What’s the difference between the IMF and the World Bank? | CNBC Explains

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

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