encourage international monetary coop eration, (2) encourage the removal of foreign exchange restric tions, (3) stabilize currency exchange rates, and (4) facil itate multilateral payments between member countries. The second body created by the Bretton Woods Agreement was The International Bank for Reconstruction and Development, also known as The World Bank (Katz, 1990). The World Bank was charged with responsibilities to encourage capital investment for reconstruction and development within member countries, which was to be accomplished by either (1) channelling the required funds from private sources, or (2) making direct loans 3from its own resources (Oliver, 1989). The two institutions were expected to complement one another in their activities.
Initially, member countries were required to adhere to an agreed exchange rate regime, in which fluctuations in the international exchange values of currencies were to be confined within a range of + 1.0 percent of the par value of the curren cies. The par values of currencies were stated in terms of the United States dollar, which, in turn, was linked to a specified gold value.
The system worked relatively well for about two decades. The weakening value of the United States dollar in the late 1960s, however, resulted in a major revision of the currency exchange regime at the Smithsonian Conference in 1971. At this meeting, new par values were established, which had the effect of devaluing the United States dollar by 10.0 percent, and increasing the fluctuation range for foreign exchange to + 2.5 percent.
The crude oil price and supply shocks of the mid 1970s and other economic difficulties experienced by many of the devel oped countries, particularly the United States, soon made it apparent that the new regime would be unworkable. Conse quently, the Second Amendment of the Articles of Agreement was accepted by member nations of the IMF, and became effective in 1978. ...