Finance Banking

IMF And Banking

Published at 07/14/2011 15:00:16

The role of the IMF, on a global scale, has really come a long way since the earliest part of the 20th century, to its current state in the 21st century. The International Monetary Fund (IMF) came into existence in 1945, after 29 member countries signed an agreement to stabilize exchange rates and assist in the reconstruction of world’s international payment system. The IMF plays a relatively large role in the development and management world affairs and, due to this fact, has drawn a lot of criticism over the years from various sources. In the course of this article, we shall endeavor to look at the functions of the IMF and its effect on banking on a global scale.

After the Second World War, the banking system had suffered a number of setbacks, especially to do the stability of exchange rates. It is for this reason that the IMF was created; to establish some level of stability the exchange rates of currencies, and still assist the reconstruction of the world’s payment systems, i.e. balance of payments. The founding member contributed to a collective pool of funds, which could be lent on a temporary basis, to countries experiencing deficits in balance of payments. Thus, help to improve the economies of its member countries. Currently, the IMF has 187 members.  Membership is accorded to countries who agree to abide by the terms stipulated by the board. These terms include the avoidance of discriminatory currency practices, and the avoidance of manipulation of exchange rates.  

So what is the relationship between the IMF and banking on a global scale? We’ll since the member states, especially those requesting for loan facilities from the IMF, are required to follow the conditions for that loan, such as increased taxes, cutting public spending, etc. This can have an effect on the economic policies implemented by those countries indebted to the IMF.  Therefore, whatever steps the IMF takes to stabilize an economy, its policies will have an effect on those banks acting in that area.

Tips and comments:

The IMF has been very effective in its role to ensure economic stability and maintenance of balance of payments. The IMF with the cooperation of member countries can be of great assistance in the formulation of strong and workable economic policies. Either way, the IMF does have a major role to play in global finance, and even though banks may not be a direct party to their policies, they can clearly feel the impact of the goals and policies utilized by the IMF.