The end of the universal system of fixed exchange rates and capital controls gave governments the ability to choose new responses to the “impossible trinity” in the post–Bretton Woods era. This chapter describes the institutional arrangements that arose as new exchange rate arrangements and capital account regimes were adopted and the impact of these choices on the IMF. The IMF’s revised duties in the post–Bretton Woods period were vaguely defined, and it was no longer the only IGO that dealt with economic and financial issues.

The IMF’s dominant members led the negotiations over the revision of the IMF’s Article of Agreement IV. The revised article, summarized in the first section, gave the membership the freedom to choose the exchange rate arrangement they found most suitable for their economies. This choice was constrained, however, by new obligations, and the IMF was given the responsibility to oversee compliance with these through its surveillance operations. However, the nature of its oversight powers was left ambiguous.

The growth of private capital flows occurred with much less planning or oversight. The second section explains how central bankers of the advanced economies where the major financial markets were located set up new organizational structures based at the Bank for International Settlements to monitor capital flows, exchange information, and discuss regulatory responses. But there was no consensus among the IMF’s membership regarding the deregulation of capital accounts, and the IMF itself played no role in these developments.