0:00 you hear a lot about the IMF or international monetary fund and the World Bank because they are two influential organizations that impact all of our lives but they were created back in 1944 in response to the economic uncertainty of the times and with so much having changed since then what are their roles today are they really helping the economy and why are they considered so controversial hi everyone I'm Taylor Kenny with itm trading and in order to understand what the IMF and the world bank's roles are today and why they're so polarizing it's important to understand how and why they were created and break down what's happened since during the Great Depression in World War II many countries set up restrictive trade policies that hindered economic
0:45 growth however after the war was over these same countries saw an opportunity to work together on a mutually beneficial system that would result in Greater International Trade the only issue was that with unrestricted trade individual economies would become more dependent on each other with greater dependence on another country's economy came greater concerns around one nation's economy destabilizing another in the event of a recession or a natural disaster to address this concern 44 countries sent delegates in 1944 to the Bretton Woods conference in Bretton Woods New Hampshire to create a solution if there was ever going to be true trade the solution had to involve stability through some kind of fixed exchange rate but they also wanted to move away from
1:32 the gold standard so they could have more flexibility AKA more government freedom to take on more debt on the name of stimulating their economies at this time the United States held the majority of the world's gold reserves about three quarters so that combined with the United States economic and political power allowed them to propose that in lieu of the gold standard all currencies could be tied to the US dollar as a fixed exchange rate the U.S dollar in turn would be backed by gold so any currency that was exchanged with US dollar would then be exchanged with gold at a rate of 35 dollars per ounce and this is how the IMF was created the international monetary fund would oversee the stability of the individual
2:18 exchange rates therefore guaranteeing that there would be stability in the system and anytime a country wanted to change the parity of their exchange rates the IMF would have to be the one to approve or deny it in addition to monitoring exchange rates the IMF would also be the lender for any country that was experiencing a balance of payment problem each member of the IMF could borrow as needed and this would ensure that interest rates wouldn't rise and trade barriers wouldn't pop up if a country's currency value suddenly got too low at the same time the International Bank for reconstruction and development or the World Bank or World Bank group as they're known now was created to be clear too the World Bank is not a bank
3:04 it's an organization that was originally created to help with European prosperity in rebuilding after the war the IMF and the World Bank were created at the same time as part of one solution but they are completely separate organizations and entities the thought behind the World Bank creation was that if all of these countries were going to be working together and dependent on one another they wanted to make sure that there was post-war funding available to prevent any kind of future crisis from happening with an agreed-upon system and these organizations in place things worked reasonably well at first however it wasn't too long until some issues started to pop up the IMF struggled to keep exchange rates true countries who had overvalued currencies did not want
3:50 to devalue their currency for fair political repercussions and surplus countries had no incentive to revalue their currency because they were benefiting from a trade advantage cut to the 1960s and we have a serious problem the U.S has more dollars in circulation and in global central banks that are stockpiled then the U.S actually has gold reserves this called into question the US's ability to actually exchange the US dollars for gold which as you remember was the Crux of this entire system we now know it's estimated that there were about four times as many US dollars in circulation than there was gold reserves to back it up so in 1971 President Nixon cut the tie between the US dollar and gold essentially ending
4:36 the convertibility promise and ending the Bretton Wood system that had been in place since 1944 I promise I'm coming back to the IMF in the world bank without the Brenton Woods system in place there was less focus on individual exchange rates and more on domestic stability given the new floating system you might be wondering to yourself well why is the IMF still here today because wasn't the entire purpose back when it was created in order to monitor individual exchange rates and you wouldn't be alone in questioning that they are now in charge of surveillance of exchange rate policies and a knight in shining armor when a country needs emergency debt assistance to get them out of a pickle so who funds these organizations well the IMF is primarily funded by quotas essentially a
5:23 subscription payment from member countries the higher countries wealth the higher their quota the higher their quota the higher percentage of voting right or power they have within the IMF the IMF is also responsible for creating sdrs or special drawing rights in 196 69 it is not its own currency but it is an alternative it's basically a claim on freely usable currency of other IMF members it's a lot to unpack I will come back to sdrs and when it comes to the World Bank they also receive funding off of their member countries and while they do do zero percent or low interest long-term loans they also do regular loans and make money off of those loan interest payments and the world bank's goal has consistently changed well
