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International Monetary Fund and Financial Instability Essay

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Updated: Jun 20th, 2020

Problems that global financial instability can cause

Defined as the situation characterized in a rapid change in prices, a disruption of market functioning and a deviation of aggregate spending (Schaechter, Ugoini and Stone 209), financial instability has a range of diverse and mostly negative effects on the economic system of the state. First and most obvious, the global financial crisis may ensue. The synapse between the phenomena is quite clear; though enhanced by other economic factors, a global financial crisis presupposes that the levels of financial security should plummet.

A deep economic recession, however, is not the only effect of financial instability. Apart from the aforementioned concerns, the fact that less fortunate states may be supplanted from the global market and become even less financially secure deserves to be mentioned. To be more specific, equity will be distorted once the financial instability rates rise, and most of the developing countries are likely to reach new levels of poverty.

The last, but definitely not the least, the events that will occur on a nationwide level deserve to be listed among the major effects of the global financial instability effects. For example, rapid growth in the mortgage rates across the country is expected as a natural outcome of financial instability increase (Schaechter, Ugoini and Stone 210).

Therefore, the effects of global financial instability will range from gargantuan changes in the global economy to less significant alterations on a statewide or a nationwide level. Most of them will concern the realm of economy and affect the lives of citizens as well as economic relationships between the states. However, it can be assumed that political and cultural changes may also occur both in the states defined as the current world leaders and the poorer countries.

International Monetary Fund, its purpose and tools

Traditionally, the facilitation of financial stability is identified as the purpose of the IMF (Hayden 1). To be more exact, the IMF is supposed to maintain the international monetary system stable and to create the environment, in which the financial system of the state could thrive. In addition to the specified purpose, which can be viewed as the key goal for the IMF staff to attain, a range of objectives of the organization should be listed.

For the stability rates to be kept at a decent level, the IMF must carry out close surveillance of the state policies, as well as the changes and challenges in the realm of economics on the state, nationwide and global levels (Hayden 2). Apart from keeping a close eye on the alterations occurring in the financial world, the IMF offers technical assistance to the states that could use a major restoration of their financial system (Hayden 2).

In addition, the IMF provides its members with a solid position in the world economy by using the financial resources supplied by these members. For this purpose, the responsibility of resources accumulation is included in the array of tasks that the IMF is supposed to perform (Schaechter et al. 4). In addition, the power that the IMF possesses allows the organization to perform the functions of governance and organization. In other words, the IMF is supposed to assist its members in maintaining the chosen form of governance and keeping the organizational structure intact. Facilitating the environment for economic and financial growth, the IMF can be viewed as the mechanism that keeps the financial structures of its members secure.

Works Cited

Hayden, Jeff. Japan Administered Account for Selected IMF Activities (JSA) — Annual Report Fiscal Year 2003. Washington, DC: International Monetary Fund, 2003. Print.

Schaechter, Andrea, Piero Ugoini and Mark R. Stone. Challenges to Central Banking from Globalized Financial Systems. Washington, DC: International Monetary Fund, 2003. Print.

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