1. Institutions of the international monetary system Dr Katarzyna Sum International monetary system

2. Lecture outline  Bank for International Settlements  World Bank  International Monetary Fund

3. 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

4. BIS member countries Source: Wikipedia

5. 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

6. 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

7. BIS (4)  Provides statistics about international financial settlements and international financial markets  Participates in the transactions of central banks

8. 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)

9. International Bank for Reconstruction and Development member countries Source: Wikipedia

10. International Development Association member countries Source: Wikipedia

11. 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

12. 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

13. 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)

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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)

22. The value of IMF loans (amt outstanding bln SDR)

23. 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.