Submitted to:

Mam Huma Fatima

Submitted by:
Sahar Masood

Roll no:
1024

Subject:
Money and Banking

Session:
BBA (hons) 6th semester morning

Date:
27.02.2014

International monetary system

1. International monetary fund(IMF)
The International Monetary Fund (IMF) is an international organization. 188 countries are members of the International Monetary Fund. It has its headquarters in Washington, D.C., USA.

Origin:
In the 1930s, many countries faced economic problems. Some of such problems were falling standard of living and unemployment by large number of people. Trading between different countries also came down. Some countries reduced the value of their currencies. All such factors combined and an economic depression resulted. By late 1939, the Second World War had started. After the Second World War was over, most countries found that the international value was not smooth and faced many restrictions. Leaders of many countries thought over these matters and discussed them in meetings. Thus, after the Second World War, many countries felt the need to have an organization to get help in monetary matters between countries. To begin with, 29 countries discussed the matter, and signed an agreement. The agreement was the Articles of Association of the International Monetary Fund. The International Monetary Fund came into being in 29th December 1945

Membership:
Any country may apply to become a member of the IMF. When a country applies for membership, the IMFs Executive Board examines the application. If found suitable, the Executive Board gives its report to IMFs Board of Governors. After the Board of Governor clears the application, the country may join the IMF. However, before joining, the country should fulfill legal requirements, if any, of its own country. Every member has a different voting right. Likewise, every country has a different right to draw funds. This depends on many factors, including the member countrys first subscription to the IMF.

Function:
The IMF does a number of supervisory works relating to financial dealings between different countries. Some of the works done by IMF are: Helping in international trade, that is business between countries Looking after exchange rates Looking after balance of payments Helping member countries in economic development It also provides a machinery for international consultations.

Management:
A Board of Directors manages the IMF. One tradition has governed the selection of two most senior posts of IMF. Firstly, IMFs managing director is always European. World Bank's president is always from the United States of America. The major countries of Europe and America control the IMF. This is because they have given more money to IMF by way of first subscriptions, and so have larger share of voting rights.

Benefits:
These loan conditions ensure that the borrowing country will be able to repay the Fund and that the country won't attempt to solve their balance of payment problems in a way that would negatively impact the international economy. The incentive problem of moral hazard, which is the actions of economic agents maximizing their own utility to the detriment of others when they do not bear the full consequences of their actions, is mitigated through conditions rather than providing collateral; countries in need of IMF loans do not generally possess internationally valuable collateral anyway. Conditionality also reassures the IMF that the funds lent to them will be used for the purposes defined by the Articles of Agreement and provides safeguards that country will be able to rectify its macroeconomic and structural imbalances. In the judgment of the Fund, the adoption by the member of certain corrective measures or policies will allow it to repay the Fund, thereby ensuring that the same resources will be available to support other members.

Voting power:
Voting power in the IMF is based on a quota system. Each member has a number of "basic votes" (each member's number of basic votes equals 5.502% of the total votes), plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member country's quota. The Special Drawing Right is the unit of account of the IMF and represents a claim to currency. It is based on a basket of key international currencies. The basic votes generate a slight bias in favor of small countries, but the additional votes determined by SDR outweigh this bias.

IMF and Pakistan:

The BOP of Pakistan has been in deficit since long. Moreover, due to bad governance, malpractice, misuse of industrial credit, Pakistan is constantly compelled to seek help of IMF and other international credit institutions. Pakistan joined IMF on 7th November, 1950 and since then the IMF has been providing assistance to Pakistan under SAF, ESAF and various other programmes. But the burden of loans has been accumulated so huge that problem arising out of it seems endless. To manage the external debt of Pakistan and to find way out of fiscal problems our government has entered in SBA agreement with IMF. Under this agreement Pakistan will receive monetary aid, on the other hand, IMF impose many conditions on Pakistan. Reserve holding with IMF
Votes Quota Loans Stand by agreement Extended agreement Compensatory & contingent loans Structurally adjustment facility 465.25 175.74 352.70 10.93 10587 (million SDR) 1033.70

