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What's the difference between the IMF and the World Bank? | CNBC Explains - YouTube
Channel: CNBC International
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If you鈥檙e confused by the
difference between the
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International Monetary Fund, the IMF, and
the World Bank. Well, you鈥檙e not the only one.
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Famed economist John Maynard Keynes,
who was a founding father of both institutions,
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said that he was confused
just by their names.
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The IMF and World Bank
are closely linked.
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So close that their headquarters are across
the street from each other here in Washington.
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So what鈥檚 the difference
between them?
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It all started at this hotel in
New Hampshire in July 1944,
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where 44 countries gathered for
the Bretton Woods Conference.
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The goal of the conference was to agree on a new
framework for the international monetary system,
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which is the rules and institutions that keep
the global economy running smoothly.
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After World War II, most people
agreed that the old system had failed.
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It had seen the Great Depression, unfair
trade policies and unstable currencies.
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After three weeks of heated negotiations at
Bretton Woods, especially between Keynes
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who was representing the United
Kingdom and Harry Dexter White,
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the U.S. Treasury representative,
a deal was reached.
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The agreement created the IMF and the International
Bank for Reconstruction and Development,
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soon to be known as the World Bank.
Each institution was given a distinct role.
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The IMF鈥檚 job was to oversee a system of
fixed exchange rates, which tied the value
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of a country鈥檚 currency to the U.S.
dollar, which was pegged to gold.
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The main purpose of this was to make sure exchange
rates stayed stable to encourage global trade.
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The IMF was also tasked with providing short-term
loans to countries struggling to pay their debts.
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Meanwhile, the main goal of the World Bank
was to give financial assistance to countries,
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mainly in Europe, that needed
to rebuild after the war.
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The roles of both the IMF and the World Bank have
changed a lot since the days of Bretton Woods.
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President Nixon unpegged the
U.S. dollar from gold in 1971,
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essentially dissolving the fixed exchange
rate system that the IMF oversaw.
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Since then the IMF has taken on a bigger role
fighting financial crises around the world.
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It keeps tabs on the global economy and puts
economic policies in place in member countries.
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The World Bank focuses its efforts on
development and reducing poverty.
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It provides funding and resources in projects
in some of the poorest countries in the world.
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Both institutions include 189 member countries
but the IMF has around 2,700 employees,
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compared to the World Bank鈥檚
staff of 10,000.
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The IMF is funded mainly by quotas, basically
subscription fees, from member countries.
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It receives about $675 billion in quotas, with the U.S.,
Japan, China and Germany contributing the most.
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The World Bank is financed mostly
by issuing bonds to global investors.
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The group's lending commitments reached
nearly $59 billion in fiscal year 2017.
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The IMF has committed $160 billion
under its current lending arrangements.
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Today the IMF鈥檚 biggest borrowers include
Greece, Ukraine, Portugal and Pakistan.
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The places where the World Bank is running
the most projects are in Africa and East Asia.
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One thing the IMF and World Bank have in common
is that they both have some opponents.
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Critics point to the conditions attached to their
loans, saying they don鈥檛 always address
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the specific economic
issues within a country.
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The IMF has come under fire for
continuing to bail out Greece
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even as the country has
failed to clean up its finances.
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Human rights groups have criticized the World Bank
for ignoring the environmental and social impacts
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of some of its projects in countries
like Ethiopia or Myanmar.
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But the IMF and World Bank say they promote global
economic stability, they make countries less
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vulnerable to crises, promote higher living standards
and provide vital help to countries that need it.
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