What Is The IMF And What Does It Do?
The International Monetary Fund (IMF) is an international organization that aims to promote international monetary cooperation, facilitate international trade, foster sustainable economic growth, and make resources available to members experiencing balance of payments difficulties.
The organization was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the Great Depression, countries sharply raised barriers to trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade.
This breakdown in international monetary co-operation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in Bretton Woods, New Hampshire, in the United States, to discuss a framework for postwar international economic cooperation and how to rebuild Europe.
The organization was formed in 1944 at this conference, primarily by the ideas of Harry Dexter White and John Maynard Keynes. The organization was intended to help mend the pieces of the international economy after the Great Depression and World War II. As well, to provide capital investments for economic growth and projects such as infrastructure.
It came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system.
It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had SDR 477 billion (about $668 billion).
The IMF is currently headquartered in Washington, D.C., and now has 189 member countries working together to foster global monetary cooperation, and reduce poverty around the world.
What Does The IMF Do?
The sole purpose of this organization is to improve the economies of its 189 member countries. Upon the founding of the IMF, its three primary functions were to:
- Oversee the fixed exchange rate arrangements between countries.
- Provide short-term capital to aid the balance of payments.
- Promote and implement policy that reduces the frequency of crises among the emerging market countries.
- Negotiates conditions on lending and loans under their policy of conditionality.
- Provides emergency assistance to members facing urgent balance-of-payment needs.
The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its member countries. This activity is known as surveillance and facilitates international cooperation.
Since the demise of the Bretton Woods system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of new obligations. The responsibilities changed from those of guardian to those of overseer of members’ policies.
Future of the IMF
Global Importance of the IMF is expected to fall in the future due trisingng alternative monetary funds. Countries are engaging in trade agreements and pooling their own currencies together in order to strengthen their own currencies, build relationships among their own countries, and decrease their reliability on the western-dominated IMF.
In March 2011 the Ministers of Economy and Finance of the African Union proposed to establish an African Monetary Fund. The fund is an African Union financial institution, though in time its responsibilities will be transferred to the African Central Bank. This institution is one of the three financial institutions of the future African Union. The fund was established in early 2014, and is based out of Yaoundé, Cameroon.
The AMF does not inherently rival the IMF because many African nations lack the economic strength of most IMF countries, and thus, cannot afford bailout and infrastructure packages as extensive as those in the West.
However, countries are engaging in their own monetary funds because it increases reliability on the nations that are close in proximity, rather than relying on Western powers to control your funds and give you economic advice.
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More notable is the announcement of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$100 billion, a framework to provide liquidity through currency swaps in response to actual or potential short-term balance-of-payments pressures.
Furthermore, in 2014, the China-led Asian Infrastructure Investment Bank was established as a rival to the IMF and World Bank.
These trends are expected to continue as the US dollar drops in value and other currencies such as the Chinese Yen, rise in importance.
Although the International Monetary Fund has played an important role in overlooking global markets and providing macroeconomic assessments to help developing nations, the global financial market is shifting from Western-dominated monetary fund reserves to more, local organizations.
However, one thing we can expect is that the IMF will play a pivotal role in the global economic realm for many years to come.
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This piece was originally published on Globalmillennial.org
