Question

What is the Bretton Woods System? What, in particular are the International Monetary Fund (IMF) and World Bank? 

Answer 1

The Bretton wood system was set up in 1944 for guaranteeing economic stability world over by setting up rules, instructions and institutions that would regulate the global monetary system and framework. This was mainly aimed at by ensuring the stability of the exchange rate. This was done by setting up a system of fixed exchange rate and the US dollar was chosen as the international currency to which other countries exchange rates were pegged. This was done to ensure that the countries don’t adopt abrupt monetary and financial policy framework and the coordinated policy making by the major economies of the world would enhance the economic growth and development worldwide.

The IMF and the world Bank are the two institutions established under the Bretton wood system. The World bank was known as the International Bank for Reconstruction and development (IBRD). The main functions of world bank are:

1. To provide long term loans for development to nations on reasonable terms.
2. To facilitate investment for productive purposes.
3. To promote foreign private investment and provide complementary funds in dearth situation.
4. To promote free international trade.

IMF: IMF is another institution setup under the Bretton woods system. Its main aim to to promote financial stability in the world economy by coordinating cooperation from the member countries. It safeguard the exchange rate system and provide help to countries for balance of payment corrections through loans and assistance. It also guides the member countries on projects and policies that would ensure financial stability and economic growth.

The objectives of IMF are:

1. Financial stability
2. Facilitate free international trade
3. Promote private investment and invests in the member countries to achieve high economic growth and generate high employment.
4. Promote sustainable economic growth that works towards reducing poverty worldwide.