What Traders Need to Know About the World Bank, IMF, and G20

Supranational organizations are organizations that consist of treaties and alliances between nation-states and/or central banks. Because these organizations are alliances between the world’s most powerful forces, they can have an extreme impact on the world in all regards: politically, economically, and throughout the world’s financial markets.

While there are many supranational organizations, in this article I’ll focus on the ones I regard as the most important — the ones I believe have the greatest impact on the world’s economy: the G20, IMF, and World Bank. We’ll then proceed to identify how traders can study them and the information they put out to forecast future moves in the market.

The Main Supranational Organizations Affecting the Global Economy

1. The International Monetary Fund (IMF). Here are the key bullet points regarding the IMF:

  • At the time of this writing, the IMF has $215 billion at its disposal. These funds are paid in by the IMF’s 182 member countries. Each member contributes to this pool of resources a certain amount of money proportionate to its economic size and strength (richer countries pay more, poorer less).
  • Membership in the IMF gives to each country that experiences a shortage of foreign exchange–preventing it from fulfilling these obligations–temporary access to the IMF’s pool of currencies to resolve this difficulty, usually referred to as a balance of payments problem. To put it simply, its sort of like a joint savings account, or a joint emergency fund.
  • The IMF loans money at interest to its member nations.

2. The World Bank. The World Bank is very similar to the IMF, as the two organizations were designed to complement each other in pursuit of creating a stable global economy. Some key points regarding the World Bank:

  • While the IMF is more like a credit union whose members have access to a common pool of resources (the sum total of their individual contributions) to assist them in times of need, the World Bank operates like a hedge fund, in the sense that funds are borrowed and lent at a higher rate.
  • The World Bank’s owners are the governments of its 180 member nations with equity shares in the Bank.
  • While the IMF’s stated goals center more around stabilizing international trade issues, the World Bank’s stated goal is to encourage poor countries to develop by providing them with technical assistance and funding for projects and policies that will realize the countries’ economic potential. Put simply, the World Bank professes to be interested in promoting internal growth within a nation, while the IMF claims an interest in international stability between nations.

3. The G20. The G20 is simply a forum for monetary and fiscal authorities of 19 prominent economies to gather and discuss plans. Specifically, it is a way for monetary authorities to discuss their plans, so that each country can shape monetary and fiscal policy with awareness of implications on the increasingly international economy.

What Traders Need to Consider About Supranational Organizations

Traders can look to supranational institutions for the following matters:

1. If there is a change in global monetary agreement — such, as for instance, the imposition of restrictions on exchange rate fluctuations or how central banks must operate — statements from these institutions can be very revelatory. If a world currency is issued, it will likely be managed by the IMF. SDRs are a step in this direction. 
2. Comments for these organizations, particularly the G20, can reveal if monetary authorities favor strong or weak policies, as well as how relationships amongst monetary authorities are proceeding — something that can signal central bank interventions or a change in reserve currency policy. G20 comments have impacted the currency wars, and thus have had a direct impact on financial markets and the global economy. 
3. Critics of the World Bank and the IMF suggest that loans from these institutions doom a country to debt servitude, which can prevent economic growth, the development of financial markets, and the emergence of a strong currency. Additional criticisms are that certain nations hold a disproportionate influence over these supranational organizations, and that they are thus used to extract wealth from nations with little influence on behalf of the controlling nations.

In sum, understanding the actions of supranational organizations can help traders determine how the world’s monetary authorities are working to steer capital.

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