Global Financial Institutions

Kurt Bayer began his lecture with interesting quotes about different attitudes towards cooperation, which, in turn, underlie the current system of global institutions. This system changed during the last decades as the attitudes of people towards cooperation changed. In many ways, this is happening because there are now a significant number of cases that can influence and change the current system.

The speaker recalled the key objective of relations with monetary institutions - money should initially perform three functions (a means of value conservation, exchange, and measurement). It is noteworthy that the “measure of payment” function of money, which is the basic one in relations with credit institutions, which are most global monetary institutions, is not mentioned. The lecturer did not mention this, but one cannot help but add that many scientific schools highlight the special function of money in the context of world institutions "World Money".

One of the key ideas that Kurt Bayer shared is that a certain stability is needed for the uninterrupted provision of international exchange and, as a result, the workings of national economies. A good example was given with the Kazakh tenge and small economies. If a country imports more, then it has many problems with the balance of payments.

The next strong point of the lecture was that the international monetary system makes it possible to establish general rules for all banks because they are crucial actors in the economy. Since the rules are unified, wherever we are, we always know how the bank works (takes deposits, services accounts, gives loans, and so on).

At the same time, the speaker noted the development of various currency systems. The current floating system is subject to crisis fluctuations and provokes numerous currency speculations. To prevent such negative phenomena, a system of international reserves was invented. Various options are available to countries, it is mainly proposed to keep reserves in hard currencies (dollars, euros, yuan) in foreign banks and international financial institutions.

Countries also have special agreements, such as the EU and the US, to provide each other with currency. At the same time, there are constant attempts to get out of the hegemony of these hard currencies (BRICS, etc.). This is especially true against the background of recent events with the freezing of Russian assets in Western banks, which calls for discussion and growing concerns.

The main goal of such international financial institutions such as the IMF is to help. In the example of Argentina, a country can take on debt and not impose additional taxes so as not to bear the burden of increased spending on the population. Nevertheless, it must always be remembered that this is only a respite, part of the main idea is the mandatory return of money. This is not charity, money is given only with strict restrictions and specific requirements for reforming national systems. Meanwhile, a debatable question constantly arises: “are such requirements and conditions of rich countries suitable for developing countries?”.

It is also interesting that the United States has a majority stake in the authorized capital, which sometimes allows blocking any decision. China is fighting to change this situation so that other countries can influence the decision.

According to the speaker's assessment, the IMF research department is increasingly influencing IMF programs by lobbying for demands on social and environmental issues.

Development banks have a similar capital structure. At the same time, they are more responsible for changes in the global situation. They also try to propagate the ideas of sustainable development. Countries go to such banks primarily because of poverty, it is practically free money for the end consumer through refinancing. Sometimes private banks also go for such financing, because the World Bank does not finance projects in their entirety and requires more time to evaluate the initiative.

Despite the constant evolution of the world monetary system and its institutions, it can be unequivocally concluded that there are valid points of criticism. Among them are the need for an international government, the trade policies promoted by the WTO, and the disproportionate growth in trading volume, exceeding real GDP by more than 7 times, according to the speaker.

To sum up, Kurt Bayer did an excellent job of explaining how the international foreign exchange market works, focusing on the IMF and the World bank and some current issues. The lack of time, of course, determined that it was not possible to delve into the deeper details, prospects, and problems of the international financial market. Interesting and controversial questions from the audience showed that there is a demand for a deeper discussion, which leaves room for questions and thoughts left after the lecture.

Based on the lecture "Global Financial Institutions" by Kurt Bayer during AEMS 2022.
Written by: Dina Remennik and Alexander Yudin