Running head: INTERNATIONAL MONETARY FUND 1
International Monetary Fund
Name
Institutional Affiliation
INTERNATIONAL MONETARY FUND 2
International Monetary Fund
Introduction
One of the reasons why studying the relationship between global financial markets and
the International Monetary Fund is an interesting area of study is due to the dynamics
surrounding the concepts. It would be interesting to further research on such a topic to
understand why the International Monetary Fund and other global lenders react differently
towards developing nations. The IMF and the World Bank have stringent regulations when
lending to the underdeveloped and developing nations. These regulations are mostly due to the
uncertainties associated with the economics of such countries (Mele, 2018). Nonetheless, the
study will help in ensuring that there is a concrete understanding of the lending principles which
the IMF uses and why there are disparities across different tiers of nations.
Explanation of the Key Terms
The Global Financial Stability Report (GFSR) is one of the critical terms that ought to be
understood while undertaking this study (World Economic and Financial Surveys, 2018). This
report helps in assessing the risks associated with the global financial systems and how the same
can destabilize the markets. Using this report, the International Monetary Fund can find ways to
mitigate the risks associated with lending money to various countries. The relationship between
the IMF and the global financial markets was birthed in 1944 to regulate the political and
economic tensions of the superpowers. This process facilitated the entry of central banks into all
economies across the globe to ensure that they controlled the economic activities happening in
the respective nations. This way, central banks could inform other financial institutions, and the
government, about the nature of their debt abroad. Thus, global financial markets, therefore,
notify the IMF about the performance of foreign currencies.
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Major Article Summary
The article by Marco Mele explains the relationship between the global financial markets
and the International Monetary Fund. It also highlights how the institution was formulated during
the Bretton Woods conference in 1944 (Mele, 2018). One of the significant points raised by the
article is that this conference allowed central banks to play an integral role in their economies.
Their part was to ensure that there was a flow of money within their countries while regulating
the flow of the same from abroad. This situation was to allow each state to calculate their
exchange rate and for the governments to intervene in the international capital movements. A
such, they could limit or encourage the same to ensure that there is a balance of trade (Mele,
2018). Thus, reconciling the global financial markets with the demands of the international
monetary fund would ensure that the political and social needs of many nations would be
addressed.
After the Great Depression in 1929, there was a need for an international economic
system that was brought forth by the Second World War (Mele, 2018). The finance system was
reacting differently to the war, and there was a growth in equity indices. However, after the war,
the global financial markets of many European nations were damaged, with most of them
witnessing high inflation rates. This situation brought about the need for an international
monetary system that could withstand such shocks in the case of a similar eventuality. The IMF,
therefore, has served the role of cushioning economies from the adverse effects of situations that
may affect the balance of payments. Another central point put across by this work is that the
need to regulate the false capital movements also shows the relationship between the IMF and
global financial markets. Given that the euro-dollar frequently offsets the global markets, the
existence of the IMF becomes critical to ensure that it can regulate such effects. Therefore, the
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relationship between the IMF and the global financial markets lies in the ability of the latter to
control the activities happening in various economies. The IMF helps in regulating currencies to
ensure that those that are stronger, such as the euro-dollar, do not distort the economies of other
nations through unfair foreign exchange policies.
Relationship between the Cited Work and Explanation.
The cited work and the explanation above are related in that they explain the
establishment of the IMF. Each of the pieces outlines the role of the IMF in the creation of global
economic stability. The role of the IMF is to maintain the stringent lending requirements to
ensure that no nation misuses the strength of its currency (Mele, 2018). It also helps in creating a
balance of payments among foreign currencies through the interventions of the central banks.
Nonetheless, the Eurodollar and other strong currencies have remained strong despite the
regulations and political uncertainities. This situation is due to high appetite for global risks.
When compared to developing nations, the developed countries can attract more investors and
conduct activities that will sustain their economy.
The IMF is also critical in pointing out the nations that are likely to experience
deceleration in their economic progress. This body is essential in issuing actual GDP forecasts
and ensuring that the global banking industry is properly advising its respective governments
(Development Committee, 2015). The IMF helps governments set new regulations to cushion
their economies from recessions and the massive job losses that are likely to be witnessed during
such periods. Thus, the relationship between the work cited and the explanation offered shows
that the International Monetary Fund is a critical body in evaluating the financial performance of
a nation.
Relationship between the work cited and other references
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Each of the references shows that the IMF is a critical body in the development of
sustainable fiscal policies. The IMF, on an annual basis, ensures that it revisits its frameworks to
support the growth of every economy, which is reliant on the body (Development Committee,
2015). The institution also facilitates sound macroeconomic policies that can promote the
achievement of sustainable development goals. However, there are emerging other economic
powers that are not part of the European nations that had foreseen the establishment of the IMF
is threatening its existence. The changes in the economies in Asian and Latin countries are
facilitating the restructuring of the IMF (Mohan & Kapur, 2015). The governance systems of this
institution are now set in a way that accommodates the unforeseen growth of other nations that
were previously underdeveloped.
Therefore, capital markets must be strenghthened to enhance their capacity in modern
financial systems (Oprea & Stoica, 2018). Making them robust will improve their
competitiveness and increase the rate of economic development. Financial markets are a critical
part of economic stability, and they offer alternatives on how to direct financing (Oprea &
Stoica, 2018). Like the IMF, financial markets guide the dynamics of their respective industries
while providing business solutions with manageable risks.
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References
Development Committee. (2015). The Role of the IMF in Supporting the Implementation of the
Post-2015 Development Agenda. IMF DC2015-0005, September. Washington, DC:
International Monetary Fund.
Mele, M. (2018). On the Relationship Between Bretton Woods and the Financial Markets, 9(5),
66-72
Mohan, R., & Kapur, M. (2015). Emerging powers and global governance: Whither the
IMF? (No. 15-219). International Monetary Fund.
Oprea, O. R., & Stoica, O. (2018). Capital Markets Integration and Economic
Growth. Montenegrin Journal of Economics, 14(3), 23-35.
World Economic and Financial Surveys. (2018). Global Financial Stability Report October 2018.
A Decade After the Global Financial Crisis: Are We Safer?
