In the waning days of World War II, world leaders gathered at Bretton Woods to design a new international monetary system. The result was two sister institutions based in Washington, D.C. – the International Monetary Fund (IMF) and the World Bank – intended as pillars of a U.S.-led global financial order. By tradition, an American leads the World Bank and a European heads the IMF, a cozy arrangement hinting at the power dynamics to come. Ostensibly, the IMF would be an international lender of last resort, providing emergency loans to countries in financial distress, while the World Bank would finance development projects to reduce poverty. It all sounded noble on paper: rebuild war-torn nations, promote stability, foster growth. What could possibly go wrong?

Plenty, it turns out. From the outset, influence within these institutions skewed heavily toward the wealthy Allied nations. Each member country contributed to a reserve pool (including gold or hard currencies) and received voting power roughly proportional to its economic size. In practice, this gave the U.S. and its Western allies an outsized veto power over decisions – dominance that persists to this day. The U.S. alone holds about 16.5% of the IMF’s votes (enough to veto major actions, which require an 85% supermajority). By contrast, India with its 1.4 billion people has a mere ~2.6% vote share at the IMF, less influence than its former colonial master, Britain. Tiny Switzerland wields as many votes as Pakistan, Indonesia, Bangladesh, and Ethiopia combined. These voting shares reflect an imperial-era structure: decades after decolonization, the industrial powers still effectively control global trade and lending, while the poorest countries have no voice at all.

The IMF, in particular, became a sort of world central bank – but one accountable to creditor nations above all. Under the Bretton Woods arrangement, countries pegged their currencies to the U.S. dollar, which in turn was (theoretically) redeemable for gold. This made the U.S. Federal Reserve the de facto central bank of the world, with other countries’ central banks reduced to regional franchises. America’s coffers swelled with other nations’ gold reserves, and dollars flowed out as the preferred reserve currency. It was a sweet deal for Washington: the U.S. could print dollars to finance its needs (“deficit without tears,” as one French economist quipped) while everyone else had to earn or borrow those dollars to trade. When the U.S. later abandoned the gold peg in 1971, the IMF’s role shifted to managing a world of pure fiat currencies – a task akin to building a house with an elastic measuring tape, as one author describes, since exchange rates now flapped in the wind. In 1969 the IMF even invented its own synthetic currency, the Special Drawing Rights (SDR), to augment global reserves. Backed by a basket of major currencies (dollars, euros, yuan, yen, pounds), the SDR is essentially funny money only central bankers could love – but it gave the IMF even more levers to pull. Today the Fund’s lending capacity is around $1 trillion, and any nation in chronic deficit must play nice with it or risk being cast out of the global financial club.

From the start, joining the IMF was less a choice than a requirement for countries seeking development aid. Want access to World Bank loans or other international credit? First, you must be an IMF member. It’s the velvet rope to the global liquidity pool. But membership comes at a price beyond the entry fee: it means accepting the IMF’s rules and oversight of your economic policies. For example, the IMF forbids member countries from pegging their currencies to gold – sound money heresy in the post-1971 era. Switzerland, famous for its long tradition of gold-backed francs, learned this the hard way. It had to abandon its gold standard in 1992 when it finally joined the IMF, an ill-fated decision after which Swiss unemployment rose from near zero to levels never seen before. The lesson was clear: in the IMF’s worldview, no currency shall have independence from the fiat regime.

Thus, the IMF emerged as gatekeeper of the global economy, preaching stability and growth while quietly entrenching the power of a few rich states. It would certainly stabilize things – chiefly, stabilizing the hierarchical status quo. Poorer nations could get help, yes, but only on terms favorable to creditors and often at the cost of their own sovereignty. To understand how that works, we need to talk about the fine print on those IMF loan contracts – the part where the “rescue package” starts to feel a lot like a Faustian bargain.

Continue to Part 2 here: https://bullishbtc.com/post/part-ii-of-the-series-imf-vs-bitcoin-power-inequity-and-the-fight-for-financial-sovereignty

APA References

Ammous, S. (2018). The Bitcoin Standard: The Decentralized Alternative to Central Banking. Wiley.

Farrington, A., & Meyers, S. (2022). Bitcoin Is Venice: Essays on the Past and Future of Capitalism. Bitcoin Magazine Books.

Gladstein, A. (2022, July 6). How the IMF and World Bank repress poor countries. Bitcoin Magazine. https://bitcoinmagazine.com/culture/imf-world-bank-repress-poor-countries