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Basic roles, functions and objectives of IMF and the World Bank.
Transcript of Basic roles, functions and objectives of IMF and the World Bank.
The International Monetary Fund formally came into existence on 27 December 1945, when the first 29 countries ratified its articles of agreement.
By the end of 1946 the Fund had grown to 39 members.
On 1 March 1947, the IMF began its financial operations, and
On 8 May France became the first country to borrow from it.
INTERNATIONAL MONETARY FUND
1. working to foster global monetary cooperation,
2. secure financial stability,
3. facilitate international trade,
4. promote high employment and sustainable economic growth,
5. reduce poverty around the world.
1) It oversees the fixed exchange rate arrangements between countries, thus helping national governments manage their exchange rates and allowing these governments to prioritise economic growth.
2) It provides short-term capital to aid balance of payments. This assistance is meant to prevent the spread of international economic crises.
3) It fundamentally altered the floating exchange rates post 1971.
4) It examines the economic policies of countries with IMF loan agreements.
5) The IMF researched what types of government policy would ensure economic recovery.
The IMF works to foster global growth and economic stability.
It provides policy advice and financing to members in economic difficulties.
working with developing nations to help them achieve macro-economic stability and reduce poverty.
To provide other sources of financing to countries in need
Special drawing rights
Special drawing rights (SDR):- are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF).
The SDR is not a currency per se. It instead represents a claim to currency held by IMF member countries for which they may be exchanged.
They can only be exchanged for Euro,Japanese yen, pounds sterling, or U.S. dollars.
SDRs may actually represent a potential claim on IMF member countries' nongold foreign exchange reserves, which are usually held in those currencies.
While they may appear to have a far more important part to play or, perhaps, an important future role, being the unit of account for the IMF has long been the main function of the SDR.
A. The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
• The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound sterling. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members. The value of the SDR is not directly determined by supply and demand in the market, but is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket.
• It can be held and used by member countries, the IMF, and certain designated official entities called "prescribed holders"—but it can not be held, for example, by private entities or individuals. Its status as a reserve asset derives from the commitments of members to hold, accept, and honor obligations denominated in SDR. The SDR also serves as the unit of account of the IMF and some other international organizations.
The World Bank is a United Nations international financial institution that provides loans to developing countries for capital programs. The World Bank is a component of the World Bank Group, and a member of the United Nations Development Group.
The World Bank's official goal is the reduction of poverty. According to its Articles of Agreement, all its decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment.
THE WORLD BANK
(i) To assist in the reconstruction and development of territories of members by facilitating the invest¬ment of capital for productive purpose including;
(a) the restoration of economies destroyed or disrupted by war;
(b) the reconversion of productive facilities to peaceful needs; and
(c) the encouragement of the development of productive facilities and resources in less developing countries
(ii) To promote private investment by means of guarantee or participation in loans and other investments made by private investors.
(iii) When private capital is not available on reasonable terms, to supplement private investment by providing on suitable conditions finance for productive purpose out of its own capital funds raised by it and its other resources.
(iv) To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the produc¬tive resources of members, thereby assisting in raising productivity, the standard of living, and conditions of labour in their territories.
(v) To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first.
(vi) To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and in the immediate postwar years, to assist in bringing about a smooth transition from a wartime to peacetime economy.
EXCHANGE RATE MECHANISMS
Process by which member countries of an economic community (such as the European Union) maintain exchange rate parity among their currencies. The currencies are allowed to fluctuate with respect to one another within a specified limit. If the exchange rate between any two currencies reaches the limit, the central banks of both countries intervene to bring it back within the limit.
There are two ways the price of a currency can be determined against another.
Fixed Exchange Rates
A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate.
A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies).
In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is fixed.
Floating Exchange Rates
Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand.
A floating rate is often termed "self-correcting," as any differences in supply and demand will automatically be corrected in the market.
Look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market.
A floating exchange rate is constantly changing.
Loan Type Descriptions:
BLNC - Contingency B Loans
BLNG - Guarantee B Loans
BLNI - IDA Guarantee
BLNR - Regular B Loans
BTF - Billable Trust Fund
COFN - Co-Financed Non Trust Funds
CPL - Currency Pooled Loans
CPLG - Pooled Loan Group
DSTF - Debt Service Trust Funds
EEC - EEC Credits
FSL - Fixed Spread Loans
FSLG - FSL Loan Group
GRTD - IDA Development Grants
GRTH - IDA HIPC Grants
IBRD - Default IBRD Loan Type
IDA - IDA Credits
IDAD - IDA Default Loan Type for Rules
IDAG - IDA Credit Group
IF - Interim Fund
IFCM - IFC Master Loans
IFCT - IFC - Tranche and NPL Loans
NPL - Non Pooled Non-IFC Loans
NPLG - Non-Pooled Loan Group
PPFB - IBRD PPFs
PPFI - IDA PPFs
SCL - Single Currency Loans
SCLG - Single Currency Loan Group
SCPD - Single Currency Pooled Loans - USD
SCPF - Single Currency Pooled Loans - CHF
SCPM - Single Currency Pooled Loans - DEM
SCPY - Single Currency Pooled Loans - JPY
SF - Special Fund Credits
SPPF - Special PPFs
TF - Trust Funds
TPS - Third Party Sales
Made and Presented by -
Bijoy K. Babu