12-1 International Financial Institutions: IMF, World Bank, and AIIB Overview

What is money described as in the context of international relations?

A shared illusion and a physical manifestation of trust.

What are the two main international monetary systems mentioned?

Gold standard and Bretton Woods system (1944 - 1971).

What is an exchange rate?

The price at which one country's money is exchanged for another country's money.

What does depreciation of a currency mean?

A decrease in the value of a currency relative to others.

What does appreciation of a currency mean?

An increase in the value of a currency relative to others.

Why are exchange rates important?

They affect international trade and foreign investment.

What are foreign exchange reserves?

Assets held on reserve by a central bank in foreign currencies.

What is one purpose of foreign exchange reserves?

To stabilize exchange rates by buying or selling reserves.

How do foreign exchange reserves help during economic crises?

They act as a safety net for paying debts and financing imports.

What is the dominant reserve currency in the world?

The U.S. dollar.

What happens when countries lack foreign exchange reserves?

They face financial crises and cannot stabilize exchange rates or pay for imports.

What was the purpose of the International Monetary Fund (IMF) at its inception?

To help maintain the dollar standard backed by gold.

What is the IMF's role today?

To provide short-term stabilization funds during currency crises.

How many member countries are in the IMF?

191 member countries.

What is the voting power of the U.S. in the IMF?

16.5% of the vote share.

What is the significance of the U.S. having 16.5% voting power in the IMF?

It means the U.S. has veto power over important votes requiring an 85% majority.

What are IMF loans provided with to ensure repayment?

Appropriate safeguards and conditionality.

What is the World Bank's original purpose?

To rebuild the economies of post-war Europe.

What does the World Bank focus on today?

Providing long-term loans for infrastructure and social projects in developing countries.

How does the World Bank raise funds?

Through member contributions and issuing bonds.

What distinguishes the IMF from the World Bank?

The IMF provides short-term funds during crises, while the World Bank offers long-term loans for development.

What is the Asian Infrastructure Investment Bank (AIIB)?

A multilateral development bank launched by China in 2016.

What are the priorities of the AIIB?

Green infrastructure, regional cooperation, technology-enabled infrastructure, and private capital mobilization.

What is a key takeaway regarding international financial institutions?

IMF provides short-term stabilization funds, World Bank offers long-term loans, and AIIB focuses on infrastructure.