International Monetary Fund - IMF
Categories: Econ, International
Wasn't this Tom Cruise's thing? Eh, maybe a different IMF.
The goal of the IMF is to stabilize the exchange of trade among nations, particularly the less politically stable, smaller emerging market developing third world…or whatever other politically correct name for economically weak countries comes to mind.
So, what actually is the fund? Well, it was started in 1944 as WW2 was coming to a close, and the aftermath of The Great Depression, which financially infected the world, was still on everyone’s minds. Countries wanted there to exist some stabilizing force in their exchange of promissory paper, as they bought and sold goods from each other.
The scars of the 1930s currency devaluations were still a Thing. And everyone had this image of it taking a wheelbarrow of German marks, the German currency at the time, to buy a loaf of bread. Now...that loaf had really awesome raisins in it. But it was still just a loaf of bread.
Think of the IMF in the same vein as you would a market maker in a stock. That is, a given exchange allows an investor to make a market in, say, Amazon, where, at this moment, she’s a buyer at $1,502 and a seller at $1,514, and makes a $12 spread on each share sold.
Her only basic requirement? She has to continue to make a market in good times or bad, with volatile spikes and moves in the stock, under any conditions. So she has to hold in inventory many shares of ticker: AMZN in order to make that market.
Well, the IMF is basically that. But with the inventory being the currencies in the countries in which it eases trade. Loading up on rubles one day, as it reduces exposure to the Chinese currency, or RMB, and adding euros on other days while it’s reducing Zimbabwean dollars.
The short idea here is to simply make sure exchange rates and international payments systems run smoothly. Today, almost 200 countries participate in the dance, hoping to stimulate the interaction of trade among all nations. And this makes sense, generally, right? If everyone has something to lose, then they have less interest in like killing each other.
And that whole stabilizing of trade makes for more predictable commerce, and a more trustworthy ability to plan and build and liquidity or trust in a credit system, so that countries can take on modest amounts of leverage with credit terms, making sales happen more easily all around the world.
In going through the IMF, or trading through their system, the world then has much better financial “surveillance” as to how well or poorly a given country is doing commercially.
A big spike in banana sales from India? Well, that’s probably good. But what does it mean to the countries competing against India in selling those bananas? Well, through the IMF trading system, the numbers are easy to check. And if it looks as if sales are falling through the floor for India’s competitors, then the IMF can sometimes step in to buy a bunch of bananas and find another buy for them…elsewhere.
And this is a problem at times, because the worst managed countries tend to get the most attention. Corrupt governments. Hi Somalia, Mexico, and Rwanda. We’re lookin’ at you. But not directly in the eyes.
Or ludicrously unfair tax policy to favor the rich. Hi Greece, checkin’ you out. Or to favor the poor. Hey, Venezuela. How’d that huge, leveraged bet on oil prices going up work out for ya?
Yeah. None of those countries have done…well. And the disciplined group of relatively wealthy countries have had to step in at times and bail them out with huge loans to stave off either civil war or just, um…war. That is, typically, the IMF watches and advises those who seem to have their acts together...and lends money to those who don't.
The 5 largest stakeholders in the IMF are the US, Japan, France, Germany, and the UK. China? Where are you? We need you in here.
The fund itself was capitalized, or funded, by initial capital contributions, and there are more coming, as more and more countries teetering on the edge of full bankruptcy, uh...come a-knockin’.
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Finance Allah Shmoop What is the International Monetary Fund or
the IMF or IMF If you're just thie goal of
the I M f is to stabilize the exchange of
trade among nations particularly you know the less politically stable
ones the smaller ones the emerging market ones the developing
ones the Third World or whatever other politically correct name
for economically weak countries comes to mind So what actually
is the fund Well it was started in nineteen Forty
for as two was coming to a close And the
aftermath of the Great Depression which financially infected the world
was still on everyone's minds Countries wanted there to exist
some stabilizing force in their exchange of promissory paper I
bonds as they bought goods and services from each other
The scars of the nineteen thirties currency devaluations all around
the world were still a thing and everyone still had
this image of it Taking a wheel barrel of German
marks the German currency at the time to buy a
loaf of bread had crazy inflation from a bunch of
paper was worth but well you know that loaf had
really awesome raisins in it but still was a loaf
of bread Okay well think of the IMF and the
same vein as you would a market maker in a
stock that is a given exchange allows an investor to
make a market in say Amazon stock where at this
moment she's a buyer at fifteen Oh two in the
cellar at fifteen fourteen and she makes twelve dollars spread
on each share sold her only basic requirement While she
has to continue to make a market in good times
or bad with volatile spikes and moves in the stock
under any conditions she has toehold in inventory lots and
lots of shares of a M CNE in order to
make that market like just make it be liquid Well
that's basically how the I M F works But with
the inventory being the currencies in the countries in which
it eases trade but may load up on rubles one
day is it reduces exposure that the Chinese currency or
RMB then may add euros on other days while it's
reducing Zimbabwean dollars Yeah the short idea here is to
simply make sure that exchange rates and international payment systems
run smoothly Liquid Lee So today almost two hundred countries
participate in the dance hoping to stimulate the interaction of
trade among all nations And this makes sense generally right
Like if everyone has somethingto lose well then they probably
have less interest in doing things like Oh you know
kill each other And that whole stabilising of trade makes
for more predictable commerce more trustworthy ability to plan and
build and liquidity or trust in a credit system so
that countries can take on modest amounts of leverage with
credit terms making sales happen more easily all around the
world Yeah it's a good idea And going through the
IMF or trading through their system The world then has
much better financial surveillance as to how well or poorly
a given country is doing economically or at least commercially
like how well they're selling bananas or coffee beans or
oil or whatever they sell a big spike in banana
sales from India Well that's probably good But what does
it mean to the countries competing against India in selling
those bananas well through the IMF trading system The numbers
are easy to check and it looks as if sales
are for falling through the floor For India's competitors Well
then the IMF can sometimes step in and buy a
bunch of bananas you know because they have appeal and
find another buyer for them elsewhere And this is a
problem at times because well the worst managed countries the
most corrupt ones tend to get the most attention right
Corrupt governments You thinking Somalia Mexico Rwanda Yeah we're looking
at you guys or it's all about ludicrously unfair tax
policy to favor the rich high Greece were looking at
you or to favor the poor a Venezuela How'd that
huge leverage bed on oil prices going up work out
for you there Yeah none of those countries have done
well and the disciplined group of relatively wealthy countries have
had to step in at times and bail them out
with huge loans to stave off either civil war or
mass starvation or well you know just to stave off
war Typically the IMF watches and advises those who seem
to have their acts together And it lends money to
those who don't The five largest stakeholders in the IMF
are the US Japan France Germany and the U K
Hey China where are you We need you in here
Well the fund itself was capitalized are funded by initial
capital contributions a gazillion years ago And there are more
coming as more and more countries teeter on the edge
of a well full bankruptcy Yeah You know more countries
they're going to be coming in Aachen for a western 00:04:26.804 --> [endTime] dough