The IMF and World Bank: a truly gruesome twosome

The International Monetary Fund and the World Bank, set up in 1944, now look sclerotic and ineffectual, says Jonathan Compton.

Pakistani soldiers on camels © AFP via Getty Images
Pakistan has borrowed from the IMF 22 times since 1958 © Getty
(Image credit: Pakistani soldiers on camels © AFP via Getty Images)

In July 1944 America and the UK spearheaded an attempt to agree a series of rules for the post-war global monetary system. The United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, brimmed with good ideas for a better world. The best of them was to make the US dollar the de-facto world currency. All others were then pegged to the dollar at a fixed rate while the greenback in turn was linked to gold at $35 per ounce. Member governments could demand that their dollars be converted into gold in certain circumstances.

In the context of the time it was a brilliant plan, ushering in a period of relative exchange-rate stability. Unfortunately it eventually came unstuck: huge increases in US expenditure, on the Vietnam War and various welfare projects, destabilised the dollar. The agreement was suspended and then collapsed between 1971 and 1973. The dollar standard designed at Bretton Woods ushered in a Cinderella moment for the global economy. Unfortunately, the conference also produced Cinderella’s two ugly sisters: the International Monetary Fund and the World Bank.

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Jonathan Compton was MD at Bedlam Asset Management and has spent 30 years in fund management, stockbroking and corporate finance.