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Institutions of the international monetary system Dr Katarzyna Sum International monetary system
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Lecture outline Bank for International Settlements World Bank International Monetary Fund
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Bank for International Settlements (1) Created in 1930 in Basel The central bank for the central banks An intergovernmental institution It was created with the aim of fostering international monetary and financial cooperation
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BIS member countries Source: Wikipedia
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BIS (2) Its activity is aimed at increasing the transparency of the monetary and exchange rate policies of its member states Central bank reserves policy coordination The Basel Committee on Banking Supervision
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BIS (3) Promotes the discussion between central banks and financial markets Organizes meetings of central bank presidents Conducts research in the area of international finance
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BIS (4) Provides statistics about international financial settlements and international financial markets Participates in the transactions of central banks
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World Bank (1) Established in 1944 at the Bretton Woods Conference Headquarters in Washington It consists of two institutions: International Bank for Reconstruction and Development (1944) International Development Association (1960)
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International Bank for Reconstruction and Development member countries Source: Wikipedia
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International Development Association member countries Source: Wikipedia
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World Bank (2) Its goal is to counteract poverty through fostering development globally It provides loans to developing countries for specific programmes It participates in structural adjustment policies
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World Bank (3) International Bank for Reconstruction and Development- 188 member countries International Development Association-172 member countries Dispute over voting power- proportionate to capital shares i.e. well developed countries have higher voting power
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International Monetary Fund (1) It was established in 1944 at the Bretton Woods Conference Headquarters in Washington Its main goal is „ to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world” (IMF)
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IMF (2) At the beginning its activity was aimed at establishing the rules for the Bretton Woods system It helped to maintain the external equilibrium without the necessity of exterme exchange rate changes It supplied international liquidity
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IMF (3) It supports the international cooperation of exchange rate policies It facilitates international trade It contributes to exchange rate stability It enables multilateral international settlements
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Quotas and voting (1) The IMF has 188 member countries It is financed by quotas contributed by its members The quotas determine the voting power of the respective members The quotas determine the amount of credit available to the respective members
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Quotas and voting (2) The quotas are computed according to the formula: 50% of GDP 30% of openness to trade 15% of economic volatility 5% of the value of foreign reserves
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Ensuring exchange rate stability At the beginning the task of the IMF was to maintain the exchange rates conforming to the Bretton Woods system After the Smithonian Agreement and the introduction of floating exchange rates this task changed substantially The role of the IMF lies in providing tools helping to maintain a stable exchange rate e.g. liquidity provision, loans helping to maintain a balanced external equilibrium
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Liquidity provision Increased international trade in the 60-ties imposed the necessity of increased international liquidity Special drawing rights The globalisation of international financial markets rendered SDR’s obsolete The IMF stopped issuing SDR’s in the 70-ties
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IMF loans The loans are granted in tranches The IMF requires conditionalities for the loans i.e. the countries have to meet some criteria concerning political reforms or structural adjustments Conditionalities as an element of IMF critique- arbitrary and controversial
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Various forms of loans Stand by credits (short term unequilibrium) Supplemental Reserve Facility (short term, large scale) Compensatory and Contingency Financing Facility (short term, shortfall of export earnings) Systemic Transformation Facility General Arrangements to Borrow ( extra loans from members to the IMF)
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The value of IMF loans (amt outstanding bln SDR)
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References C. Gianinni, Enemy of none but a common friend of all? An international perspective on the lender of last resort function, Princeton Essays on International Finance, June 1999 M. Bordo, H. James, The International Monetary Fund: its present role in a historical perspective, NBER Working Paper, 2000 The BIS: mission, activities, governance and financial results in: BIS annual report 2010.
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