... short,ismostoftenmerely a symptom of a muchwider and morebasicailment.Ifnationswith"balance -of- payments"problemsdidnothave a quasi-charitableworldgovernmentinstitutiontofallbackon and wereobligedtoresorttoprudentlymanagedprivatebanks,domesticorforeign,tobailthemout,theywouldbeforcedtomakedrasticreformsintheirpoliciestoobtainsuchloans.Asitis,theIMF,ineffect,encouragesthemtocontinuetheirsocialist and inflationistcourse.TheIMFloansnotonly14encouragecontinuedinflationintheborrowingcountries,butthemselvesdirectlyaddtoworldinflation.(Theseloans,incidentally,arelargelymadeatbelow-marketinterestrates.)ButtheFundhasincreasedworldinflationinstillanotherway,notcontemplatedintheoriginalArticles of Agreement of 1944.In1970,itcreated a newcurrency,called"SpecialDrawingRights"(SDRs).TheseSDRswerecreatedout of thinair,by a stroke of thepen.Theywerecreated,accordingtotheFund,"tomeet a widespreadconcernthatthegrowth of internationalliquiditymightbeinadequate" (A Keynesianeuphemismfornotenoughpapermoney).TheseSDRs,inthewords of theIMF,wereallocatedtomembers—attheiroption—inproportiontotheirquotasoverspecifiedperiods.Duringthefirstperiod,1970-72,SDR9.3billionwasallocated.TherewerenofurtherallocationsuntilJanuary1,1979.Amounts of SDR4billioneachwereallocatedonJanuary1,1979,onJanuary1,1980, and January1,1981.SDRsinexistencenow[April,1982] total SDR21.4billion,about5percent of presentinternationalnon-goldreserves.Inview of theeasewithwhichthisfiatworldmoneywascreated,itslimitedvolume(eventhoughinexcess of SDRs20billion)maystrikemanypeopleassurprisinglymoderate.Butitscreation,asweshallsee,setanominousprecedent.Ishoulddefinemorespecificallyjust what anSDRis.FromJuly,1974,throughDecember,1980,theSDRwasvaluedonthebasis of themarketexchangeratefor a basket of thecurrencies of the16members15withthelargestexports of goods and services.SinceJanuary,1981,thebaskethasbeencomposed of thecurrencies of thefivememberswiththelargestexports of goods and services.Thecurrencies and theirweightsinthebasketaretheU.S.dollar(42percent),thedeutschemark(19percent), and theyen,Frenchfranc, and poundsterling(13percenteach).TheSDRservesastheofficialunit of accountinkeepingthebooks of theIMF.Itisdesigned,inthewords of theFund,to"eventuallybecometheprincipalasset of theinternationalmonetarysystem."Butitisworthnoting a fewthingsaboutit.Itsvaluechangeseverydayinrelationtothedollar and everyothernationalcurrency.(Forexample,onAugust25,1982,theSDRwasvaluedat$1,099 and sixdayslaterat$1,083.)Moreimportantly,theSDR,composed of a basket of papercurrencies,isitself a paperunitgovernedby a weightedaverage of inflationinfivecountries and steadilydepreciatinginpurchasingpower. A number of countrieshavepeggedtheircurrenciestotheSDR—i.e.,to a fallingpeg.YettheIMFboaststhatitisstillitspolicy"toreducegraduallythemonetaryrole of gold," and proudlypointsoutthatfrom1975to1980itsold50millionounces of gold a third of its1975holdings.TheU.S.TreasuryDepartmentcanmake a similarboast. What neithertheFundnortheAmericanTreasurybothertopointoutisthatthisgoldhasanenormouslyhighervaluetodaythanatthetimethesalesweremade.Theprofithasgonetoworldspeculators and otherprivatepersons.TheAmerican and, inpart,theforeigntaxpayerhaslostagain.Toresumethehistory of theBrettonWoodsagreements and theIMF:BecausetheFundwas16createdoncompletelymistakenassumptionsregarding what waswrong and what wasneeded,itsloanswentwrongfromtheverybeginning.ItbeganoperationsonMarch1,1947.In a bookpublishedthatyear,WillDollarsSavetheWorld,Iwasalreadypointingout(pp.81-82)that:The[InternationalMonetary]Fundinitspresentformoughtnottoexistatall.Itsmanagersarevirtuallywithoutpowertoinsistoninternalfiscal and economicreformsbeforetheygranttheircredits. A $25millioncreditgrantedbythefundtoFrance,forexample,isbeingusedtokeepthefrancfaraboveitsrealpurchasingpower and at a levelthatencouragesimports and discouragesexports.Thismerelyprolongstheunbalance