PART 1 Attaining initial objectives
- Margaret De Vries
- Published Date:
- June 1986
As a relatively young institution, it [the Fund] has been faced again and again with fresh problems; and it has had to solve, and will have to solve, such problems as they come along—solvitur ambulando, as the Latin tag goes.
Per Jacobsson, addressing the Board of Governors, in Washington, September 28, 1959
The International Monetary Fund was designed at a conference held in Bretton Woods, New Hampshire, U.S.A., July 1944 when representatives of 45 governments agreed on Articles of Agreement for the new international organization. On December 27, 1945 when 29 countries signed these Articles, the Fund came into existence.
The Fund’s six purposes involved, in brief, the achievement and maintenance of exchange rate stability, freedom from exchange restrictions, and convertibility of currencies. A member was required to establish a par value for its currency in terms of gold, which it could change only with the approval of the Fund, to accept certain rules limiting its exchange restrictions and similar practices, and to establish and maintain a multilateral system of payments.
In May 1946, when the first Executive Board meeting was held, international trade and finance were very restricted. Only the United States, Canada, Mexico, and a few other members were able to assume their full obligations. Although most original members agreed to par values at the end of 1946, some did not, and others had multiple rate systems which made their par values more or less nominal. Within a few years, several members gave up conducting transactions at exchange rates based on their par values and adopted fluctuating exchange rates.
By the mid-1960s, these deviations from the par value system had come to an end and most restrictions on international payments had been lifted. Although problems persisted in the international monetary system and new ones were on the horizon, considerable progress toward the Fund’s initial objectives had been made. Exchange rates, exchange arrangements, exchange restrictions, and currency convertibility, all afforded many favorable contrasts with those prevailing when the Fund began.
The attainment of the initial objectives in the Fund’s first twenty years is the story told in the seven articles of Part One. The first describes the Bretton Woods Conference; the second lists and explains the initial objectives. How members eventually reduced their multiple rates is related in the third, and how they increasingly freed their payments from exchange restrictions and made their currencies convertible, in the fourth. The fifth article relates how most members gradually came to adhere to the par value system, and the sixth describes the Fund’s policies toward fluctuating exchange rates while the par value system was in operation. The last article describes the extent to which members devalued their exchange rates from 1948 to 1967. The Chronology at the end lists the main developments from July 1, 1944 to December 31, 1965.