Why is the International Monetary Fund still around?

Formed as a multilateral entity to address “balance of payments” crises, its real purpose has been obfuscated by the ending of the Bretton Woods treaty in the 1970s, which set the gold standard as the benchmark medium of exchange.

Without the gold standard with which to measure trade balances and currency and things like that, the dollar became the replacement, because SOMETHING will replace anything that’s ever taken away.

Unfortunately, the dollar represents one country, the U.S. and the U.S. is as subject to pressure groups and special interests as any within a vibrant democracy. Some of those interests become policy, and when that happens, the IMF comes under pressure. For instance, if an Ohio furniture manufacturer cannot compete with low-cost Chinese furniture imports, he sometimes calls his congressman or the White House (whose incumbent he made a donation to) and urges them to make China change its currency policy so that its money is more expensive and its goods will therefore be less cheap. Maybe that’s good for China and maybe it’s not.

Often, the IMF has been used by various U.S. administrations for questionable purposes by U.S. administrations who do not wish to deal with matters directly. It was used to overthrow unpopular regimes, like Suharto’s, and now it’s being used to trash China’s prosperity, by mucking around with its exchange regime.

I know it’s harsh. Unfortunately, I think it’s true, it’s a rare thing we can be critical of the U.S. about, because harming other nations’ private sectors as a means of getting at its government leaders isn’t the way to make the U.S. popular. In fact, when certain nations talk about U.S. meddling, they often mean exactly this.

Steve Hanke has a thoughtful essay on the Cato Institute’s Web site from his Forbes column. It can be read here.