2. World Bank(WB)
The World Bank is a United Nations international financial institution that provides loansto developing countries for capital programs. The World Bank is a component of the World Bank Group, and a member of the United Nations Development Group. The World Bank's official goal is the reduction of poverty. According to its Articles of Agreement, all its decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment

World Bank
The World Bank is composed of two institutions: 1. International Bank for Reconstruction and Development (IBRD) 2. International Development Association (IDA).

History:
The World Bank was created at the 1944 Bretton Woods Conference, along with three other institutions, including the International Monetary Fund(IMF). The World Bank and the IMF are both based in Washington DC, and work closely with each other. Although many countries were represented at the Bretton Woods Conference, the United States and United Kingdom were the most powerful in attendance and dominated the negotiations

Function:
Improving living standard Poverty reduction strategies Clean technology fund management Clean air initiative United nation development business

Membership:
All of the 187 UN members and Kosovo that are WBG members participate at a minimum in the IBRD. Most of them also participate in some of the other 4 organizations: IDA, IFC, MIGA, ICSID. WBG members by the number of organizations which they participate in: 1. only in IBRD: San Marino 2. IBRD and one other organization: Suriname, Tuvalu, Brunei 3. IBRD and two other organizations: Antigua and Barbuda, Sao Tome and Principe, Namibia, Bhutan, Myanmar, Qatar, Marshall Islands, Kiribati 4. IBRD and three other organizations: India, Canada, Mexico, Belize, Jamaica, Dominican Republic, Venezuela, Brazil, Bolivia, Uruguay, Ecuador, Dominica, Saint Vincent and the Grenadines, Cape Verde, Guinea-Bissau, Niger, Equatorial Guinea, Angola, South Africa, Comoros, Seychelles, Libya, Somalia, Ethiopia, Eritrea, Djibouti, Bahrain, Iran, Iraq, Malta,

Montenegro, Bulgaria, Romania, Moldova, Poland, Russia, Lithuania, Belarus, Kyrgyzstan, Tajikistan, Turkmenistan, Thailand, Laos, Vietnam, Palau, Vanuatu, Samoa, Maldives, South Sudan 5. All five WBG organizations: the rest of the 127 WBG members Non-members are: Andorra, Cuba, Liechtenstein, Monaco, Nauru, North Korea.

Voting power
In 2010, voting powers at the World Bank were revised to increase the voice of developing countries, notably China. The countries with most voting power are now the United States (15.85%), Japan (6.84%), China (4.42%), Germany (4.00%), the United Kingdom (3.75%), France (3.75%), India (2.91%), Russia (2.77%), Saudi Arabia (2.77%) and Italy (2.64%). Under the changes, known as 'Voice Reform Phase 2', countries other than China that saw significant gains included South Korea, Turkey, Mexico, Singapore, Greece, Brazil, India, and Spain. Most developed countries' voting power was reduced, along with a few poor countries such as Nigeria. The voting powers of the United States, Russia and Saudi Arabia were unchanged. The changes were brought about with the goal of making voting more universal in regards to standards, rule-based with objective indicators, and transparent among other things. Now, developing countries have an increased voice in the "Pool Model," backed especially by Europe. Additionally, voting power is based on economic size in addition to International Development Association contribution

Pakistan and World Bank:

World bank has already been of great source of Pakistan. It also played a role in the formation of Help Pakistan club(this club consist of western nations who agreed to assist Pakistan in economic development) World bank is substantially helping Pakistans SAP(social action programme). Beside this, from this time to time world bank has provided monetary assistance to Pakistan.on july 25, 2001 WB issue Pakistan assistance strategy report. According to this report WB is to lend US$ 300 million for banking restructuring and privatization by the year 2001 US$ 30 million for community infrastructure project by Dec 2001 US$ 10million for HIV/AIDS project US$ 3 million for trade and transport US$ 21 million in NWFP on farm water management US$ 350 million for structural adjustment credit