of Frenchtrade and creates a needforstillmoreloans.Such a use of theresources of theFundnotonlyfailstodoanygood,butdoespositiveharm.Thisloan and itsconsequencesweretypical.YetonDec.18,1946,theIMFcontendedthatthetradedeficits of Europeancountries"wouldnotbeappreciablynarrowedbychangesintheircurrencyparities."Thecountriesthemselvesfinallydecidedotherwise.OnSept.18,1949,preciselytorestoreitstradebalance and "toearnthedollarsweneed,"thegovernment of GreatBritainslashedtheparvalue of thepoundovernightfrom$4.03to$2.80.Within a singleweektwenty-fivenationsfolloweditsexamplewith a similardevaluation.AsIwroteinNewsweek of Oct.3,1949:"Nothingquitecomparablewiththishashappenedbeforeinthehistory of theworld."It17waslargelytheexistence of theIMF and itsmisguidedlendingthathadencouraged a continuance of per-niciouseconomicpoliciesonthepart of individualnations and stilldoes.Letusnowtakeanotherjumpforwardinourhistory.In a columnpublishedonMarch23,1969,"TheComingMonetaryCollapse",Ipredictedthat:"TheinternationalmonetarysystemsetupatBrettonWoodsin1944isontheverge of breakingdown," and "one of thesedaystheUnitedStateswillbeopenlyforcedtorefusetopayoutanymore of itsgoldat$35anounceeventoforeigncentralbanks."Thisactuallyoccurredtwo -and -a- halfyearslater,onAug.15,1971.Thefulfillment of thisprophecydidnotmeanthatIwastheseventhson of a seventhson.Isimplypointedindetailtotheconditionsalreadyexisting ... short,ismostoftenmerely a symptom of a muchwider and morebasicailment.Ifnationswith"balance -of- payments"problemsdidnothave a quasi-charitableworldgovernmentinstitutiontofallbackon and wereobligedtoresorttoprudentlymanagedprivatebanks,domesticorforeign,tobailthemout,theywouldbeforcedtomakedrasticreformsintheirpoliciestoobtainsuchloans.Asitis,theIMF,ineffect,encouragesthemtocontinuetheirsocialist and inflationistcourse.TheIMFloansnotonly14encouragecontinuedinflationintheborrowingcountries,butthemselvesdirectlyaddtoworldinflation.(Theseloans,incidentally,arelargelymadeatbelow-marketinterestrates.)ButtheFundhasincreasedworldinflationinstillanotherway,notcontemplatedintheoriginalArticles of Agreement of 1944.In1970,itcreated a newcurrency,called"SpecialDrawingRights"(SDRs).TheseSDRswerecreatedout of thinair,by a stroke of thepen.Theywerecreated,accordingtotheFund,"tomeet a widespreadconcernthatthegrowth of internationalliquiditymightbeinadequate" (A Keynesianeuphemismfornotenoughpapermoney).TheseSDRs,inthewords of theIMF,wereallocatedtomembers—attheiroption—inproportiontotheirquotasoverspecifiedperiods.Duringthefirstperiod,1970-72,SDR9.3billionwasallocated.TherewerenofurtherallocationsuntilJanuary1,1979.Amounts of SDR4billioneachwereallocatedonJanuary1,1979,onJanuary1,1980, and January1,1981.SDRsinexistencenow[April,1982] total SDR21.4billion,about5percent of presentinternationalnon-goldreserves.Inview of theeasewithwhichthisfiatworldmoneywascreated,itslimitedvolume(eventhoughinexcess of SDRs20billion)maystrikemanypeopleassurprisinglymoderate.Butitscreation,asweshallsee,setanominousprecedent.Ishoulddefinemorespecificallyjust what anSDRis.FromJuly,1974,throughDecember,1980,theSDRwasvaluedonthebasis of themarketexchangeratefor a basket of thecurrencies of the16members15withthelargestexports of goods and services.SinceJanuary,1981,thebaskethasbeencomposed of thecurrencies of thefivememberswiththelargestexports of goods and services.Thecurrencies and theirweightsinthebasketaretheU.S.dollar(42percent),thedeutschemark(19percent), and theyen,Frenchfranc, and poundsterling(13percenteach).TheSDRservesastheofficialunit of accountinkeepingthebooks of theIMF.Itisdesigned,inthewords of theFund,to"eventuallybecometheprincipalasset of theinternationalmonetarysystem."Butitisworthnoting a fewthingsaboutit.Itsvaluechangeseverydayinrelationtothedollar and everyothernationalcurrency.