Global Financing and the Exchange Rate Mechanisms xxxxxxxx MGT/448
February 15th, 2012 xxxx Global Financing and the Exchange Rate Mechanisms During the height of World War Two representatives from 44 countries met in New Hampshire to design a new monetary system to replace the collapsed Gold Standard system. The agreement reached established two multinational institutions the International Monetary Fund (IMF) and the World Bank. The IMF job would be to maintain order in the international monetary system, the World Bank job would be to promote general economic development. The agreement called for a system of fixed exchange rates that would be enforced by the IMF. The IMF was the main custodian; it would try to avoid a repetition of the past through a combination of discipline and flexibility. Discipline the need to maintain a fixed exchange rate, slow down competitive devaluation, and bring stability to the world trade environment. The IMF enforces a fixed exchange rate and imposes monetary discipline on countries, thereby curtailing price inflation. The IMF stood ready to lend foreign currencies to members to get them over short periods of payment deficits. A pool of gold and currencies were contributed by IMF members to provide the resources for lending. Countries were allowed to borrow from the IMF without adhering to a specific agreement. Countries the borrowed heavily would have to agree to increasingly stringent IMF supervision of its macroeconomic policies, agree to monetary and fiscal conditions which included IMF mandated targets on domestic money supply growth exchange rate policies, tax policy and government spending. The IMF would eventually become deeply imbedded in borrowing countries politics, government and economic health. Countries that require extensive help from the IMF would eventually become an IMF puppet.