Full Form Of Imf International Monetary Fund How It Works

Full Form of IMF (International Monetary Fund)

The World Bank finances it. It was formed in 1944 at the Bretton woods conference by the vision of Harry Dexter White and John Maynard Keynes and formally came into existence in 1945 with 29 member countries with the aim of reformation of the international payment system. It has a vital role in the management of the balance of payment and the global financial crisisFinancial CrisisThe term “financial crisis” refers to a situation in which the market’s key financial assets experience a sharp decline in market value over a relatively short period of time, or when leading businesses are unable to pay their enormous debt, or when financing institutions face a liquidity crunch and are unable to return money to depositors, all of which cause panic in the capital markets and among investors.read more.

History

The international monetary fund was originally formed as part of Bretton Woods’s system exchange that occurred in 1944. The economic depression brought about countries raising restrictions on trade in a bid to revive their struggling economies, which led to a devaluation of currenciesDevaluation Of CurrenciesCurrency devaluation is deliberately done in order to adjust the established exchange rates by the government and it is mostly done in the cases of fixed currencies. This mechanism is used by economies with a semi-fixed or fixed exchange rate, and it should not be confused with depreciation.read more and depression in global trade.The crises in international monetary cooperation caused a requirement for oversight. This led to a conclave of 45 countries named as the Bretton Woods conference to propose a framework for international economic cooperation and how to reinstate Europe.It was decided to form the IMF as a global economic body. Harry Dexter White, an American, envisioned the IMF function as a bank, ensuring borrowing countries could repay their debts in a timely manner.It was formally formed on 27 December 1945 when the 29 member countries agreed to its agreement articles.The end of 1946 saw the IMF grow to 39 members.1 March 1947 saw the IMF begin its financial operation, and 8 May saw France becoming the first country to borrow from the international monetary fund.It was one of the prime bodies of the international economic system. Its nature and form allowed it to reform international capitalismCapitalismCapitalism is an economic system consisting of businesses, resources, capital goods, and labour. Private entities own it, and the income is derived by the level of production of these factors. Because of the private hands, these entities can be operated efficiently and maximize their production activity also.read more with a boost to national economic cooperation and human welfare.The influence of the IMF increased as it added more members to its fold.

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How does this Work?

The international monetary fund has as its mission to bring down global poverty, promote international tradeInternational TradeInternational Trade refers to the trading or exchange of goods and or services across international borders. read more, financial stability, and economic growth. The three main functions of the international monetary fund are economic development, lending, and capacity development. Through economic surveillance, the IMF observes developments that have a bearing on member economies and the world economy. This lends to member countries with balance of payment issues so that they can re-establish their economies. The body also provides policy advice and training through its technical assistance programs.

The international monetary fund functions in three main spheres:

Observing the economies of member countriesLending to nations struggling with the balance of payment issuesHelping member countries reform their economies

#1 – Overseeing Member Country Economies

The international monetary fund’s major concern is to promote stability in the world economic system. It monitors the economies of its 189 member countries. The activity is known as economic surveillance conducted at the national and international levels.Through economic surveillance, the IMF oversees activities that have a bearing on member economies as well as the world economy. Member nations are asked to have economic policies that are in sync with the IMF policies. Overseeing the member countries’ macroeconomicMacroeconomicMacroeconomics aims at studying aspects and phenomena important to the national economy and world economy at large like GDP, inflation, fiscal policies, monetary policies, unemployment rates.read more and financial plans, the international monetary fund sees stability risks and recommends possible amendments.

#2 – Lending

This offers its funds to strengthen member countries’ economies with issues in their This offers its funds to strengthen member countries’ economies with issues in their balance of paymentsBalance Of PaymentsThe formula for Balance of Payment is a summation of the current account, the capital account, and the financial account balances. The term balance of payments refers to the recording of all payments and obligations pertaining to imports from foreign countries vis-à-vis all payments and obligations pertaining to exports to foreign countries. It is the accounting of all the financial inflows and outflows of a nation.read more instead of lending to fund projects. The economic aid can refurbish international reserves, stabilize the currency, and boost economic growth. instead of lending to fund projects. The economic aid can refurbish international reserves, stabilize the currency, and boost economic growth.This wants the member countries to pay back the loans, and the nations must go for structural reformation policies monitored by the international monetary fund. Lending from the IMF has a twofold form. The first at market interest rate while the other is at concessional rates. The concessional rate of interest lending is done to countries with lower income and low or no interest rates.

#3 – Economic Advisory

The international monetary fund’s last function is through capacity development by providing policy advice and training through its various programs. The body provides member nations with an economic adviser in the following areas:

Financial policyExchange rate policyFinancial system regulation

Why does this Matter?

The financial aid and financial restructuring policies not only help the countries in need that are provided with financial assistance, but it also helps the entire global economy. The prime reason such a loan is given is to maintain the balance of the global economy.

Activities

Policy advisory to governments and central financial bodies based on economic trends and cross-country trade analyses.Research, statistical forecasting, and analyses on the tracking of global and regional economies and markets.Loans and financial assistance to member countries to overcome the economic crisis.Loans at reduced rates of interest to help developing countries fight economic crises.Technical advice and assistance to help countries improve their economic situation.

Functions of IMF

#1 – Fix the Par Value of Currencies in Gold or Dollar Terms

Every member country has to declare the par value of its currency in Dollar or gold terms. The purpose of the international monetary fund is to maintain stability in the exchange rates of member nations.

#2 – Foreign Currency Loans

They realize the importance of a stable exchange for the growth and progress of free world trade. A member country can buy foreign currency from the fund to overcome its temporary balance of payment deficit.

#3 – Short Supply of Currency

It is possible that a country’s currency is in short supply. A short supply of a currency in the forex market shows a favorable balance of payment. If the fund observes that a particular member country has a surplus balance of payment and the supply of its currency is insufficient relative to demand, the fund may ask the country to revalue its currency.

Benefits

The advantage of the IMF is that it promotes international monetary cooperation and global financial stability. It provides financial aid to countries in debt, especially those with problems in the balance of payments. It promotes overall economic growth.

Conclusion

The international monetary fund is seen as a fund of funds providing economic stability to countries with the debt burden.