What Is the International Monetary Fund (IMF)?
The International Monetary Fund (IMF) is an international organization that promotes global economic growth and financial stability, encourages international trade, and reduces poverty.
Quotas of member countries are a key determinant of the voting power in IMF decisions. Votes comprise one vote per 100,000 special drawing rights (SDR) of quota plus basic votes. SDRs are an international type ofmonetary reservecurrency created by theIMF as a supplement to the existing money reserves of member countries.
Key Takeaways
- The IMF's mission is to promote global economic growth and financial stability, encourage international trade, and reduce poverty around the world.
- The IMF was originally created in 1945 as part of the Bretton Woods agreement, which attempted to encourage international financial cooperation by introducing a system of convertible currencies at fixed exchange rates.
- The IMF collects massive amounts of data on national economies, international trade, and the global economy in aggregate and provides economic forecasts.
- One of the IMF's most important functions is to make loans to countries that are experiencing economic distress to prevent or mitigate financial crises.
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Understanding the International Monetary Fund (IMF)
The International Monetary Fund (IMF) is based in Washington, D.C. The organization is currently composed of 190 member countries, each of which has representation on the IMF's executive board in proportion to its financial importance. Quotas are a key determinant of the voting power in IMF decisions. Votes comprise one vote per SDR100,000of quota plus basic votes (same for all members).
The IMF's website describes its mission as "to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world."
History of the IMF
The IMF was originally created in 1945 as part of the Bretton Woods Agreement, which attempted to encourage international financial cooperation by introducing a system of convertible currencies at fixed exchange rates. The dollar was redeemable for gold at $35 per ounce at the time.
The IMF also acted as a gatekeeper: Countries were not eligible for membership in the International Bank for Reconstruction and Development (IBRD)—a World Bank forerunner that the Bretton Woods agreement created in order to fund the reconstruction of Europe after World War II—unless they were members of the IMF.
Since the Bretton Woods system collapsed in the 1970s, the IMF has promoted the system of floating exchange rates, meaning that market forces determine the value of currencies relative to one another. This system remains in place today.
IMF Activities
The IMF's primary methods for achieving these goals are monitoring capacity building and lending.
The reports the IMF publishes on its monetary surveillance include the "World Economic Outlook," the "Global Financial Stability Report," and the "Fiscal Monitor."
Surveillance
The IMF collects massive amounts of data on national economies, international trade, and the global economy in aggregate. The organization also provides regularly updated economic forecasts at the national and international levels. These forecasts, published in the World Economic Outlook, are accompanied by lengthy discussions on the effect of fiscal, monetary, and trade policies on growth prospects and financial stability.
Capacity Building
The IMF provides technical assistance, training, and policy advice to member countries through its capacity-building programs. These programs include training in data collection and analysis, which feed into the IMF's project of monitoring national and global economies.
Lending
The IMF makes loans to countries that are experiencing economic distress to prevent or mitigate financial crises. Members contribute the funds for this lending to a pool based on a quota system. In 2019, loan resources in the amount of SDR 11.4 billion (SDR 0.4 billion above target) were secured to support the IMF’s concessional lending activities into the next decade.
IMF funds are often conditional on recipients making reforms to increase their growth potential and financial stability. Structural adjustment programs, as these conditional loans are known, have attracted criticism for exacerbating poverty and reproducing colonialist structures.
Where Does the IMF Get Its Money?
The IMF gets its money through quotas and subscriptions from its member countries. These contributions are based on the size of the country's economy, making the U.S., with the world's largest economy, the largest contributor.
How Much Are the IMF Grants?
IMF grants are given to charities in Washington, D.C., and member countries. The grants are meant to foster economic independence through education and economic development. The average grant size is $15,000.
What Is the Difference Between the International Monetary Fund and the World Bank?
The International Monetary Fund is primarily focused on the stability of the global monetary system and monitoring the currencies of the world. The aim of the World Bank is to reduce poverty across the world and strengthen the low- to middle-class populations.
The Bottom Line
The IMF works to help reduce poverty, encourage trade, and promote financial stability and economic growth around the world. It accomplishes this by monitoring capacity building and providing loans. While the IMF is currently working on these goals with its 190 member nations, the organization has still faced criticism for the possible negative impacts of its structural adjustment programs.
