Money, Power and War: The Origins of the IMF

Background

The year 1944 saw the beginning of the end of the Second World War. With the Soviets steadily pushing their offensive towards Germany and the success of the Normandy Landings on D-Day, Allied leaders began discussing the post-war world. Aside from denazification and territorial changes, one of the key concerns was that of economic stability. 

 

There were two main concerns. Firstly, many countries, particularly in Europe, would be left devastated by the war. Bombing campaigns and battles had destroyed residential, industrial and agricultural lands. In France alone, industrial output had dropped by 60% by 1944. [1] Population displacements also threw domestic economies into chaos. In Poland, for example, over 1.7 million Poles were expelled during the Nazi occupation, and a further half a million sent to Siberia by the Soviet Union.[2] When combined with returning soldiers and liberated concentration camp survivors, these massive population shifts spelled a slow and complicated post-war economic recovery.

 

The other concern lay with the pre-WWII economic system. Economic complications in the interwar period, such as leaving the gold standard and the Great Depression, were one of the major factors in the outbreak of WWII. In particular, there were concerns over how to handle a post-war Germany. In the aftermath of the previous world war, the Treaty of Versailles and the imposed reparations on Germany had destroyed the German economy. The Allied leaders thus hoped to establish a system that would foster international economic cooperation whilst “ensuring domestic policy autonomy for high employment and real income.”[3] 

 

The earliest forms of this economic plan took place in the early stages of WWII. British Treasury representative John Maynard Keynes and United States Treasury Department official Harry Dexter White separately developed visions of the postwar financial order. The former proposed an International Clearing Union (ICU), which would include a global bank responsible for the clearance of trade between nations. Keynes also proposed an international currency, the bancor, which would have a fixed exchange rate with national currencies. In Keynes’ vision, not only would the bancor be used in international trade, but both gold and national currencies would be strictly limited to domestic trade and movement.[4] However, it was White’s vision that would shape the IMF and post-war trade.

 

On May 25, 1944, following negotiations between the United States and the United Kingdom, as well as consultation with some other Allied countries, the US government invited all Allied countries to an international monetary conference “for the purpose of formulating definite proposals for an International Monetary Fund”.[5]

 

Origin and Creation

From July 1 to 22, 1944, the Bretton Woods Conference was held at the Mount Washington Hotel in Bretton Woods, New Hampshire, US. Formally known as the United Nations Monetary and Financial Conference, 730 delegates from all 44 allied nations gathered to create and regulate the post-war international financial order. The conference was dominated by White, the senior American official.[6] As the representative of the US, the undisputed economic superpower at Bretton Woods, White orchestrated much of the agreements at the conference. Many of Keynes’ ideas were rejected in favor of White’s vision, most notably his proposal of the ICU and the bancor system. White reportedly stated that, “We have been perfectly adamant on that point. We have taken the position of absolutely no."[7] Instead, White proposed the International Stabilization Fund, which lacked the limit on surplus accumulation and placed the burden of the balance of trade on the deficit nations. 

 

The delegates reached two main agreements: the creation of the IMF, which would promote stability of exchange rates and financial flows, and the creation of the IBRD, which was intended to facilitate a speedy postwar economic recovery and development, particularly through building infrastructure.[8] The IMF was given an initial funding of 8.8 billion dollars to lend to member states.[9] The foreign exchange market was also pegged to the gold and member states pledged to make their national currencies convertible.

 

On the 27th of December, 1945, 29 countries ratified the Articles of Agreements presented at the conference, formally bringing the IMF into existence. The IMF began its financial operations on 1 March 1947, and two months later France became the first country to borrow funds.[10]

 

System

The IMF was intended as an agency to oversee the Bretton Woods system. Said system established the rules for commercial relations among member states, requiring currency convertibility with the U.S. dollar and convertibility of the US dollar to gold bullion for central banks.[11] The IMF itself would “monitor exchange rates and lend reserve currencies to countries with balance of payments deficits.”[12] Aside from oversight and coordination, the IMF acted as a last resort for countries facing a balance of payments crisis. Any member country could apply for a loan to repay debt, with the loan being taken from funds backed by capital contributions by all member states. Furthermore, member countries are privy to information on the economic policies of all other member states, providing the opportunity for negotiation and influence. This access to communication and information also allows for technical assistance in banking, fiscal affairs and exchange, as well as opportunities for trade and investment.[13]

