Participating nations in the Bretton Woods talks discussed ways to avoid repeating the disastrous economic policies adopted after World War I, including competitive devaluations, punitive tariffs, and unrealistic war reparation payments, which contributed to the Great Depression of the 1930s. The conference representatives discussed three pillars of economic cooperation, namely monetary cooperation through the IMF, economic development through the International Bank of Reconstruction and Development (IBRD or World Bank), and trade cooperation through the World Trade Organization (WTO). Only the IMF and the World Bank ultimately came into being; the third pillar, the WTO, was postponed for another five decades.
Countries joining the IMF originally agreed to keep their exchange rates pegged to the U.S. dollar, which itself was pegged to gold at a fixed rate. This rate could be adjusted only by multilateral agreement. This system contributed to exchange rate stability for almost three decades; however, it also led to constant political pressure for adjustment in the case of nations that entered the so-called Bretton Woods System either with overvalued currencies (such as the United Kingdom and France) or undervalued currencies (such as West Germany). The Bretton Woods System additionally placed a considerable burden on America to synchronize its domestic economic policies with the goal of exchange rate stability vis-à-vis gold. When the U.S. economy began to flounder due to increasing budget deficits and the Vietnam War, President Richard M. Nixon suspended the convertibility of the U.S. dollar to gold in 1971. The unified world monetary system broke down, allowing states to let their currency float, peg it to another currency, or participate in a currency bloc.
In the beginning, the IMF was aimed mainly at cooperation among industrialized nations, but soon other priorities began to take root. Newly independent states, especially those in Africa, required the IMF to play a new role, focusing on structural assistance and later even poverty reduction, tasks that also increasingly preoccupied the World Bank.
The debt crisis of the 1980s, which affected not only Africa and Latin America but also Hungary, Poland, and Yugoslavia, was resolved by involving the private sector in debt repayment plans as well as imposing economic policy guidelines on member nations. The end of the Cold War witnessed a rise in IMF membership; from 1989 to 1991 alone, membership increased from 152 to 172 countries. In the successor states of the Soviet Union as well as in Eastern Europe, the IMF played an important role in easing the transition to market economies, many of which had been hit by hyperinflation.
The IMF faced other challenges as well, most notably the East Asian crisis of 1997 and the 1998 Russian crisis. Critiques from the Left have often held the IMF responsible for poverty and economic inequality, as it often prescribed austerity programs to counter government overspending and inflation. Rightist critics have charged the IMF with distorting financial markets through large-scale bailouts of both countries and creditors. Be that as it may, the overall track record of the IMF has been a positive one, and the absence of 1930s-style economic chaos in the postwar period speaks to the true efficacy of the IMF.
Bernhard Johannes Seliger
James, Harold, and Marzenna James. "The Origins of the Cold War: Some New Documents." Historical Journal 37(3) (1994): 615–622.; James, Harold. International Monetary Cooperation since Bretton Woods. Washington, DC: IMF and Oxford University Press, 1996.