The annual meetings of the International Monetary Fund and the World Bank are underway as policymakers from around the world gather in Washington to discuss the most pressing issues facing the global economy.
The IMF and the World Bank are closely linked – so close that their headquarters are across the street. So what's the difference between the two? The answer goes back seven decades.
Both the IMF and the World Bank were conceived at the United Nations' Bretton Woods Conference in July 1944. Top economic minds from 44 countries gathered at a hotel in New Hampshire to come up with a new framework for the international monetary system.
There was a general consensus that the old system of exchange rates and payments had failed, leading to the Great Depression, currency devaluations and the collapse of the gold standard.
"Economic cooperation was the main goal in everybody's mind when they started to plan out the system during World War II," said James Boughton, a senior fellow at the Centre for International Governance Innovation and former IMF historian.
Famed economist John Maynard Keynes, representing the United Kingdom at Bretton Woods, and Harry Dexter White, the U.S. Treasury representative, clashed over the terms of the new system. After three weeks, a deal was reached creating two distinct institutions: the International Monetary Fund and the International Bank for Reconstruction and Development, soon to be known as the World Bank.
"The idea behind the IMF structure was that countries would have less incentive to engage in competitive devaluations if there was an international institution that could provide short-term financing for balance of payment deficits," said Benn Steil, a senior fellow at the Council on Foreign Relations and author of "The Battle of Bretton Woods."
The IMF was tasked with overseeing a system of fixed exchange rates linking global currencies to the U.S. dollar, which was pegged to gold. The fund was also in charge of issuing short-term loans to countries struggling to meet their balance of payments.
The main goal of the World Bank was to give financial assistance to countries – mainly in Europe – that needed to rebuild after the war.
Experts say the roles of both institutions have shifted since their inception at Bretton Woods more than 70 years ago.
"The IMF is heavily involved in fighting crises around the world," Steil said. "Neither the British nor the Americans ever envisioned the IMF doing that."
Today the IMF keeps tabs on the global economy, provides technical assistance and training to implement economic policies and provides loans to member countries in need of financing. The World Bank, meanwhile, has focused primarily on development and reducing poverty.
Both institutions include 189 member countries and have vast operations around the world. The World Bank receives funding by issuing bonds to global investors, while the IMF is financed by quotas from member countries.
The institutions have their share of critics, in part because of the conditions attached to their loans. The IMF has come under fire for continuing to bail out countries like Greece that have struggled to clean up their finances. The World Bank has been accused of ignoring the social and environmental impacts of some its projects.
But Boughton said it's premature for critics to write off the IMF and World Bank, adding their roles are likely to shift further as the global economy evolves.
"The basic mandates haven't changed," he said. "What's changed is that the needs of countries across the world have evolved greatly."