 

Additionally, the IMF and the IBRD were closely intertwined from the start. Membership into the IBRD, which allows for access to post-war economic aid and reconstruction, is conditioned on membership into the IMF. In both institutions, voting is determined through formulas that gave greater weight to countries that contributed more capital.[14] As such, the US, Japan and China are the three countries with the largest voting powers, with the US alone claiming 16.5% of the total vote.[15] 

 

Changes and Evolution

Throughout its history, the IMF has undergone many changes. In the immediate aftermath of WWII, the IMF’s influence grew rapidly. Membership expanded throughout the 1950s and 60s, though this was somewhat limited by the Soviet Union’s refusal to join due to the influence of the US dollar.[16] 

 

The Bretton Woods system set in place largely prevailed until the 1970s. As a result of rapid US inflation brought about by the Vietnam War, the gold standard was seen as unsustainable. The subsequent Nixon shock, in which US president Richard Nixon, among other policies, cancelled the convertibility of the US dollar into gold.[17] The end of the dollar-gold convertibility and coinciding increases in the dollar supply led to the abandonment of the Bretton Woods system. The 1976 Jamaica Accords changed the articles of agreement to allow the price of gold to float with respect to the US dollar, as well as making provisions for financial assistance to select developing countries.[18]

 

In the 1980s, partially as a response to US pressure, the focus of the IMF widened from simply currency stabilization to promoting market-liberalizing reforms. Since then, the IMF has carried out structural adjustment programs (SAPs). These programs are provided to countries that experience economic crises, adjusting economic structures, improving international competitiveness and restoring a balance of payments.[19] Whilst these programs have the advantage of a long loan life, loose conditions and low interest rates, they have also faced fierce criticism. One of the major sources of criticism is the practice of austerity. In sub-Saharan Africa, for instance, SAPs implemented have often had disproportionate cuts to social spending.[20] These austerity policies often primarily affect vulnerable communities, leading to increased social and political unrest. 

 

Political Influence

Another controversial aspect of the IMF is its political power. Activist Titus Alexander has referred to the IMF as a “pillar of global apartheid”.[21] Firstly, the IMF’s policy of conditionality can arguably undermine domestic political institutions, as governments lose policy autonomy in order to secure necessary loans and funds. When combined with austerity programs, this can create domestic unrest towards local leadership.[22] Some have also pointed to the IMF’s focus on internal governance issues and government overspending, arguing that this approach oversimplifies complex economic crises and overlooks external factors.[23] 

 

Aside from conditionality, the IMF also has a long history of involvement with dictatorial governments. The initial Bretton Woods system coincided with the Cold War, and as a result of US-Soviet tensions, supported various military dictatorships friendly to US and European corporations as a proxy for Cold War economic rivalry. Additionally, the IMF has provided loans and aid to states with records of human rights abuses. For example, the IMF maintained an ongoing support for the Mobutu regime in Zaire, despite an internal report in 1982 by an IMF envoy that documented a “corruptive system…[that] will destroy all endeavors of international institutions, of friendly governments, and of the commercial banks towards recovery and rehabilitation of Zaire’s economy.”[24] Much of the IMF loans were embezzled by Mobutu’s government whilst the implementation of SAPs cut support for healthcare, education and infrastructure.

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Conclusion

As of October 2025, the IMF’s outstanding credit stands at $162 billion dollars, a fraction of its total lending capacity of $1 trillion, yet this is the highest recorded debt in the organization’s history.[25] Of the 86 countries that owe debt to the IMF, Argentina, Ukraine and Egypt have the largest sum. 

 

Although the IMF was created to facilitate post-war recovery and prevent future economic crises, its effectiveness and legacy is controversial. The organization has provided much needed financial relief to countries in dire situations, and its resources and ability to do so would certainly be difficult to replace. However, the conditions of IMF aid and its austerity programs have at times done more harm than good. One must also question the possibility of internal reform when voting powers largely rest in the hands of a select few elite nations.

