Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 1 - Trading Introduction
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THE IMF’S PURPOSES

The purposes of the International Monetary Fund are:

  1. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
  2. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
  3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
  4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
  5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
  6. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

Countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (in effect, the value of their currencies in terms of the U.S. dollar, and in the case of the United States, the value of the U.S. dollar in terms of gold) pegged at rates that could be adjusted, but only to correct a “fundamental disequilibrium” in the balance of payments and with the IMF’s concurrence. This so-called Bretton Woods system of exchange rates prevailed until 1971 when the U.S. government suspended the convertibility of the U.S. dollar (and dollar reserves held by other governments) into gold.

Since then, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): some now allow their currency to float freely, some peg their currency to another currency or a group of currencies, some have adopted the currency of another country as their own, and some participate in currency blocs.

At the same time as the IMF was created, the International Bank for Reconstruction and Development (IBRD), more commonly known as the World Bank, was set up to promote long-term economic development, including through the financing of infrastructure projects, such as road-building and improving water supply.

The IMF and the World Bank Group—which includes the International Finance Corporation (IFC) and the International Development Association (IDA)—complement each other’s work. While the IMF’s focus is chiefly on macroeconomic performance, and on macroeconomic and financial sector policies, the World Bank is concerned mainly with longer-term development and poverty reduction issues.

Its activities include lending to developing countries and countries in transition to finance infrastructure projects, the reform of sectors of the economy, and broader structural reforms. The IMF, in contrast, provides financing not for sectors or projects but for general support of a country’s balance of payments and international reserves while the country takes policy action to address its difficulties.

When the IMF and World Bank were established, an organization to promote world trade liberalization was also contemplated, but it was not until 1995 that the World Trade Organization was set up. In the intervening years, trade issues were tackled through the General Agreement on Tariffs and Trade (GATT).

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