The World Bank

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