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Glossary

Interwar period: 1 November 1918 to 1 September 1939 – from the end of World War I to the beginning of World War II

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Gold standard: A monetary system in which the standard economic unit of account is defined by a fixed quantity of gold

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Clearance of trade: What comes immediately after a trade. All the terms of the deal are double checked, reconciled, and confirmed.

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Surplus accumulation: The retention of excess profits, revenue, or resources that remain after all expenses, liabilities, and immediate needs have been met

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Deficit nations: Nations where the amount of imports exceed the amount of exports

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Pegged to the gold: The international exchange rate is fixed to the value of gold

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Convertible: The nation’s currency can be exchanged freely in foreign markets without needing special government authorization

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Float: A floating currency/gold standard means that its value is subject to change and depends on market supply and demand, rather than being fixed by the government

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Outstanding Credit: The amount of money currently owed to a third party

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Citations

[1] "The Economic Impact of WWII on Europe: Key Effects & Legacy," D-Day Center, last modified December 14, 2025, https://www.dday.center/the-economic-impact-of-wwii-on-europe/. 

[2] Antony R. Kushner and Katharine Knox, Refugees in an Age of Genocide: Global, National, and Local Perspectives During the Twentieth Century (London: Psychology Press, 1999), 219. 

[3] John Eatwell, ed., The New Palgrave Dictionary of Economics (Palgrave Macmillan, 2008), 544-546.

[4] "INTERNATIONAL CLEARING UNION. (Hansard, 18 May 1943)," accessed May 22, 2026, https://api.parliament.uk/historic-hansard/lords/1943/may/18/international-clearing-union.  

[5] Monetary A. Conference, Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1-22, 1944, (FEDERAL RESERVE BANK of ST. LOUIS, 2013), https://fraser.stlouisfed.org/title/proceedings-documents-united-nations-monetary-financial-conference-bretton-woods-new-hampshire-july-1-22-1944-430/volume-i-7570?page=12.

[6], [7] Donald Markwell, John Maynard Keynes and International Relations: Economic Paths to War and Peace (Oxford: OUP Oxford, 2006).

[8], [11], [17], [18], [23] Lillian Karabaic and Michael Kincaid, "Background Briefing: International Monetary Fund," Reed College, accessed May 22, 2026, https://www.reed.edu/economics/parker/f12/341/Sim/rpts/IMF.pdf.

[9] Michael D. Bordo and Harold James, "THE INTERNATIONAL MONETARY FUND: ITS PRESENT ROLE IN HISTORICAL PERSPECTIVE," National Bureau of Economic Research | NBER, accessed May 22, 2026, https://www.nber.org/system/files/working_papers/w7724/w7724.pdf.

[10] Ms.Margaret G. Vries, The IMF in a Changing World, 1945-85 (Washington: INTERNATIONAL MONETARY FUND, 1986), 66-68.

[12] Sandra K. Ghizoni, "Creation of the Bretton Woods System," Federal Reserve History, accessed May 22, 2026, https://www.federalreservehistory.org/essays/bretton-woods-created

[13] "Obligations and Benefits of IMF Membership," IMF, accessed May 14, 2026, https://www.imf.org/external/np/exr/center/mm/eng/mm_bnfts.htm.

[14] S. B. Blomberg and J. L. Broz, The Political Economy of IMF Voting Power and Quotas (2008).

[15] "IMF Members' Quotas and Voting Power, and IMF Board of Governors," IMF, last modified May 22, 2026, https://www.imf.org/en/about/executive-board/members-quotas.

[16]  "IMF Membership Changes," IMF, n.d.www.imf.org/external/about/histcoop.htm.

[19] Robert Lensink, Structural Adjustment in Sub-Saharan Africa (Harlow: Longman Publishing Group, 1996). 

[20] "Interfering in National Sovereignty | D+C - Development + Cooperation," Start | D+C - Development + Cooperation, accessed May 22, 2026, https://www.dandc.eu/en/article/shortcomings-and-weaknesses-structural-adjustment-measures-recent-decades.

[21] Titus Alexander, Unravelling Global Apartheid: An Overview of World Politics (Polity, 1996). 

[22] Nathan M. Jensen, "Crisis, Conditions, and Capital," Journal of Conflict Resolution 48, no. 2 (2004): xx, doi:10.1177/0022002703262860

[23] Georges Nzongola-Ntalaja, The Crisis in Zaire: Myths and Realities (Africa World Press, 1986).

