What's the difference between the IMF and the World Bank? | CNBC Explains

The IMF and World Bank hold their Annual Meetings together each fall in Washington. But do you know the difference between the institutions? CNBC's Elizabeth Schulze explains.

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If you're confused by the difference

between the International
Monetary Fund, the IMF,

and the World Bank.

Well, you're not the only one.

Famed economist John Maynard Keynes,

who was a founding father of both institutions,

said that he was confused just by their names.

The IMF and World Bank are closely linked.

So close that their headquarters are across

the street from each other here in Washington.

So what's the difference between them?

It all started at this hotel

in New Hampshire in July 1944,

where 44 countries gathered

for the Bretton Woods Conference.

The goal of the conference was to agree on

a new framework for the international monetary system,

which is the rules and institutions

that keep the global economy running smoothly.

After World War II, most people agreed

that the old system had failed.

It had seen the Great Depression,

unfair trade policies and unstable currencies.

After three weeks of heated negotiations

at Bretton Woods, especially between Keynes

who was representing the United Kingdom

and Harry Dexter White,

the U.S. Treasury representative,

a deal was reached.

The agreement created the IMF and the

International Bank for Reconstruction and Development,

soon to be known as the World Bank.

Each institution was given a distinct role.

The IMF's job was to oversee a system of

fixed exchange rates, which tied the value

of a country's currency to the U.S. dollar,

which was pegged to gold.

The main purpose of this was to make sure

exchange rates stayed stable to encourage global trade.

The IMF was also tasked with

providing short-term loans

to countries struggling to pay their debts.

Meanwhile, the main goal of the World Bank

was to give financial assistance to countries,

mainly in Europe, that needed to rebuild after the war.

The roles of both the IMF and the World Bank

have changed a lot since the days of Bretton Woods.

President Nixon unpegged the U.S. dollar

from gold in 1971,

essentially dissolving the fixed

exchange rate system that the IMF oversaw.

Since then the IMF has taken on a bigger role

fighting financial crises around the world.

It keeps tabs on the global economy

and puts economic policies

in place in member countries.

The World Bank focuses its efforts on

development and reducing poverty.

It provides funding and resources in projects

in some of the poorest countries in the world.

Both institutions include 189 member countries

but the IMF has around 2,700 employees,

compared to the World Bank's staff of 10,000.

The IMF is funded mainly by quotas,

basically subscription fees, from member countries.

It receives about $675 billion in quotas,

with the U.S., Japan, China and Germany

contributing the most.

The World Bank is financed mostly

by issuing bonds to global investors.

The group's lending commitments reached nearly

$59 billion in fiscal year 2017.

The IMF has committed $160 billion

under its current lending arrangements.

Today the IMF's biggest borrowers include

Greece, Ukraine, Portugal and Pakistan.

The places where the World Bank is running

the most projects are in Africa and East Asia.

One thing the IMF and World Bank have in common

is that they both have some opponents.

Critics point to the conditions attached to their loans,

saying they don't always address

the specific economic issues within a country.

The IMF has come under fire for

continuing to bail out Greece

even as the country has

failed to clean up its finances.

Human rights groups have criticized the World Bank

for ignoring the environmental and social impacts

of some of its projects in countries

like Ethiopia or Myanmar.

But the IMF and World Bank say

they promote global economic stability,

they make countries less vulnerable to crises,

promote higher living standards and

provide vital help to countries that need it.

Hey guys, it's Elizabeth.

Thanks so much for watching!

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