International Monetary Fund - IMF
Wasn't this Tom Cruise's thing? Eh, maybe a different IMF.
The goal of the IMF is to stabilize the exchange of trade among nations, particularly the less politically stable, smaller emerging market developing 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 1944 as WW2 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, as they bought and sold goods from each other.
The scars of the 1930s currency devaluations were still a Thing. And everyone had this image of it taking a wheelbarrow of German marks, the German currency at the time, to buy a loaf of bread. Now...that loaf had really awesome raisins in it. But it was still just a loaf of bread.
Think of the IMF in 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, where, at this moment, she’s a buyer at $1,502 and a seller at $1,514, and makes a $12 spread on each share sold.
Her only basic requirement? She has to continue to make a market in good times or bad, with volatile spikes and moves in the stock, under any conditions. So she has to hold in inventory many shares of ticker: AMZN in order to make that market.
Well, the IMF is basically that. But with the inventory being the currencies in the countries in which it eases trade. Loading up on rubles one day, as it reduces exposure to the Chinese currency, or RMB, and adding euros on other days while it’s reducing Zimbabwean dollars.
The short idea here is to simply make sure exchange rates and international payments systems run smoothly. Today, almost 200 countries participate in the dance, hoping to stimulate the interaction of trade among all nations. And this makes sense, generally, right? If everyone has something to lose, then they have less interest in like killing each other.
And that whole stabilizing of trade makes for more predictable commerce, and a 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.
In 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 commercially.
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 if it looks as if sales are falling through the floor for India’s competitors, then the IMF can sometimes step in to buy a bunch of bananas and find another buy for them…elsewhere.
And this is a problem at times, because the worst managed countries tend to get the most attention. Corrupt governments. Hi Somalia, Mexico, and Rwanda. We’re lookin’ at you. But not directly in the eyes.
Or ludicrously unfair tax policy to favor the rich. Hi Greece, checkin’ you out. Or to favor the poor. Hey, Venezuela. How’d that huge, leveraged bet on oil prices going up work out for ya?
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 just, um…war. That is, typically, the IMF watches and advises those who seem to have their acts together...and lends money to those who don't.
The 5 largest stakeholders in the IMF are the US, Japan, France, Germany, and the UK. China? Where are you? We need you in here.
The fund itself was capitalized, or funded, by initial capital contributions, and there are more coming, as more and more countries teetering on the edge of full bankruptcy, uh...come a-knockin’.