6:09 before the Bretton Wood system collapse originally and stated to help Europe rebuild today their aim is to fight or end poverty this includes everything from food water housing environmental you name it they probably have a hand in it there are proponents and opponents of both of these organizations but mainly there are a lot of questions around what they do and why it is important to note that regardless of where you fall on this they are extremely influential when it comes to the Global Financial economy I want to be fair here so I'm going to go through both starting with the proponents then moving on to the opponents and controversies the proponents will claim that many good things have happened that wouldn't have happened otherwise without the IMF in the World Bank some examples of success would be taking countries like Bosnia
6:56 and South Korea and helping their economies and boosting them another example of success would be tens of thousands of roads that have been built in rural India that have helped communities have access to food water and help their local economies grow thanks to billions of dollars of investment from the world bank now some people question the true intention of these efforts even if they are a success many wonder who they actually benefit are they really done just to further Advance Western politics and policies or is it something related to infrastructure funding to help the rich get richer who knows again these organizations are not without their fair share of controversies the World Bank and the IMF have both been charged with policy and action that has been exploitative to poorer countries
7:41 damaging to the environment and created a globalization mindset that makes countries think that they can fail without consequence just to name a few with our current globalization and debt system there are real fears that one country's failings will have an impact on the entire system given this knowledge there's a level of confidence that Reckless decisions such as taking on massive amounts of debt that can't be paid back will be fine because it will just be taken care of by the IMF this could be encouraging countries to take on more debt many would argue that it's better to stop an rving and let these currencies come to their true market value many have also said that the imf's role is outdated and ineffective as it's often difficult to tell if their intervention has even been positive a
8:26 perfect example of this would be Argentina who restructured alone with the IMF in 2018. part of that agreement was monetary tightening to restore confidence it actually had the opposite effect and a serious recession followed after are lending billions of dollars with poor policy and lack of oversight there was nothing to show for it the wealthy took their money outside of the country at a favorable exchange rate and Argentina was left off worse than they had been found this resulted in an unsustainable debt burden in 2020 and riots against the IMF from civilians now there are many that claim that the short-sighted monetary restrictions that come attached to these Emergency Loans are actually intentional if the country fails they'll be forced to take money or
9:12 restructure loans and then have to bend to the political whims of whoever their savior is certain countries also have felt that they have limited influence and have been vocal about their displeasure especially when they might be the countries who are utilizing the loans the most this all ties into the brics countries Brazil Russia India China and South Africa who all want a bigger seat at the table and have taken matters into their own hands to find economic stability and prosperity there are multiple reasons that these countries feel that the World Bank and the IMF are not fair one of them being quota and voting rights as I mentioned earlier the higher your quota the higher your voting rights so the United States holds the largest percentage of voting rights at 16 and a half percent Which is far greater than the next largest voting
9:57 right of Japan at 6.14 we also know that brics countries have created their own new development Bank an alternative to the World Bank hoping that this bank can provide loans and support without so many of these policies and strings attached that no one can make sense of lastly I mentioned them earlier but sdrs or special drawing rights are top of the list of concerns with the IMF sdrs are an artificial currency instrument whose value are based on a basket of other currencies we have a lot of questions about what is coming next with these sdrs but the assumption is with the superpowers moving into digital currency and taking away your control over your wealth there's a lot to be concerned about there's a lot to unpack here so so do not fear next week I will be doing a
10:44 dedicated deep dive into sdrs what they are how they came to be where they're going and how you can protect yourself I so appreciate all you watching and learning with me if you feel like this video wasn't enough don't worry we have a ton of educational videos so please be sure to go check those out also let me know what questions you have or other topics you'd be interested in seeing I love reading all of your comments in the meantime if you want to get started on learning how to protect yourself now ahead of next week's video feel free to click on the link below and start your education there's never been a better time to get a strategy in place as always my name is Taylor Kennedy with itm trading thank you so much until next time
