The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is created in created in July 1944 and its goal is to stabilize international exchange rates. It also offers highly leveraged loans mainly to poorer countries. It manages a fund contributed by all the countries, this fund can be borrowed by countries with payment imbalances.
The main reason for establishing the IMF is to discourage "beggar thy neighbor" exchange rate policies. Such policies that seeks benefits for one country at the expense of others. Such policies attempt to remedy the economic problems in one country by means which tend to worsen the problems of other countries.
Article IV, Section 1 paragraph iii of the IMF fund Articles of Agreement stipulates that each member shall
"avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain unfair competitive advantage over other members"
IMF members are free to pick fixed rates, floating rates or any currency regime in between. It is also true that members countries are expected and permitted to intervene in exchange markets and counter disorderly market conditions. But what each member should not do is seek to maintain the "wrong" exchange rate by large scale prolonged exchange market intervention in one direction. Countries maintaining fixed rates can intervene if it is of short duration, or it is on small scale, or if it is one direction or another. but they cannot violate all three simultaneously.
A country cannot be "manipulating" if it has maintained the same fixed parity over an extended period, eg China. Real effective rates has to be evaluated against changing balance of payments.
The exchange rate system needs to be concerned with both overvalued and undervalued exchange rates. International codes of conduct for exchange rates policy are needed to enforce members. The IMF is charge with the responsibility for overseeing international monetory system.. without them there will be a free for all that is in no one interestes. all the economies depend so heavily on access to international markets.
As i was researching on IMF, i read a lots of negative comments on IMF directions and doings.This leads me to suspect that the IMF maybe is another US consiracy theory or another wolf in sheep wool "helping" those poor and in need.
Argentina experienced a catastrophic economic crisis in 2001, which some believe to have been caused by IMF-induced budget restrictions — which undercut the government's ability to sustain national infrastructure even in crucial areas such as health, education, and security — and privatization of strategically vital national resources. Others attribute the crisis to Argentina's misdesigned fiscal federalism, which caused subnational spending to increase rapidly. The crisis added to widespread hatred of this institution in Argentina and other South American countries, with many blaming the IMF for the region's economic problems
In 1978, one year after Jamaica first entered a borrowing relationship with the IMF, the Jamaican dollar was still worth more on the open exchange than the US dollar; by 1995, when Jamaica terminated that relationship, the Jamaican dollar had eroded to less than 2 cents US. Such observations lead to skepticism that IMF involvement is not necessarily helpful to a third world economy.
