uring the period of the Second World War, the Bretton Woods Agreement of 1944 created the IMF. The institution became a reality in December 1945, when the thirtieth nation signed the Agreement. Actual financial operations were commenced by the IMF in early-1947 (Driscoll, 1994).
The Bretton Woods Agreement actually created two international financial institutions. The first was the IMF, an organization charged with responsibilities to encourage international monetary cooperation and the removal of foreign exchange restrictions, stabilize of currency exchange rates, and facilitate multilateral payments between member countries (Heller, 1993). The second institution created was The International Bank for Reconstruction and Development, more commonly known as The World Bank. The World Bank's mandate is to encourage capital investment for development within member countries, and is to be accomplished by either channeling the required funds from private sources, or by making direct loans from its own resources (Oliver, 1989). The two institutions are expected to complement one another in their activities.
Initially, member countries of the IMF 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 currencies. The par values of currencies were stated in terms of the United States dollar, which, in turn, was linked to a specified gold value (Heller, 1993).
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 exch...