The Role of IMF on the Global Monetary Systems

1. Presented by: Amena Ahmed Yahya
INSTRUCTOR: DR.REHANA PARVEEN
Commercial
Organizations
The Role of IMF on the
Global Monetary
Systems

2. Research Abstract
• The International Monetary Fund (IMF) has been operating for more than seventy
years and it has a great role in the global economy and the monetary systems. The
establishment of the IMF came after the global economy has faced one of its
greatest crises. It came as the answer to solve all the problems that faced the
global economy. To be able to understand the exact role of the IMF we must first
the purposes of its establishment. Why did the world leaders decide to create such
fund and what are its benefits? And also we must differentiate between the IMF
and the World Bank which is the other institution that has a great impact on the
world economy. Both these institutions can be mistaken by each other due to their
similar roles and purposes. And lastly, the role of IMF in the monetary systems. In
what way does the IMF help the global economy? What is the scope of its
authorities and administration?

3. History of Monetary Systems
• Societies created many different ways of trading to
obtain goods and services.
• The original form of trade is traced back to barters.
• A barter is an exchange of goods between the parties
involved.
• Trade developed and people started using gold and
silver coins, known as bullion.

4. History of Monetary Systems
• “Gold Standard” monetary system
• Many economies around the world based their
currency on the gold standard
• The gold standard is considered the reason that
lead to the Great Depression.

6. History of Monetary Systems
• The Great Depression resulted in:
 Collapse of investments and debts
 Weak banking systems
 Unemployment
 Severe economic deflation
• Economic historians consensually agreed that the gold standard represented
the Great Depression
• countries that did not follow the gold standard managed to evade the Great
Depression
• While countries on the gold standard only started to recover from the
economic crisis when they stopped following the principle of the gold standard

7. International Monetary Fund
• World leaders of the affected
countries gathered to establish a
new monetary form.
• Purpose: Establish a new system
that stabilizes currency
exchange rates without relying
on the gold standard.

8. International Monetary Fund
• At the international Bretton Woods
Conference held in July 1944
Bretton Woods, New Hampshire, in
the United States, delegates from
44 countries negotiated the
agreement on the structure and
operation of the new international
monetary system.

9. International Monetary Fund
• Official existence on 27
December 1945, when 29
countries signed its Articles of
Agreement
• the IMF has near-global
membership of 189 member
countries

10. Difference between IMF and World Bank

11. IMF World Bank
Mandate
promotion of cooperation
between global
economies by providing
policy advice and
technical assistance
promotion of long term
economic development and
reduction of poverty
worldwide by supporting
countries
Loans
helps in designing the
policy programs that will
help solve balance of
payments problems.
Helps in establishing the
necessary projects for a
country’s development
Loan term
short term and medium
term loans that are
funded mainly by the
quota contribution of IMF
members.
Longs terms funded by the
contributions of member
countries and also funded
by bond issuance.

12. IMF and World Bank
• The roles of the IMF and World Bank can be easily confused
because both of these institutions collaborate regularly to
assist the member countries.
• In 1989, their cooperation agreement was set out to ensure
their effective cooperation in the areas where they share
the responsibility.
• The IMF and World Bank maintain a high level of
coordination through their annual meetings that are
conducted by the governors of both institutions who
consult and present the issues and status of the
international economics and finance

13. IMF and World Bank
• The fundamental difference:
• the Bank is primarily a development institution; the IMF is a
cooperative institution that seeks to maintain an orderly system of
payments and receipts between nations.
• Each has a different purpose, a distinct structure, receives
its funding from different sources, assists different
categories of members, and strives to achieve distinct
goals

14. Purposes of IMF
1. To promote international monetary cooperation
2. To facilitate the expansion and balanced growth of international trade
3. To promote exchange stability
4. To assist in the establishment of a multilateral system of payments
5. To give confidence to members by making the general resources of the
Fund temporarily available to them
6. to shorten the duration and lessen the degree of disequilibrium in the
international balances of payments of members

15. The Role of IMF on the Global
Monetary Systems

16. The Role of IMF on the Global
Monetary Systems
• The role that the IMF plays in the global
monetary systems can be demonstrated in three
important aspects:
1. Surveillance
2. Maintaining exchange rates and policies
3. stabilizing capital flow in financial sector issues

17. Surveillance
• effective surveillance of the economy of
member countries, the IMF would be able to
avoid the problems that the global economy in
the 1930s
• an instrument to deal with the imbalances that
might corrupt the global economy and the
financial system
• They monitor the policies and performances of
individual countries that affect the functioning
of the monetary system

18. Maintaining exchange rates
and policies
• In order to have a successful exchange rate
flexibility there are four components that
need to be followed which are:
1. deep and liquid foreign exchange market
2. coherent intervention policy
3. inflation targeting system
4. suitable systems to review and manage the
exchange rates of public and private sectors

19. stabilizing capital flow in
financial sector issues
• The IMF surveillance extends to the capital
accounts of members and it administers the
size and composition of their debts.
• The IMF role is to maintain the flow of capital
even when countries face financial problems.
• The IMF can provide the information it gathers
from its collected data to the private sector
which would help in maintain the capital flow.

20. • The IMF plays an important role in the global
economy, as it aims to create a stable and well-
grounded monetary system that is capable of
withstanding any economic fluctuations that may
put the global economy in another devastating
economic crisis.