Imagine an organisation that runs the world’s economy.
They make decisions on how the economy operates, which countries receive more money, and who is in charge.
Sounds a bit dystopian, but it literally exists.
In fact, there’s two of them, and they’re called The World Bank and IMF.
The World Bank and IMF are separate organisations, but often are spoken about as one entity.
This is because they were created at the same time, and operate in similar ways.
Superficially they seem the same, and even economic experts sometimes have trouble distinguishing them.
This report from the IMF itself addresses the confusion, and does a good job of defining both.
The main differences between the two:
The World Bank
The World Bank is “primarily a development institution”.
Its central purpose is to “promote economic and social progress in developing countries by helping to raise productivity so that their people may live a better and fuller life.”
The IMF
The IMF is a “cooperative institution that seeks to maintain an orderly system of payments and receipts between nations”.
Its purpose is to maintain economic stability in the world and “administer a pool of money from which members can borrow when they are in trouble”.
The World Bank operates more like a lending institution, whereas the IMF operates more like a fund and a financial regulator.
But basically, they kind of do the same thing. They give out loans to countries in economic trouble.
Where did they come from?
The World Bank and IMF seem like proper old money organisations, but in fact they’ve only been around since after the Second World War.
Both organisations were forged from the Bretton Woods System.
This system was one of the most important turning points in economic history, and it will come up many times in the discussion on this newsletter about the hegemony of the US dollar.
It’s how the US got this head start on the world economy, and why they’re probably too far to ever catch up.
The Bretton Woods System
In a nutshell, before the Second World War, many major world economies relied on the gold standard to stabilise their currencies.
But after the destruction of the war, most economies were in ruins, and scrambling to sort things out.
There was also a growing worry that countries becoming isolationist in trying to fix their economies would make things even worse — implementing what are known as ‘beggar thy neighbour’ policies.
The US stepped up in 1944 and proposed a system where all currencies would be fixed to the price of the US dollar, and the US dollar fixed to the price of gold – essentially a gold standard by proxy.
This system came to be known as the Bretton Woods system, and 44 allied nations agreed to be part of it.
Quite a ‘generous’ offer from the US.
But it’s important to remember that the US also controlled two-thirds of the world’s gold at the time, so the rest of the world didn’t have much choice.
Soviet representatives backed out, citing the institutions to be simply "branches of Wall Street".
The end of the Bretton Woods system
This system didn’t last for long.
On August 15th, 1971 President Nixon brought a swift end to the agreement due to fears that pressure on the US gold reserves was undermining the dollar.
This whiplash change is referred to as Nixon Shock.
It meant that the US dollar became free-floating; it was attached to nothing and relied purely on the trust in the currency (fiat money).
As a result, the 44 allied nations were also cut from this deal, and became free floating overnight. Some remained free-floating, but weaker currencies either suffered economic turmoil, or had to form a new deal with the US.
By the 1970s, the dominance of America’s currency had been well established, and began to grow each year.
Today, 65 currencies are directly pegged to the US dollar, and 11 countries use the US dollar as its official currency.
This widespread use of the dollar gives the US unmatched control over the world economy, and the World Bank and IMF are the tools used to maintain dollar dominance.
They maintain the necessity of dollars via loans and ensure that the money is always flowing back into the US. Ensuring that the most precious resource (oil) is traded in dollars is another angle which maintains the hegemony.
There’s literally nowhere to hide from the dollar.
Rigged voting
The World Bank ‘represents’ 188 countries, and all countries get a vote in decisions, such as who is in charge of the banks, as well as the senior management.
There are separate organisations within the World Bank, and each country is allocated different voting powers – they explain their specific process.
The organisations are:
International Bank for Reconstruction and Development (IBRD)
International Finance Corporation (IFC)
International Development Association (IDA)
Multilateral Investment Guarantee Agency (MIGA)
Note the weighting of the United States’ voting power in each – (the majority in all):
Japan, China, Germany, the UK, and France clean up the remaining majority votes.
The more money you fund into the World Bank, the more voting power you get.
So, naturally, the decisions made, such as choosing leadership and which countries to support and how much will always be skewed towards American interests, and those that pay the most.
This is how the US can (and do) control the world economy to their advantage.
Conclusion
As I covered in my newsletter on gift-giving as a form of debt, it’s difficult to undermine such a system, as it’s tough to crack through the positive veneer of the organisations, and the honour we hold to paying our debts.
But despite what the World Bank and IMF claim, global apartheid is only getting worse, and so is income inequality.
Both organisations continue to lend billions, and there’s no sign of any competitors as poorer countries continue to rack up debt.
As of 2023, according to FDI Intelligence, the IMF is owed $155bn, and the World Bank is owed $391bn.
And as always, the poorest in each of these nations will be the ones really paying for these debts.
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