INTERNATIONAL MONETARY FUND (IMF)

The International Monetary Fund (IMF) was a group of 182 countries that joined together to create a cooperative, stable system for buying and selling each others' currencies; monitoring the global flow of money; and fostering international trade and economic growth. To join the IMF, a country had to agree to contribute an amount of money (based on its economic size) to a general pool of funds. The IMF used this pool of money to make loans to member countries that fell behind in their financial obligations with other IMF countries, or that wanted to restructure their economies. Because it had the world's largest economy, the United States contributed the largest amount ($35 billion in 1998) to the IMF and therefore had the largest vote in how the IMF used its funds. The IMF had no power to enforce how its members spent the money loaned to them, but it could threaten to withhold future loans if a member country failed to live up to its obligations.

The IMF was formed in 1944 as the Allied countries began to write the rules that would govern the economic relationships between the nations after World War II (1939–1945). During the Great Depression (1929–1939) the sudden collapse in economic confidence around the world led many consumers to try to trade in their paper currency for gold. But many countries did not have enough gold on hand to meet this demand and were forced to break the longstanding connection between their currencies and their gold reserves. With some countries hoarding gold and others letting their currencies "float" unattached to gold, it was hard to determine how much one country's currency was worth compared to another's, and international trade suffered. The IMF rectified this situation by requiring that all member countries permit their currencies to be converted freely into other members' currencies, by establishing a definite value for each currency relative to others, and by eliminating policies that discouraged global investment and trade. The value of all world currencies was fixed in terms of the U.S. dollar, with $35 equaling one ounce of gold.

In 1971 President Richard M. Nixon (1969–1974) ended this system of defining the value of the dollar against gold, and the values of world currencies have since been defined more loosely. As a result the IMF maintained much closer supervision of its members' economic policies so exchange rates—the value of one currency relative to another—didn't fluctuate wildly. Although the IMF's main functions were to coordinate the economic policies of its members and to provide technical assistance, training, and consultation, it has been mostly known for the massive loans it made to its members. In 1995 for example, the IMF extended credits of $18 billion to Mexico and $6.2 billion to Russia to help them survive economic crises.