Sovereign Wealth Fund - SWF
Categories: Managed Funds
For countries dependent on a commodity, like oil, it’s smart to have a sovereign wealth fund.
Sovereign wealth funds (SWF’s) are state-owned investment funds that hold reserves (money saved up), usually for a specific, public-benefit purpose. (The problem: many of these funds are managed by friends-of-the-government rather than by talented investors, so results often suck; and, of course, the temptation for massive corruption is there. "Why rob banks? Because that's where the money lives.")
If SallySeaShore, a nation, had an economy completely dependent on seashells, its entire economy would be subject to the whims of the international seashell markets. When demand for seashells is high, the economy is doing well. But...when another country, OllieOcean, floods the international market with seashells, that demand (not to mention prices) drops. This would cause SallySeaShore to go into a recession. Or worse.
In the case of SallySeaShore, they could create a sovereign wealth fund with the purpose of saving up money when the economy is doing well. That way, they can tap the fund when times are bad and seashell prices and demand are down.
There are no hard and fast rules for sovereign wealth funds; some are pretty liquid, others are more concerned with returns.
Norway boasts the largest sovereign wealth fund in the world, more than $1 trillion USD. Luckily for Norwegians, their sovereign wealth fund is also very transparent. Most other significant sovereign wealth funds are less transparent, implying they’re either tapped by politicians, used as political tools, or both.
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Finance: What is an International Money ...4 Views
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