3. Asian Development Bank(ADB)

The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly known as the United Nations Economic Commission for Asia and the Far East) and non-regional developed countries

Origin:
In May 1996, at the twenty-ninth annual meeting of the Asian Development Bank (ADB), the Government of Japan offered to cover the cost of operating and establishing the ADB Institute to address the needs for strengthening the capacity of public and other developmental institutions in developing member countries (DMCs). The proposal was approved on 24 September 1996 and the institute was officially inaugurated in Tokyo on 10 December 1997. The first Dean of the ADB Institute was the leading Filipino economist Jesus Estanislao.

History:
The Asian Development Bank ADBis a regional development bank established on 22 August 1966 under the Agreement Establishing the Asian Development Bank Charter, which is binding upon the member countries that are its shareholders, to facilitate economic development of countries in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the PacificUNESCAP, formerly known as the United Nations Economic Commission for Asia and the Far Eastand non-regional developed countries. As of 31 December 2010, ADB now has 67 members-of which 48 are from within Asia and the Pacific and 19 outside. ADB is a strongly capitalized, multilateral development bank, dedicated to reducing poverty in Asia and the Pacific region through inclusive economic growth, environmentally sustainable growth, and regional integration. ADB is headquartered in Manila, Philippines and has offices worldwide including representative offices in North America Washington, DC, Europe Frankfurt, and JapanTokyo

Members:
The year after a member's name indicates the year of membership. From 31 members at its establishment, ADB now has 67 members - of which 48 are from within Asia and the Pacific and 19 outside. ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with member's capital.

Special funds:
The ADB has established different funds for the better utilization of the bankss resources. The funds include Asian development fund(ADF), agriculture special fund(ASF) etc

Function:
it provides financial assistance to underdeveloped and developed countries it helps in promotion of trade and commerce among member countries it also helps developing countries in paying off their foreign debt it also arranges loan from WB and IMF

Pakistan and ADB:

Pakistan has potential for higher growth, which is necessary to accommodate a rapidly growing workingage population. The country has considerable natural resources, and ample scope exists to improve agricultural productivity and a ready market for an expanded manufacturing and service sector. ADB is working with the government and the private sector to improve Pakistans infrastructure, energy security, and basic public services. Aligned with national development objectives, ADBs partnership priorities aim to attract investment, create industries and jobs, and improve the quality of life of citizens.

4. Islamic development Bank(IDB)

The Islamic Development Bank (IDB) is a multilateral development financing institution located in Jeddah, Saudi Arabia. It was founded in 1973 by the Finance Ministers at the first organization of the Islamic Conference (now called the Organization of Islamic Cooperation).The bank officially began its activities on 20 October 1975, inspired by King Faisal. There are 56 shareholding member states. Mohammed bin Faisal is the former president of the IDB. On the 22 May 2013, IDB tripled its authorized capital to $150 billion to better serve Muslims in member and non-member countries. The Bank continues to receive the highest credit ratings of AAA by major rating agencies.

Origin:
The origin of Islamic banking system can be traced back to the advent of Islam when the Prophet himself carried out trading operations for his wife. The Mudarbah or Islamic partnerships has been widely appreciated by the Muslim business community for centuri es but the concept of Riba or interest has gained very little diligence in regular or day-to-day transactions. The first model of Islamic banking system came into picture in 1963 in Egypt. Ahmad Al Najjar was the chief founder of this bank and the key features are profit sharing on the non interest based philosophy of the Islamic Shariah. These banks were actually more than financial institutions rather than commercial banks as they pay or charge interest on transactions. In 1974, the Organization of Islamic Countries (OIC) had established the first Islamic bank called the Islamic Development Bank or IDB. The basic business model of this bank was to provide financial assistance and support on profit sharing.

