Comparison of Global Financial Institutions
The global financial landscape is dominated by a number of key institutions, each with its own unique role, mandate, and impact on the world economy. In this article, we will compare some of the most prominent global financial institutions, namely the International Monetary Fund (IMF), the World Bank, and the Bank for International Settlements (BIS).
The International Monetary Fund (IMF)
The International Monetary Fund, or IMF, is an international organization established in 1944 to promote global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Mandate and Functions
The IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.
Impact and Influence
The IMF’s influence is felt in its ability to lend money to nations in financial trouble. However, these loans often come with conditions, which can include austerity measures or structural reforms, and this has been a source of controversy. Critics argue that the IMF’s policies can lead to social unrest and exacerbate economic problems in the countries it is trying to help.
The World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA).
Mandate and Functions
The World Bank’s most recent aim is the reduction of poverty. As of November 2018, the World Bank aims to end extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%. Its other goal is to promote shared prosperity, by fostering income growth for the bottom 40% for every country.
Impact and Influence
The World Bank’s influence comes from its ability to provide financial resources, knowledge, and technical services to its borrowing member country governments. Its loans are often used to fund infrastructure projects like bridges, schools, and hospitals. However, these projects have sometimes been criticized for displacing people and harming the environment.
The Bank for International Settlements (BIS)
The Bank for International Settlements (BIS) is an international financial institution owned by central banks which “fosters international monetary and financial cooperation and serves as a bank for central banks”.
Mandate and Functions
The BIS carries out its work through its meetings, programmes and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction. It also provides banking services, but only to central banks and other international organizations.
Impact and Influence
The BIS’s most visible role is in the setting of capital adequacy requirements for banks, known as Basel Accords. The BIS has the ability to shape standards for banking regulation, and its recommendations can have a significant impact on the global financial system.
Conclusion
While the IMF, World Bank, and BIS all play key roles in the global financial system, their mandates, functions, and impacts differ. The IMF focuses on monetary cooperation and financial stability, the World Bank on poverty reduction and development, and the BIS on serving central banks and fostering financial cooperation. Understanding these institutions and their roles can provide valuable insights into the workings of the global economy.
