Econ Essay Example | Topics and Well Written Essays - 250 words - 1

Econ - Essay Example The IMF was conceived in 1944 when representatives of 45 countries met at Bretton Woods, USA and agreed on the framework of IMF which came into formal existence in December 1945 (after World War II) with 29 members. The member countries agreed that the value of the US$ follow the gold prices and that the other member currencies be pegged to the US$ with some room allowed for corrections (but with the agreement of the IMF). This par value system was also known as the Bretton Woods system. In the 1960s, the US$ was seen as overvalued. As the US government started spending more especially due to the Vietnam War, the overvaluation of the US$ became even more of a burden for the US. Thus, in August 1971, then US President Richard Nixon announced that the US would temporarily suspend the US$ pegging to Gold. This led to a breakdown of the system and by March 1973, the major currencies were no longer pegged to the US$ and began to float against each other. Subsequently, the IMF has assumed the role of maintaining the stability and preventing crisis in the international monetary system.