By the end of 1970, several Islamic banking systems have been established through out the Muslim world, including the first private commercial bank in Dubai(1975), the Bahrain Islamic bank(1979) and the Faisal Islamic bank of Sudan (1977).

Objective:
The bank has following objective To promote international trade among all muslim countries To increase the rate of capital formation and development in all muslim countries To assist member in technological advancements, research and development To provide financial assistance to members in time of need To provide finance for rising of living standard in members in time of need

Membership:
The present membership of the Bank consists of 56 countries. The basic condition for membership is that the prospective member country should be a member of the Organization of Islamic Cooperation (OIC), pay its contribution to the capital of the Bank and be willing to accept such terms and conditions as may be decided upon by the IDB Board of Governors

Function:
The functions of the Bank are to participate in equity capital and grant loans for productive projects and enterprises besides providing financial assistance to member countries in other forms for economic and social development. The Bank is also required to establish and operate special funds for specific purposes including a fund for assistance to Muslim communities in non-member countries, in addition to setting up trust funds. The Bank is authorized to accept deposits and to mobilize financial resources through Shari'ah compatible modes. It is also charged with the responsibility of assisting in the promotion of foreign trade especially in capital goods, among member countries; providing technical assistance to member countries; and extending training facilities for personnel engaged in development activities in Muslim countries to conform to the Shari'ah

IDB and Pakistan

IDB has greatly helped pakistan in times of financial crises. It also extended great cooperation when pakistan faced various problems after testing of Nuclear Devices.

It is hoped that IDB will be able to promote widespread economic growth in the whole muslim world

5. World trade organization (WTO)

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on 1 January 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participant's adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994).

History:
The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect

Members:
It has 140 members. It is essential that 90% of the total world trade takes place among these 140 members.

Function:
Among the various functions of the WTO, these are regarded by analysts as the most important: It oversees the implementation, administration and operation of the covered agreements. It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policymaking. Another priority of the WTO is the assistance of developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training. The WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its annual publications and research reports on specific topics are produced by the

organization. Finally, the WTO cooperates closely with the two other components of the Bretton Woods system, the IMF and the World Bank.

Principles:
The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy games. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: 1. Non-discrimination. It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favour and you have to do the same for all other WTO members. National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). 2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize. 3. Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. 4. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic countryspecific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports. 5. Safety valves. In specific circumstances, governments are able to restrict trade. The WTO's agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.

Organizational structure:
The General Council has the following subsidiary bodies which oversee committees in different areas: Council for Trade in Goods

There are 11 committees under the jurisdiction of the Goods Council each with a specific task. All members of the WTO participate in the committees. The Textiles Monitoring Body is separate from the other committees but still under the jurisdiction of Goods Council. The body has its own chairman and only 10 members. The body also has several groups relating to textiles. Council for Trade-Related Aspects of Intellectual Property Rights Information on intellectual property in the WTO, news and official records of the activities of the TRIPS Council, and details of the WTO's work with other international organizations in the field. Council for Trade in Services The Council for Trade in Services operates under the guidance of the General Council and is responsible for overseeing the functioning of the General Agreement on Trade in

Services (GATS). It is open to all WTO members, and can create subsidiary bodies as required. Trade Negotiations Committee The Trade Negotiations Committee (TNC) is the committee that deals with the current trade talks round. The chair is WTO's director-general. As of June 2012 the committee was tasked with the Doha Development Round.

Decision making:
The WTO describes itself as "a rules-based, member-driven organization all decisions are made by the member governments, and the rules are the outcome of negotiations among members". WTO Agreement foresees votes where consensus cannot be reached, but the practice of consensus dominates the process of decision-making. Richard Harold Steinberg (2002) argues that although the WTO's consensus governance model provides law-based initial bargaining, trading rounds close through power-based bargaining favouring Europe and the U.S., and may not lead to Pareto improvement.