What is the IMF and Why Does it Matter?

I was recently asked questions about what the IMF is and what debts do we the US owe to the IMF? I share my reply here:

To explain the International Monetary Fund (IMF), it is helpful to understand its beginnings. The IMF was established, as well as the World Bank, during one of the most important set of meetings in world history: those in Bretton Woods by 44 nations in 1944.  Those two organizations have different functions, but both serve towards the common goals central to those meetings of fostering stability in exchange rates and in the global economy.  Though the framework of currency exchange stemming from Bretton Woods has long since collapsed, these organizations remain with us today.

Coming out of World War II, these 44 powers knew they were in a different world.  A world that was going to be more linked with one another and therefore benefit from greater levels of coordination. Keep in mind the time frame where, in addition to going through a major World War, the nations were also exiting a decade where they learned the devastation that can come from isolation and halting trade from one another.

From a practical perspective, the IMF is funded by member countries (now 189 strong) who contribute to the fund and receive Special Drawing Rights (SDR) – which are a quasi-currency.  As of March 2019, the IMF’s total resources are about SDR 975 (about $1 trillion). The fund is there to assist countries who essentially are in crisis and make low interest loans to the poorest of countries. Besides their role in fostering stability in global exchange, they have the duty of helping to coordinate policy among member nations.  That may sound a bit like herding cats, and it is. But in times of extreme stress like we have seen recently, the $1T of firepower can provide some comfort against thoughts of the worst of the worse outcomes.

So, the US doesn’t owe the IMF money from a debtor’s standpoint, instead we contribute our portion based on quota formulas to keep the fund alive and kicking. If the topic interests you, I highly recommend “The Battle of Bretton Woods” by Benn Steil.  It is a fascinating (to a money nerd) read that pulls heavily on personal narratives of the central characters behind the scenes of the meetings and is crucial to understanding the US & Britain’s respective roles in the world ever since.

Sources:
IMF.ORG
Brettonwoodsproject.org

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Due to health and safety concerns for our families, friends and our team, we have made the difficult decision to temporarily close our offices in Lafayette, Brownsburg, Indianapolis and Anderson until January 4, 2021. Our team will remain available to you by phone and email to continue to offer you assistance with your service requests. Please do not hesitate to contact us with any questions you may have.

Questions? Give us a call at 1-800-928-4001.