International Monetary Fund -How does it work?
Many occasions we read in Newspapers or in different journals regarding the International Monetary Fund. IMF has done this, IMF has done that and many more. But many of us don’t know Who actually IMF is and what does it actually do. Therefore today I have decided to write a blog post on the International Monetary Fund or IMF. This is a prestigious institution of the global economy, which brought the whole world under one local market and an independent body like United Nations.
The International Monetary Fund or IMF is an institution meant for providing financial aid and bestow financial stability to its different member countries at international level. It primarily aims for the eradication of global poverty by ensuring sustainable economic growth. IMF also takes a significant role in promoting international trade, commerce, employment creation.
Therefore, from the activities of IMF, in my opinion, it can be said that IMF had broken down the international barriers and brought the whole world under one umbrella. IMF considers all the member countries(presently 189) as a single unit and does not make any differentiation across the borders.
IMF not only extends financial support to its member countries but also keeps a strong supervision on the financial system and its implementations and makes sure the ease of doing business and trades at international levels.
The IMF at its website states that it emerged in July 1944 during the world war-II at Bretton Woods in the United States of America in order to cut down the competitive currency devaluation among different countries that caused the great depression in the year 1930 across the world. Currently, IMF is consists of 189 member countries across the globe.It had opened a new era for effecting international trades, commerce and business, economic growth and financial stability among the member countries.
AT present Christine Lagarde has been holding the charge of Managing Director of IMF since June 2011. Also, Tao Zhang is handling the role of Deputy Managing Director at the IMF from August 2016 to tll date.
You can find the IMF organisational Chart here.
What are the objectives of the International Monetary Fund?
The main objective of the International Monetary Fund or IMF is given below for easy understanding:
- Monitoring the international economic policies and its implementation across the member countries;
- The above monitoring or review system is based on annual consultation in order to establish stable exchange rates;
- IMF primarily observes the country’s Balance of Payments and ushers in the multilateral payment system to foster financial stability and combat with the financial crisis across its member countries;
- One of the most important objectives of IMF is the eradication of poverty by ensuring sustainable economic growth and security;IMF facilitates in the promotion of international trades, business and commerce across the globe;
- The primary objectives of IMF is job creation in different fields of the member countries;
- IMF also extends financial aids to its member countries to foster economic growth and stability;
- IMF assists the member countries in identifying the global risks by analysing the overall global market conditions and takes the necessary course of action therefor;
- It not only provides financial aids but also extends technical assistance to its member countries in different fields;
- Most importantly, IMF was established keeping in view the objectives of ending the policy of competitive currency devaluation mechanism across the globe.
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What are the key functions of the International Monetary Fund?
The functions of the International Monetary Fund are numerous. Only the key functions are discussed below for easy understanding.
- The first and foremost function of IMF is to supervising the international monetary system;
- IMF formulates a specific code of conduct on currency exchange rate policies and provides restrictions on current account transactions;
- It also ensures implementation of its formulated policies by checking its member countries financial health;
- IMF constantly monitors on the balance of the payment system of the member countries and if any imbalances is found, instructs the member countries to set right policy implementation mechanism;
- One of the most important functions of IMF is to securing financial stability and facilitation of international trade across the globe;
- The International Monetary Fund also formulates different policies in order to achieve sustainable economic growth by generating employment for its developing member countries;
- IMF functions at times as an institution for providing short term funds at very low-interest rates to eradicate deficit or bring forth the equilibrium in Balance of Payments;
- Three main functions of IMF combined together is the application of the principles of market economy, broadening up the open economy for international trades and lastly, preventing deflation;
- It has been a continuous endeavour of IMF to comply with its poverty reduction policy as formulated for its developing member countries and as a result, sometimes it has to initiate some debt relief policies;
- IMF strongly prohibits the use of multiple exchange rates in order to remove currency devaluation and ensures implementation of policies on stable exchange rates;
- The main function of IMF is to providing a financial support to its member countries. But it does not finance any particular projects, unlike the World Bank.
- IMF also functions as the provider of technical assistance to its member countries in the field of formulation and implementation of fiscal and monetary policy, handling various transactions with the IMF.
- It functions as a regulatory institution in maintaining the supply and demand of currencies for its member countries.
What does IMF do for its member countries?
In simple words, IMF ensures its policy implementation, extends financial co-operation, smoothens cross-border trades, looks for providing financial stability, all-round economic growth and most importantly takes a crucial part in eradicating poverty across the developing member countries.
It is also known to IMF that only extending financial aids to its member countries would not help in reducing poverty itself, so it also works with member countries hand to hand for employment generations. Because IMF believes in sustainable economic growth only. Unlike the World Bank, IMF does not provide loans to its member countries. It only extends financial assistance for a short period of time to meet the deficit occurred due to Balance of Payments.
IMF keeps a strong surveillance on the supply and demand of currencies for maintaining an equilibrium and in order to doing that if it finds that any particular currency is in scarce or in great demand, it buys that particular currency to boost the currency supply in demand.
Final words on International Monetary Fund or IMF
To conclude this blog post I will now write a summary of the 10 key objectives and functions of the IMF.
- Monitors world economy and anticipate probable risks for member developing countries,
- Formulate and implement various policies for sustainable economic growth,
- Reduction of poverty, Employment generation, Prohibits competitive currency devaluation,
- Maintains equilibrium in Balance of Payments,
- Controls current account transactions to avoid the balance of payments problems and helps to combat financial crises,
- Provides short term financial aids to member countries,
- Provides technical analysis such as formulation and implementation of fiscal and monetary policy, Facilitates in promoting international trades.