International Monetary Fund Definition

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International Monetary Fund (IMF) Definition

The International Monetary Fund(IMF) is an international organization with 189 member countries, formed with the objective of promoting international trade and commerce, employment, sustained economic growth, financial security, and reducing poverty across the globe. It functions like a bank that formulates policies, outlines procedures, sanctions funds, and facilitates global monetary cooperation.

A Little More on What is the IMF

Amongst its many functions, the IMF sanctions loans to developing nations, monitors currency exchange rates, regulates currency exchange policies amongst commercial banks, encourages healthy economic policies based on statistical and economic analysis of the economies of its member states.

Loans sanctioned by the IMF carry the caveat of commitment to economic improvement by developing countries. It also facilitates policy and structural improvements like enforcing anti-corruption rules, FDI, cuts in government budgets, regulating imports, exports and securities exchange, currency valuation, and privatization.

Headquartered in Washington D.C., each of IMF’s 189 member nations have a representative on the executive board. The number of representatives is directly proportional to the strength of a country’s economic influence. This gives the developed countries more voting power than those with struggling economies.

Here’s a look at the methods IMF employs to achieve its goals:

Monitoring & Surveillance: The IMF tracks the economic data of all its member states including statistical data on global trade, GDP growth, and other parameters of national economic performance. It uses this data to forecast the economic outlook at the national as well as global level, published annually in the World Economic Outlook report. The report also discusses the effect of monetary and fiscal policies on sustainable financial growth and stability.

Capacity Development: The IMF provides policy advice, technical assistance, and training to member countries through its Capacity Development initiative. Collection of economic data and analysis to monitor economies is also an area of focus in this training.

Loans: Developing countries facing economic hardships can borrow from the IMF to tide over their fiscal crises. The IMF sanctions loans to poor and struggling economies from the funds pooled in by developed economies. As of 2018, it could readily tap into $242 billion dollars from its reserves. Donations are made by a quota system that allows rich countries to pool their resources. As a quasi-currency system, the IMF has a separate currency denomination system. Loans are sanctioned with strict conditions placed upon the recipient countries. Loans can only be sought for programs that help in growth and economic upliftment of poor economies. A.k.a. ‘Structural Adjustment Programs’, loans by IMF are heavily criticized by economists for promoting colonial practices and aggravating poverty.

History of the IMF

IMF was founded on December 27, 1945, as part of the Bretton Woods agreement to focus on financial cooperation across the globe. IMF oversaw the introduction of convertible currencies with fixed rates. The dollar amount was set with its value measured in an ounce of gold costing $35. Member nations now required IMF’s permission to readjust currency exchange rates exceeding 10% in value above or below.

IMF was also the gateway to membership at the International Bank for Reconstruction and Development(IBRD) a.k.a the World Bank, which was formed to expedite reconstruction efforts in Europe after World War II. IBRD membership was contingent upon IMF membership.

Floating exchange rates system was endorsed by IMF in the 1970s due to the collapse of the Bretton Woods system. Currency values are now determined in relation to one another by market forces.

References for the International Monetary Fund

Academic Research on the International Monetary Fund

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