GOV_298_4 - The IMF Part 2: Governance at The International...

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The IMF Part 2: Governance at The International Monetary Fund James Raymond Vreeland Georgetown University
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The Plan 1. Review 2. The Executive Board 3. The G20 4. The 1 billion kilo rooster in the room (China)
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Review…
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Free Capital Flow Fixed Exchange Rate Sovereign Monetary Policy Inconsistent/Unholy Trinity Or “Trilemma”: a country can only have 2 out of 3 of these
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1944 Degree of global capital mobility 1971-3 Fixed exchange rates + Capital controls Floating exchange rates + Open capital flows 1870 Interwar period Fixed exchange rates + Open capital flows Growing #’s of democracies Few democracies Under “autocracy,” governments could maintain fixed exchange rates with high capital mobility. Under democracy, they could not.
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People don’t eat Under authoritarianism: Let them eat cake Under democracy: Incumbents lose elections
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Hazard Rate over Time for 20 15 10 5 0.625 0.5 0.375 0.25 Time (years) Hazard Rate
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http://www.youtube.com/watch?v=loBe0WXtts8
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IMF to the rescue? The whole point of the IMF: Soften the blow of “adjustment”
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What is the IMF? Like an international “credit union” Almost all the countries in the world are members (187) All hold currency on reserve The IMF can use these reserves to loan to countries in “crisis” Moral Hazard? Conditionality! IMF programs = loans + conditions Decisions at the IMF are by majority rule Influence over decisions pegged to “economic size” MAJOR SHAREHOLDERS Votes are determined by contributions (“quota”), Quota set by an 85% majority rule Most other decisions by simple majority rule (CONSENSUS)
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Changes to Global Governance Who has the power at the IMF?
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Currently 187 members. (Non-member independent countries: Andorra, Liechtenstein, Nauru, Taiwan, Cuba, and North Korea) Members have “votes” according to the size of their subscription to the IMF… Who is the IMF?
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Where do the resources for “loans” come from? Members provide a contribution called the member’s quota ( held on reserve ) The size of the quota is supposed to be a function of the country’s economy: GDP current account transactions official reserves Largest: USA, Smallest: Palau Actually a political process Changes require an 85% majority of current vote shares!
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This note was uploaded on 01/16/2012 for the course GOVT 298 taught by Professor Staff during the Spring '10 term at Georgetown.

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GOV_298_4 - The IMF Part 2: Governance at The International...

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