If you’re confused by the difference between the International Monetary Fund (IMF) and the World Bank, you’re not the only one.
Famed economist John Maynard Keynes, a founding father of both institutions, admitted he was confused just by their names.
The IMF and World Bank are closely linked. Their headquarters are even across the street from each other in Washington.
Origins of IMF and World Bank
It all started at a hotel in New Hampshire in July 1944. Forty-four countries gathered for the Bretton Woods Conference to agree on a new framework for the international monetary system.
After World War II, most agreed the old system had failed. It had led to the Great Depression, unfair trade policies, and unstable currencies.
After three weeks of heated negotiations, especially between Keynes (UK) and Harry Dexter White (U.S.), a deal was reached.
The agreement created the IMF and the International Bank for Reconstruction and Development, later known as the World Bank.
Each institution was given a distinct role. The IMF oversaw a system of fixed exchange rates, tying currencies to the U.S. dollar, which was pegged to gold. The goal was to maintain stable exchange rates and encourage global trade.
The IMF also provided short-term loans to countries struggling with debt. Meanwhile, the World Bank focused on financial assistance to countries, mainly in Europe, needing post-war reconstruction.
How Their Roles Have Evolved
The roles of both institutions have changed significantly since Bretton Woods. In 1971, President Nixon unpegged the U.S. dollar from gold, dissolving the fixed exchange rate system the IMF managed.
Since then, the IMF has taken on a bigger role in managing financial crises. It monitors the global economy and implements economic policies in member countries.
The World Bank shifted its focus to development and poverty reduction. It funds projects in some of the world’s poorest countries, providing resources for infrastructure and economic growth.
Both institutions include 189 member countries. The IMF has around 2,700 employees, while the World Bank has a staff of 10,000.
The IMF is funded mainly by quotas—subscription fees from member countries—totaling about $675 billion. The U.S., Japan, China, and Germany contribute the most.
The World Bank, on the other hand, is financed mostly by issuing bonds to global investors. Its lending commitments reached nearly $59 billion in 2017, while the IMF committed $160 billion under its current lending arrangements.
Today, the IMF’s biggest borrowers include Greece, Ukraine, Portugal, and Pakistan. The World Bank focuses its projects mainly in Africa and East Asia.
Criticism and Global Impact
Both institutions face criticism. Some argue that the conditions attached to their loans do not always address specific economic issues within a country.
The IMF has been criticized for bailing out Greece even as it struggles to reform its finances. Human rights groups have accused the World Bank of ignoring the environmental and social impacts of some projects in countries like Ethiopia and Myanmar.
Despite criticism, both organizations claim they promote global economic stability. They aim to make countries less vulnerable to crises, improve living standards, and provide crucial financial support where needed.