Presentation 17 - The IMF and the World Bank - The IMF and...

The IMF and the World Bank
Econ 314
Lecture 17

International Monetary Fund
The International Monetary (IMF) is an
international organization that oversees the
global financial system by following the
macroeconomic policies of its member countries,
in particular those with an impact on exchange
rates and the balance of payments. It is an
organization formed to stabilize international
exchange.

International Monetary Fund
•
Established in 1944.
•
Formally organised on December 27
th
,
1945
•
Member states – 187
•
Headquarters – Washington DC

Purpose of the IMF
(i) To promote international monetary cooperation
(ii) Expansion and growth of international trade
(iii) To promote stability of exchange rates
(iv) To assist in the establishment of a multilateral system of
payments .
(v) To reduce the extent of disequilibrium in international
balance of payments.

Sources of funds for the IMF
•
The quota subscriptions
•
Holdings of Gold
•
Borrowing arrangements (GABS)
•
Interest charges and fees

Work of the IMF
•
Surveillance – oversees the international monetary system
and monitors the financial and economic policies of the
member states. It keeps track of the economic developments
on a national, regional and global basis.
•
Lending – Provides loans to countries that cannot otherwise
meet their international payment obligations and cannot
otherwise find adequate financing on affordable terms.
•
Technical Assistance – Assists low and middle income
countries in managing their economies. Provides training
and guidance on mechanisms to upgrade institutions and
design macroeconomic and structural policies.

Special Drawing Rights
The SDR is an international reserve
asset, created by the IMF to supplement
the existing official reserves of the
member countries. This was introduced
in 1969.

Valuation of the SDR
•
SDR was initially equivalent to 0.888671
grams fine gold.
•
Currently, it consists of the Euro, the Yen,
the Pound Sterling and the U.S. Dollar.
•
The value is revised after five years.

Wednesday, March 28, 2012
Currency
Currency
amount under
Rule O-1
Exchange
rate
1
U.S. dollar
equivalent
Percent change
in exchange
rate against
U.S. dollar from
previous
calculation
Euro
0.4230 1.33470 0.564578 -0.052
Japanese yen 12.1000 83.00000 0.145783 -0.205
Pound sterling
0.1110 1.59150 0.176657 -0.244
U.S. dollar
0.6600 1.00000 0.660000
1.547018
U.S.$1.00 = SDR 0.646405
2
0.066
3
SDR1 = US$ 1.54702
4
SDR Valuation

What are quotas?

Determination of the quotas of member countries
•
When a country joins the IMF, it is assigned an initial quota in
the same range as the quotas of existing members that are
broadly comparable in economic size and characteristics. The
IMF uses a quota formula to guide the assessment of a
member’s relative position.