How Does The International Monetary Fund Work?

The International Monetary Fund or IMF is a financial agency under the protectorate of the United Nations, which plays a vital role in the global economy after World War II. IMF is specifically established to make sure that financial system across the globe will remain stable. It serves as a supervisory institution that aims to promote monetary cooperation internationally and to facilitate the international trade growth. This is made possible through the assistance offered to its member nations having problems in their balance of payments and the maintenance of the stability of monetary exchange. It is integrated in significant aspects like managing the aftermath of the 2007-2009 recession along with the credit crisis.

Member countries of IMF give their quota subscription upon their membership. This sum of money will serve as a determinant of the amount allowable for them to draw when crisis struck them. Remember that the quotas also determine their voting rights suggesting that IMF’s power to make decision depends on the highest contributing countries.

The IMF is called as a global financial system watchdog that works through its surveillance works over its members. It is part of the agreement of its members to follow rules with global economic order outcomes like not manipulating their currencies just to fulfill their own needs. The members are the ones who are responsible in presenting their economic data to the IMF for monitoring. This measure aims to ensure the sound economic policies of its members.

Lending activities are included in the scope of IMF’s duties and responsibilities pursuant to its by-laws. It provides loans to its members in times of financial distress and when they failed to pay its international monetary obligations. The disbursement of loans is made through installments and that their payment is associated to the borrower’s compliance with policies on structural adjustment. In turn, borrowers need to implement economic reforms to overcome their problems on balance of payments. Survey also shows that 80 percent of the member countries make use of the fund they receive from IMF at least once. However, IMF clarifies that the development of lending activities is not included in its scope of responsibilities.

Sharing expertise is tantamount to the duties and responsibilities of IMF as it shares its knowledge to all its members for better development of their respective economic policies. This could be done through training in the areas of exchange rate policies and central banking. In fact, many countries in Asia and in Africa benefit from the technical expertise of the agency. Their main reason could be that that such technical know-how help boost financial system’s base.

When it comes to policies or reforms of its member nations, the IMF puts emphasis on the concept of fundamentalism in the market. Take into account that IMF was basically chartered to make corrections on trade imbalances, which is actually one of its major activities. This may also suggest for the devaluation of the currency for the stimulation of reports. This may also result to difficulty among the residents of the country considering that the exports can be more expensive. The deregulation types of the industries controlled by the government may also be included to attract new entries into the market. Moreover, IMF makes defense on its policies based on the reforms it has made that permits the ownership programs of its member nations. Another defense for its policies also depends on the general studies of market reforms’ effect suggesting that reforms strengthen GDPs.

Recently, the IMF is vocal for its advocacy in fighting the global issues of terrorism and money-laundering. It also continues its commitment to enhance the international financial system.

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