IMS, Evolution of IMS, Payment Settlements, World Bank & IMF, IDC and IFC

Priyanka Tilak Rajlaxmi Patil Rajneesh Thapa Raju K.L.

INTERNATIONAL MONETARY SYSTEM

IMS refers
to the body of rules and conventions which have been developed largely on the basis of traditional mechanisms and practices for conducting international financial transactions and deal with imbalance in international payments.

International financial transactions necessarily involve transfer of funds between parties across the national frontier, conversion of various national currencies into one another, acquisition and disposal of financial assets and lending and borrowing operations between nationals of different countries.
IMS is necessarily concerned with determination of exchange rates between different national currencies, the role of capital markets of different countries and provision of international liquidity.

Evolution of the International Monetary System

Bimetallism: Before 1875 Classical Gold Standard: 1875-1914

Interwar Period: 1915-1944

Bretton Woods System: 1945-1972 The Flexible Exchange Rate Regime: 1973-Present

Bimetallism: Before 1875

A double standard in the sense that both gold and silver were used as money. Both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents.

Classical Gold Standard: 1875-1914

During this period in most major countries:
Gold alone was assured of unrestricted coinage There was two-way convertibility between gold and national currencies at a stable ratio. Gold could be freely exported or imported.

The exchange rate between two countrys currencies would be determined by their relative gold contents.

Classical Gold Standard: 1875-1914

For example, if the dollar is pegged to gold at U.S.$30 = 1 ounce of gold, and the British pound is pegged to gold at 6 = 1 ounce of gold, it must be the case that the exchange rate is determined by the relative gold contents:

$30 = 6

$5 = 1

Classical Gold Standard: 1875-1914

Highly stable exchange rates under the classical gold standard provided an environment that was favorable to international trade and investment. Misalignment of exchange rates and international imbalances of payment were automatically corrected by the price-specie-flow mechanism.

Price-Specie-Flow Mechanism
Suppose Great Britain exported more to France than France imported from Great Britain.
Net export of goods from Great Britain to France will be accompanied by a net flow of gold from France to Great Britain. This flow of gold will lead to a lower price level in France and, at the same time, a higher price level in Britain.

The resultant change in relative price levels will slow exports from Great Britain and encourage exports from France.

Interwar Period: 1915-1944

Exchange rates fluctuated as countries widely used predatory depreciations of their currencies as a means of gaining advantage in the world export market. Attempts were made to restore the gold standard, but participants lacked the political will to follow the rules of the game. The result for international trade and investment was profoundly detrimental.

Bretton Woods System: 1945-1972

Named for a 1944 meeting of 44 nations at Bretton Woods, New Hampshire. The purpose was to design a postwar international monetary system.

The goal was exchange rate stability without the gold standard.
The result was the creation of the IMF and the World Bank.

The Bretton Woods system was a dollar-based gold exchange standard.

The Flexible Exchange Rate Regime: 1973-Present.

Flexible exchange rates were declared acceptable to the IMF members.
Central banks were allowed to intervene in the exchange rate markets to iron out unwarranted volatilities.

Gold was abandoned as an international reserve asset.

Non-oil-exporting countries and less-developed countries were given greater access to IMF funds.

Payment Settlement systems

A payment & settlement system can be described as a system which consists of a particular group of institutions & a set of instruments & procedures, designed to ensure the circulation of money & speed up interbank & other settlements resulting from the various economic transactions either within a country or btw countries.

Settlement means the settlement of payment instructions received & these include settlement of securities, forex or derivatives or other transactions. Types of settlements Settlement system in India

Settlement system in India

Real Time Gross Settlement (RTGS) National Electronic Funds Transfer (NEFT) systems.

Settlement system in US
Federal reserve communication system (FEDWIRE) It intro a new system FRS-80 after which there was a rapid increase in settlement volume

2 facilities:
Transfer btw reserve deposit accounts of all financial institutions in the US with their affiliates. Transfer of govt. related securities is used in transfer of treasury bills, federal agency securities and accompanying settlements

Distinctive feature: payments are irrevocable i.e., once the payment is made it is legally final and the receiving banks receipt of the fund is guaranteed not to be changed or cancelled.(this is called FINALITY OF PAYMENT)

Clearing house interbank payment system (CHIPS)

CHIP is a settlement system operated in New York Clearing house association & was established as an efficient means of settlement of Euro-dollar transaction.

It is presently a centralized settlement system processing more than 90% of the dollar based international transactions.

Process of CHIP
Payment instructions are sent out & received continuously during the day. Each member banks net balance continues to fluctuate, but at the cut off time, each settlement bank fixes its own net balance The fixed net balance is then settled btw the chips account & the banks account with federal reserve bank of new york through FEDWIRE. The settlement is done before the settlement closes and as a result the chips acconut balance become zero.