[24] Hanna Duggal, "Which Countries Owe the IMF the Most Money in 2025?," Al Jazeera, last modified October 16, 2025, https://www.aljazeera.com/news/2025/10/16/which-countries-owe-the-imf-the-most-money-in-2025. 

 

References

Alexander, Titus. Unravelling Global Apartheid: An Overview of World Politics. Polity, 1996.

 

Blomberg, S. B., and J. L. Broz. The Political Economy of IMF Voting Power and Quotas. 2008.

 

Bordo, Michael D., and Harold James. "THE INTERNATIONAL MONETARY FUND: ITS PRESENT ROLE IN HISTORICAL PERSPECTIVE." National Bureau of Economic Research | NBER. Accessed May 22, 2026. https://www.nber.org/system/files/working_papers/w7724/w7724.pdf. 

 

Conference, Monetary A. Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1-22, 1944. FEDERAL RESERVE BANK of ST. LOUIS, 2013. https://fraser.stlouisfed.org/title/proceedings-documents-united-nations-monetary-financial-conference-bretton-woods-new-hampshire-july-1-22-1944-430/volume-i-7570?page=12. 

 

Duggal, Hanna. "Which Countries Owe the IMF the Most Money in 2025?" Al Jazeera. Last modified October 16, 2025. https://www.aljazeera.com/news/2025/10/16/which-countries-owe-the-imf-the-most-money-in-2025. 

 

Eatwell, John, editor. The New Palgrave Dictionary of Economics. Palgrave Macmillan, 2008.

 

"The Economic Impact of WWII on Europe: Key Effects & Legacy." D-Day Center. Last modified December 14, 2025. https://www.dday.center/the-economic-impact-of-wwii-on-europe/. 

 

Ghizoni, Sandra K. "Creation of the Bretton Woods System." Federal Reserve History. Accessed May 22, 2026. https://www.federalreservehistory.org/essays/bretton-woods-created. 

 

"IMF Members' Quotas and Voting Power, and IMF Board of Governors." IMF. Last modified May 22, 2026. https://www.imf.org/en/about/executive-board/members-quotas. 

 

"IMF Membership Changes." IMF. n.d. www.imf.org/external/about/histcoop.htm. 

 

"Interfering in National Sovereignty | D+C - Development + Cooperation." Start | D+C - Development + Cooperation. Accessed May 22, 2026. https://www.dandc.eu/en/article/shortcomings-and-weaknesses-structural-adjustment-measures-recent-decades. 

 

"INTERNATIONAL CLEARING UNION. (Hansard, 18 May 1943)." Accessed May 22, 2026. https://api.parliament.uk/historic-hansard/lords/1943/may/18/international-clearing-union. 

 

Jensen, Nathan M. "Crisis, Conditions, and Capital." Journal of Conflict Resolution 48, no. 2 (2004), 194-210. doi:10.1177/0022002703262860.

 

Karabaic, Lillian, and Michael Kincaid. "Background Briefing: International Monetary Fund." Reed College. Accessed May 22, 2026. https://www.reed.edu/economics/parker/f12/341/Sim/rpts/IMF.pdf. 

 

Kushner, Antony R., and Katharine Knox. Refugees in an Age of Genocide: Global, National, and Local Perspectives During the Twentieth Century. London: Psychology Press, 1999.

 

Lensink, Robert. Structural Adjustment in Sub-Saharan Africa. Harlow: Longman Publishing Group, 1996.

 

Markwell, Donald. John Maynard Keynes and International Relations: Economic Paths to War and Peace. Oxford: OUP Oxford, 2006.

 

Nzongola-Ntalaja, Georges. The Crisis in Zaire: Myths and Realities. Africa World Press, 1986.

 

"Obligations and Benefits of IMF Membership." IMF. Accessed May 14, 2026. https://www.imf.org/external/np/exr/center/mm/eng/mm_bnfts.htm. 

 

Reed College. Accessed May 22, 2026. https://www.reed.edu/economics/parker/f12/341/Sim/rpts/IMF.pdf. 

 

Vries, Ms.Margaret G. The IMF in a Changing World, 1945-85. Washington: INTERNATIONAL MONETARY FUND, 1986.