy .

User Contributions:

Comment about this article, ask questions, or add new information about this topic:


International Monetary Fund and World Bank forum