(Forexample,onAugust25,1982,theSDRwasvaluedat$1,099 and sixdayslaterat$1,083.)Moreimportantly,theSDR,composed of a basket of papercurrencies,isitself a paperunitgovernedby a weightedaverage of inflationinfivecountries and steadilydepreciatinginpurchasingpower. A number of countrieshavepeggedtheircurrenciestotheSDR—i.e.,to a fallingpeg.YettheIMFboaststhatitisstillitspolicy"toreducegraduallythemonetaryrole of gold," and proudlypointsoutthatfrom1975to1980itsold50millionounces of gold a third of its1975holdings.TheU.S.TreasuryDepartmentcanmake a similarboast. What neithertheFundnortheAmericanTreasurybothertopointoutisthatthisgoldhasanenormouslyhighervaluetodaythanatthetimethesalesweremade.Theprofithasgonetoworldspeculators and otherprivatepersons.TheAmerican and, inpart,theforeigntaxpayerhaslostagain.Toresumethehistory of theBrettonWoodsagreements and theIMF:BecausetheFundwas16createdoncompletelymistakenassumptionsregarding what waswrong and what wasneeded,itsloanswentwrongfromtheverybeginning.ItbeganoperationsonMarch1,1947.In a bookpublishedthatyear,WillDollarsSavetheWorld,Iwasalreadypointingout(pp.81-82)that:The[InternationalMonetary]Fundinitspresentformoughtnottoexistatall.Itsmanagersarevirtuallywithoutpowertoinsistoninternalfiscal and economicreformsbeforetheygranttheircredits. A $25millioncreditgrantedbythefundtoFrance,forexample,isbeingusedtokeepthefrancfaraboveitsrealpurchasingpower and at a levelthatencouragesimports and discouragesexports.Thismerelyprolongstheunbalance of Frenchtrade and creates a needforstillmoreloans.Such a use of theresources of theFundnotonlyfailstodoanygood,butdoespositiveharm.Thisloan and itsconsequencesweretypical.YetonDec.18,1946,theIMFcontendedthatthetradedeficits of Europeancountries"wouldnotbeappreciablynarrowedbychangesintheircurrencyparities."Thecountriesthemselvesfinallydecidedotherwise.OnSept.18,1949,preciselytorestoreitstradebalance and "toearnthedollarsweneed,"thegovernment of GreatBritainslashedtheparvalue of thepoundovernightfrom$4.03to$2.80.Within a singleweektwenty-fivenationsfolloweditsexamplewith a similardevaluation.AsIwroteinNewsweek of Oct.3,1949:"Nothingquitecomparablewiththishashappenedbeforeinthehistory of theworld."It17waslargelytheexistence of theIMF and itsmisguidedlendingthathadencouraged a continuance of per-niciouseconomicpoliciesonthepart of individualnations and stilldoes.Letusnowtakeanotherjumpforwardinourhistory.In a columnpublishedonMarch23,1969,"TheComingMonetaryCollapse",Ipredictedthat:"TheinternationalmonetarysystemsetupatBrettonWoodsin1944isontheverge of breakingdown," and "one of thesedaystheUnitedStateswillbeopenlyforcedtorefusetopayoutanymore of itsgoldat$35anounceeventoforeigncentralbanks."Thisactuallyoccurredtwo -and -a- halfyearslater,onAug.15,1971.Thefulfillment of thisprophecydidnotmeanthatIwastheseventhson of a seventhson.Isimplypointedindetailtotheconditionsalreadyexisting ... thePhilippines,SDR780million a total of SDR7,588millionor$8,193millioninU.S.currency.Thefuture, of course,canonlybeguessedat,buttheoutlookisominous. A soberingglanceaheadwaspublishedinNewYorkTimes of Jan.9,1983.TheIMFs total outstandingloanshadthenrisento$21billion.Theexecutivedirectors of theFundhadjustapproved a $3.9billionloandesignedasanemergencybailout of thenearbankruptMexico.TheFundhadalsoagreedto a similarpackageforArgentina.OneforBrazilhadbeenalmostcompleted.LinedupforfurtherhelpfromtheFund,whichalreadyhadloansouttothirty-threehard-pressedcountries,wereChile,thePhilippines, and Portugal.Manyhadfearedinthefall of 1982thatMexicowouldsimplyrefusetomakepaymentsonits$85billionforeigndebt,therebycreatinganevenworseinternationalfinancialcrisis.SotheManagingDirector of theIMF,theFrenchmanJacquesdeLarosi^re,beforemakingtheloan,warnedtheprivatebanksthathadalreadylentbillionstoMexicothatunlesstheycameupwithmore,theymightfindthemselveswithnothingatall.Hemet a delegationrepresenting1,400commercialbankswithloansouttoMexico.Beforeoneadditionalcentwouldbeputup...