evaluation of imf & ibrd 22 slides

7/28/2019 Evaluation of Imf & Ibrd 22 Slides

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P R E S E N T E D B Y

S I N I X A V I E R

V I S H A K H

Evolution of IMF & IBRD


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Introduction

IMF is a forum of national economic policies,international monetary and financial systems,

Which involves active dialogue with each memberCountry.

When there is a country where has a serious financeproblem, other countries loan the money for the poorcountry.

IMF is a kind of association among the countries toprepare the situation when the nation bank of country is

bankrupted. IMF is an administrative unit that is international in

nature and whose objective is to regulate and administerthe financial system of the world.


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IMF

IMF headquarters is in Washington D.C , U.S.A

Five largest shareholders are United States, Japan,Germany, France, United Kingdom. China, Russia, andSaudi Arabia have their own seats on the Board.

16 other Executive Directors are elected for two yearterms by groups of countries, known as Constituencies.

Total quotas of $312 billion; outstanding loans of $71billion to 82 countries (According to the report of August

31, 2005). The International Monetary Fund (IMF) is an

organization of 186 coutries .


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Purpose of IMF

TheInternational Monetary Fund(IMF) maintainsinternational monetary cooperation among itsmembers


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Evolution of theInternational Monetary System

Bimetallism: Before 1875

Classical Gold Standard: 1875-1914

Interwar Period: 1915-1944

Bretton Woods System: 1945-1972 The Flexible Exchange Rate Regime: 1973-Present


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Bimetallism: Before 1875

A double standard in the sense that both gold andsilver were used as money.

Some countries were on the gold standard, some onthe silver standard, some on both.

Both gold and silver were used as internationalmeans of payment and the exchange rates amongcurrencies were determined by either their gold orsilver contents.

Greshams Law implied that it would be the leastvaluable metal that would tend to circulate.


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Classical Gold Standard:1875-1914

During this period in most major countries:

Gold alone was assured of unrestricted coinage

There was two-way convertibility between gold andnational currencies at a stable ratio.

Gold could be freely exported or imported.

The exchange rate between two countrys currencieswould be determined by their relative gold contents.


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Classical Gold Standard:1875-1914

Highly stable exchange rates under the classical goldstandard provided an environment that wasconducive to international trade and investment.

Misalignment of exchange rates and internationalimbalances of payment were automatically corrected

by theprice-specie-flow mechanism


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Conti..

There are shortcomings:

The supply of newly minted gold is so restrictedthat the growth of world trade and investment

can be hampered for the lack of sufficientmonetary reserves.

Even if the world returned to a gold standard,any national government could abandon thestandard


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Interwar Period: 1915-1944

Exchange rates fluctuated as countries widely usedpredatory depreciations of their currencies as ameans of gaining advantage in the world exportmarket.

Attempts were made to restore the gold standard,but participants lacked the political will to followthe rules of the game.

The result for international trade and investmentwas profoundly detrimental.


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Bretton Woods System:1945-1972

Named for a 1944 meeting of 44 nations at BrettonWoods, New Hampshire.

The purpose was to design a postwar international

monetary system. The goal was exchange rate stability without the gold

standard.

The result was the creation of the IMF and the World

Bank.


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Conti

Under the Bretton Woods system, the U.S. dollar waspegged to gold at $35 per ounce and other currencies

were pegged to the U.S. dollar.

Each country was responsible for maintaining itsexchange rate within 1% of the adopted par value bybuying or selling foreign reserves as necessary.

The Bretton Woods system was a dollar-based gold

exchange standard.


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The Flexible Exchange Rate Regime: 1973-Present.

Flexible exchange rates were declared acceptable tothe IMF members.

Central banks were allowed to intervene in the exchange ratemarkets to iron out unwarranted volatilities.

Gold was abandoned as an international reserveasset.

Non-oil-exporting countries and less-developedcountries were given greater access to IMF funds


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International Bank for Reconstruction andDevelopment

Founded in 1944 at the Bretton Woods Conference

to finance the reconstruction of countries affected byWWII

help with development of impoverished nationsWorld Banks central institution

181 member countries


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IBRD

ESTABLISHMENT: Bretton Woods, 1944

OBJECTIVES: long-term financing of after-war reconstructionand long-term financing of development of less developedmember countries (developing countries and countries intransition)

MEMBERSHIP: IBDF with global membership


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IBRD

Evolution of activities and changing prioritiesfrom establishment until now:

second half of the 1940s and first half of the1950s: financing economic reconstruction of

countries that were affected most during WorldWar II

second half of the 1950s: long-term financing ofeconomic development

1960s: financing big industrial andinfrastructure objects


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1970s:

socio-economic development goals: growth,poverty reduction, securing basic needs of thepopulation

financing integral programs of countrysidedevelopment, heakth and education projects,securing clean water access, sanitary services,apartment building and urban areadevelopment


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1980s:

project and balance-of-payments financing

ecological aspects of economic development

1990s: Washington Consensus

poverty reduction programs, institutionalcapabilities strengthening and anticorruption

programs, programs oriented towardscooperation with the private sector as well asnon-government organizations


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contii

Sources of funds: basic financial source is capital

borrowing in international capital markets

reserves and debt repayments for loans approved in previous

years Loans as a prevailing form of the allocation of funds: terms of the loans: favorable commercial loans, payment term

between 12 and 20 years (3-5 years of principal paymentdeferral), variable interest rate, unconditional insurance with

the borrowing country guarantee preferred creditor


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IBRD continued

Lends to countries with relatively high per capitaincomes

Money is used for:

development projects (i.e. highways, schools) programs to help governments change the way they manage

their economies

Provides technical assistance in projects


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Where the IBRD gets its money

through the sale of its bonds in internationalcapital markets

Members subscriptions to its capital stock

only 10% of the subscriptions is used by the Bank Callable Capital

portion of the subscriptions that the Bank borrows

the Bank charges a rate of interest rate on its loans topay this back


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evaluation of imf & ibrd 22 slides

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