Page 443 - Encyclopedia of Business and Finance

eobf_I 7/5/06 3:04 PM Page 420

International Monetary Fund

Economists and IMF founders John Maynard Keynes (left) and Harry D. White (right) March 1, 1946. THOMAS D. MCAVOY/TIME
LIFE PICTURES/GETTY IMAGES

To promote international monetary consultation, each country’s currency in relation to gold or indirectly in
cooperation, and collaboration relation to gold by relating their currency to the U.S. dol-
To facilitate the expansion and balanced growth of lar. The United States in turn guaranteed that the dollar
international trade could be exchanged for gold at a fixed exchange rate. The
To promote exchange stability United States, however, ultimately could not maintain the
To assist in the establishment of a multilateral sys- dollar’s promised convertibility, ending it in 1971, in large
tem of payments part because of inflation and a subsequent run on the U.S.
To make its general resources temporarily available gold reserve. The fixed-exchange-rate system collapsed.
to its members experiencing balance of payments This led to a managed flexible-exchange-rate system with
difficulties under adequate safeguards agreement among major countries that they would try to
To shorten the duration and lessen the degree of dis- coordinate exchange rates based on price indexes. How-
equilibrium in the international balances of pay- ever, without operational criteria for managing currency
ments of members
relationships, exchange rates have been increasingly deter-
The Bretton Woods agreement created fixed mined by volatile international capital movements rather
exchange rates between countries based on the value of than by trade relationships.

420 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION