International Monetary Fund

The International Monetary Fund is an important function that makes world trade
less strenuous. The International Monetary Fund, or IMF as it is called,
provides support and supervision to nations in all stages of economic progress.

International trade is a key element to enable nations, large and small, to
strengthen their economic positions. Larger nations need the international
market to export their goods and services, and smaller nations also need this
world scale market to import products so they are able to produce more
efficiently. In order to achieve these goals, one major component must be in
place. The ability to value other nation\'s currency. Throughout the years, many
different ways have been used to do this, mostly ending in failure. There is no
perfect way to accurately measure the true value of another country\'s currency.

The International Monetary Fund is an effort to see each country\'s economic
position, offer suggestions, and provide the fundamental economic security that
is essential to a thriving (world) economy. Many of the domestic economic goals
are reiterated by the INF on an international level. To understand the current

INF we will investigate the events leading up to its existence. Between 1879 and

1934 major nations used a method of international exchange known as the Gold

Standard. The Gold Standard was simply a fixed-rate system. The rate was fixed
to gold. In order for this system to function properly three things had to
happen. First, each nation had to define its currency to gold (this definition
then could not change). Second, each nation must than maintain a fixed
relationship to its supply of money and its amount of actual gold. Third, the
on-hand gold must be allowed to be exchanged freely between any nations
throughout the world. With all of those policies successfully in place, the
exchange rates of the participating countries would then be fixed to gold,
therefore to each other. To successfully maintain this relationship some
adjustments had to be made from time to time. For example, two countries A and B
are doing international business together and A buys more of B\'s products than B
buys of A\'s. Now B doesn\'t have enough of A\'s currency to pay for the excess
products purchased. B now has what\'s called a balance of payment deficit. In
order to correct for this deficit the following must occur; Actual gold must now
be transferred to A from B. This transfer does two things. First, it reduces B\'s
money supply (a fixed ratio must be maintain between the actual amount of gold,
and the supply of money) hence lowering B\'s spending, aggregate income, and
aggregate employment, ultimately reducing the demand for A\'s products. Second,

A\'s money supply is now increased, raising A\'s spending, aggregate income, and
aggregate employment, ultimately raising the demand for B\'s products. These two
events happen simultaneously stabilizing the exchange rate back to its
equilibrium. The Gold Standard served the world\'s economy very well until one
unfortunate event happened. The Great (worldwide) Depression of the 1930\'s
presented the world with a new set of problems to be dealt with, not only
domestically, but throughout the entire world. The situation was bad, so bad
that nations would do anything to dig themselves out of economic disaster.

Nations now would break the biggest rule of the Gold Standard. Nations started
to redefine the value of there currency to gold. This act of devaluation, as it
was called, disrupted the entire world\'s perception of the relationship of each
country\'s currencies to there own. Bartering systems were tried, however,
eventually the Gold Standard failed. After The Depression international trading
was crippled. A new method of international currency exchange had to be
developed. Many ideas were listened to, but not until 1944 would a new entirely
accepted method be adopted. During this year in Bretton Woods, New Hampshire a
modified adjustable-peg system was formed, in addition to this new innovative
system, the International Monetary Fund was formed. For many years the Bretton

Woods adjustable-peg system worked well. This system became more and more
dependent of the United States currency\'s value. Since from the inception of the

IMF in 1946 the United States government would exchange currency so that one
ounce of gold equaled 35 US dollars. As more and more people found that 1 ounce
of gold for 35 dollars was bargain, the supply of gold and US dollars became
scarce (many people were trading their US dollars for gold). Eventually the
general census of the world did not value 1 ounce of gold to 35 US dollars. The
value of the US dollar was now in question on an