Settlement system in UK
The main settlement system among banks or btwn banks & the central bank in UK is Clearing House Automated Payment System (CHAPs).

CHAP is a settlement system operated by 14 settling banks including the Bank of England and was estbd as an effective means of making settlements in transactions done in London financial market.
The transactions are irrevocable and all are settled on the same day.

International Monetary Fund

The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The International Monetary Fund was conceived in July 1944 originally with 45 members and came into existence in December 1945 when 29 countries signed the agreement

WORLD BANK
The world bank is an internationally supported bank that provides financial and technical assistance to developing countries for development programs (e.g. bridges, roads, schools)with the stated goal of reducing poverty.

BUILDING OF WORLD BANK

INTRODUCTION
President Membership :- Jim Yong Kim :- 188 countries

Affiliates

:- IFC, MIGA, ICSID, IDA,IBRD

Headquarters :- Washington, DC Established :- July 1,1944

Difference b/w IMF and WB

IMF
Oversees the monetary system of the world.

WB
Promotes economic development in underdeveloped countries. Helps underdeveloped countries by providing longterm financing for development projects.

Promotes exchange relations and stability among its member countries.

Financial resources come from the fixed quota subscriptions of its member countries.

Financial resources are acquired by borrowing on the international bond market.

IMF
Assists all its member countries that are in temporary balance of payments difficulties by providing them short- to medium-term credits. Has a total staff of 2,300 from 185 countries.

WB
Provides special finances to poor countries that have a per capita Gross National Product (GNP) less than $865 a year.

Has a staff of 7,000 from 185 countries.

International Development Corporation (IDC)

A U.S. State of Virginia corporation that has for almost twenty years been in the international project development business, specializing in identification, master planning and ultimate development of commercially feasible infrastructure, energy and real estate investment projects worldwide, providing project structuring, planning and organization, including project development, administration and management expertise, securing funding and attracting cutting edge technologies and financial resources from leading United States and international corporations and financial institutions.

What We Do:
Provide professional services for project development and financing, turning project concept into reality through world call partnerships best qualified for projects.
Identify unique and commercially feasible projects worldwide and promote their realization through teaming with specialized U.S. and international equipment manufacturers and technology providers and effectively transferring western capital resources, expertise and technologies to emerging economies. For every specific project identify team of leading, most experienced and technologically advanced industry players. Use extensive international network and collective expertise of experienced and highly motivated multilingual international business executives for successful project development in various countries.

Our Organization:
The Company international network is managed through IDC headquarters in Arlington, U.S. state of Virginia, with offices and representatives operating in Athens (Greece), Almaty (Kazakhstan), Moscow (Russia), Nice (France), Pretoria (South Africa), Stowe (Massachusetts) and Vilnius (Lithuania). For implementation of projects of high complexity we operate through partnerships set up under the umbrella of the IDC GROUP, the brand that was established almost ten years ago. IDC is also a co-founding member of the IDC Group GES (Global Energy Solutions), established in November 2012 for application of advanced power generation technologies and development of renewable energy projects.

IFC is part of the World Bank Group (WBG), and the largest global development finance institution (DFI) focused on developing the private sector in low-income and other emerging markets. Its purpose is to create opportunity for people to escape poverty and improve their lives. This document comprises IFCs written submission to the Australian Multilateral Assessment (AMA), and is structured as follows.

IFC History
Six decades of creating opportunity Created in 1956.
IFC is the largest organization of its kind. Holds $48.8 billion portfolio touching almost every major industry. Reach millions of people in over 100 countries.

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What We Do
Investment Services
In FY11, IFC invested $12.2 billion and 518 projects Mobilized an additional $6.5 billion to support private sector in development countries.

IFC Financial & Investment Projects

Loans Syndication Loans Equity Finance Structured Finance Risk management Projects Local Currency & Financing Trade Finance
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 IFC Asset Management Company

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Mobilizes and manages funds on behalf of institutional investors including sovereign funds, pension funds, and development finance institution. As of June 30, 2011 had approximately $4.1 billion in assets under management.

Funds include
IFC Capitalization Fund IFC Africa, Latin America and Caribbean Fund The African Capitalization Fund

Advisory Services
Business Lines:
Access to Finance Investment Climate Sustainable Business Public-Private Partnerships
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Private sector, with strong sponsor commitment Financially, economically, environmentally, and socially sound Maximum IFC share (excluding syndications)
25% of project cost over $50 million 35% of project cost under $50 million 40% of project costs for expansion projects

Investment size
Typically $5 million to over $100 million

Projects and IFCs investment are expected to earn competitive and commercial rates of return:
Comprehensive security package required for loans Reasonable exits are expected for IFC equity and quasi-equity investments

Expert IFC teams work closely with the client to finalize the investment
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