Full Form of IMF (International Monetary Fund)| How it Works?

Full-Form of IMF (International Monetary Fund)

The full form of IMF is international monetary fund and it is an organization of international recognition based in Washington DC comprising of 189 countries working towards international monetary cooperation, establishing financial stability, promoting international trade, promoting employment and economic growth, poverty eradication around the globe.

It is financed by the World Bank. It was formed in 1944 at the Bretton woods conference by the vision of Harry Dexter White and John Maynard Keynes and formally came into existence in 1945 with 29 member countries with the aim of reformation of the international payment system. It has a vital role in the management of the balance of payment and global financial crisis.

History

The international monetary fund originally was formed as part of Bretton Woods’s system exchange accord in 1944. The economic depression brought about countries raising restrictions on trade in a bid to revive their struggling economies which led to a devaluation of currencies and depression in global trade.
The crises in international monetary cooperation caused a requirement for oversight. This led to a conclave of 45 countries named as the Bretton Woods conference to propose a framework for international economic cooperation and how to reinstate Europe.
It was decided to form the IMF as a global economic body. Harry Dexter White an American envisioned IMF to function like a bank ensuring borrowing countries could repay their debts in a timely manner.
It was formally formed on 27 December 1945 when the 29 member countries agreed to its articles of agreement.
The end of 1946 saw the IMF grow to 39 members.1 March 1947 saw the IMF begin its financial operation and 8 May saw France becoming the first country to borrow from the international monetary fund.
It was one of the prime bodies of the international economic system. Its nature and form allowed it to reform international capitalism with a boost to national economic cooperation and human welfare.
The influence of the IMF increased as it added more members to its fold.

How this Work?

The international monetary fund has as its mission to bring down global poverty, promote international trade, financial stability and economic growth. The three main functions of the international monetary fund are economic development, lending, and capacity development. The IMF through economic surveillance observes developments that have a bearing on member economies as well as the world economy. This lends to member countries with balance of payment issues so that they can re-establish their economies. The body also provides policy advice and training through its technical assistance programs.

The international monetary fund functions in three main spheres:

Observing the economies of member countries
Lending to nations struggling with the balance of payment issues
Helping member countries reform their economies

#1 – Overseeing Member Country Economies

The international monetary fund’s major concern is to promote stability in the world economic system. It monitors the economies of its 189 member countries. The activity is known as economic surveillance conducted at the national and international levels.
Through economic surveillance, the IMF oversees activities that have a bearing on member economies as well as the world economy. Member nations are asked to have economic policies that are in sync with the IMF policies. Overseeing the macroeconomic and financial plans of the member countries, the international monetary fund sees stability risks and recommends possible amendments.

#2 – Lending

This offers its funds to strengthen the economies of member countries with issues in their balance of payments instead of lending to fund projects. The economic aid can refurbish international reserves, stabilize the currency, and boost economic growth.
This wants the member countries to pay back the loans and the nations must go for structural reformation policies monitored by the international monetary fund. Lending from the IMF has a twofold form. The first at market interest rate while the other is at concessional rates. The concessional rate of interest lending is done to countries with lower income and has a low or nil interest rate.

#3 – Economic Advisory

The last function of the international monetary fund is through capacity development by providing policy advice and training through its various programs. The body provides member nations with an economic adviser in the following areas:

Financial policy
Exchange rate policy
Financial system regulation

Why this Matter?

The financial aid and financial restructuring policies not only help the countries I need that are provided with financial assistance, but it also helps the entire global economy. The prime reason such a loan is given is to maintain the balance of the global economy.

Activities

Policy advisory to governments and central financial bodies based on the analyses of economic trends and cross country trade.
Research, statistical forecasting, and analyses on the tracking of global and regional economies and markets
Loans and financial assistance to member countries to overcome the economic crisis.
Loans at reduced rates of interest to help developing countries fight economic crises.
Technical advice and assistance to help countries improve their economic situation.

Functions of IMF

#1 – Fix the Par Value of Currencies in Gold or Dollar Terms

Every member country has to declare the par value of its currency in Dollar or gold terms. The purpose of the international monetary fund is to maintain stability in the exchange rates of member nations.

#2 – Foreign Currency Loans

The realizes the importance of a stable exchange for the growth and progress of free world trade. A member country can buy foreign currency from the fund to overcome its temporary balance of payment deficit.

#3 – Short Supply of Currency

It is possible that a country’s currency is in short supply. A short supply of a currency in the forex market shows a favorable balance of payment. If the fund observes that a particular member country has a surplus balance of payment and the supply of its currency is insufficient relative to demand, the fund may ask the country to revalue its currency.

Benefits

The advantage of the IMF is that it promotes international monetary cooperation and global financial stability. It provides financial aid to countries in debt especially those with problems in the balance of payments. It promotes overall economic growth.

Conclusion

The international monetary fund is seen as a fund of funds providing economic stability to countries with the debt burden.