jmherbenerThe IMF was the enforcement mechanism of the Bretton-Woods international monetary arrangement. B-W, established at the end of WWII, created an international dollar standard in which all countries held dollars as a reserve against the issue of their own currencies. Each foreign currency was pegged to the dollar. The system was designed so that all countries could inflate their currencies in unison without facing devaluations and trade imbalances. If the Fed inflated the dollar by 10 percent, then other countries could obtain increases in their dollar reserves sufficient to permit 10 percent increases in their own currencies. Prices would then rise proportionately in each country and exchange rates would stay the same. There is a moral hazard in the system, however, as each country has incentive to over inflate its domestic currency if other countries act to support the pegged exchange rate. The IMF, then, was designed to impose austerity conditions on over-inflating countries to prevent the system from falling apart.
The U.S. gained from this system as the monetary inflation of the Fed could stimulate credit expansion in the U.S. without domestic price inflation, as much of the new money was held overseas.
Here is Henry Hazlitt on Bretton-Woods:
http://mises.org/books/brettonwoods.pdf
And Murray Rothbard: