International Monetary Fund: Banking Awareness Notes
International Monetary Fund
The International
Monetary Fund (IMF) is an organization
of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth,
and reduce poverty around the world.
Created in 1945, the IMF
is governed by and accountable to the 189 countries that make up its
near-global membership.
April 12, 2016 -- IMF
Survey: Nauru Joins the IMF as 189th
Member
Each country or region is
represented by a member on the Fund's Executive Board and numerous staff
members. The ratio of board members from each country is based on the country's
global financial position, so that the most
powerful countries in the global economy have the heaviest representation.
The United States has the highest voting power, followed by Asian countries
such as Japan and China and Western European countries such as Britain,
Germany, France, and Italy
Headquarters – Washington, D.C., United States
Managing Director – Christine Lagarde
Main organ – Board of governors
Board of Governors
The Board of Governors
consists of one governor and one alternate governor for each member country.
Each member country appoints its two governors. The Board normally meets once a
year and is responsible for electing or appointing executive directors to the
Executive Board. While the Board of Governors is officially responsible for
approving quota increases, Special Drawing Right allocations, the admittance of
new members, compulsory withdrawal of members, and amendments to the Articles
of Agreement and By-Laws, in practice it has delegated most of its powers to
the IMF's Executive Board
Why the IMF was created and how it works
The IMF, also known as
the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire,
United States, in July 1944. The 44 countries at that conference sought to
build a framework for economic cooperation to avoid a repetition of the
competitive devaluations that had contributed to the Great Depression of the
1930s.
The IMF's responsibilities:
The IMF's primary purpose
is to ensure the stability of the international monetary system—the system of
exchange rates and international payments that enables countries (and their
citizens) to transact with each other. The Fund's mandate was updated in 2012
to include all macroeconomic and financial sector issues that bear on global
stability.
The IMF vs. the World Bank
The IMF works
hand-in-hand with the World Bank, and although they are two separate entities,
their interests are aligned, and they were created together. While the IMF
provides only shorter-term loans that are funded by member quotas, the World
Bank focuses on long-term economic solutions and the reduction of poverty and
is funded by both member contributions and bonds. The IMF is more focused on
economic policy solutions, while the World Bank offers assistance in such
programs as building necessary public facilities and preventing disease.
Special Drawing Right SDR
The SDR (Also known as
the Paper Gold) was redefined as a basket of currencies. Currently, the SDR
basket consists of the U.S. dollar, euro, Japanese yen, and pound sterling.
Effective October 1, 2016, the basket will be expanded to include the Chinese
renminbi.
The respective weights of
the U.S. dollar, euro, Chinese renminbi, Japanese yen, and pound sterling are
41.73 percent, 30.93 percent, 10.92 percent, 8.33 percent, and 8.09 percent.1
These weights will be used to determine the amounts of each of the five
currencies to be included in the new SDR valuation basket that will take effect
on October 1, 2016
How a Country Can Join the IMF
Countries must apply to
be a part of the IMF, although any country can apply. Over time, the
stipulations of being a member have changed, with membership requirements being
more relaxed when the Fund was in its early stages. Countries are required to
make membership payments, or quotas, which are assigned to individual countries
based on their economic size and stipulate how much they contribute. These
quotas are larger for more powerful economies, and they form a pool from which
countries in need can take loans. Member countries are also required to adhere
to the Code of Conduct, and stricter regulations may be imposed on those
countries who apply in hopes of financial aid.
