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What roles does the International Monetary fund play in the Bretton Woods System? What roles does it play in today’s international monetary system?

Instructor’s Explanation: The initial objective of the International Monetary Fund (IMF) was to supervise and facilitate the operation of the fixed exchange rate system created at Bretton Woods. Countries participating in the Bretton Woods system agreed to establish a par value or fix their currencies’ values in gold. Further, the U.S. dollar was set at the U.S.$35.00 per ounce of gold. Central banks then agree to maintain parity (plus or minus one percent) by buying and selling their currencies on international markets. If faced with short-term balance of payments problems, countries could borrow from the IMF. The IMF funds come from its member countries, which provide a quota or entrance fee consisting of gold, dollars, and local currencies. The IMF continues to provide financing help to member countries even after the Bretton Woods system collapsed. A controversial extension of this financing role is the IMF conditionality. Countries that borrow from the IMF have to agree to certain conditions imposed by the IMF, such as reducing government spending or other policies to fix domestic economic problems.