MONETARY POLICY AND

CENTRAL BANKING

Corina F. Patal
Instructor
 MAIN TOPICS SUB TOPICS
• Enumerate the roles played by
International Monetary Fund in
central bank system

• Identify the effects of IMF in central

bank decision making
The Role of IMF in
• List the advantages and disadvantages
Central Banking of IMF intervention in local central
bank operation
 MAIN TOPICS SUB TOPICS
• Discuss the organizational structure
of IMF, its objectives, and IMF
membership

• Enumerate the facilities in

conditionality approach LDC’s
demand for growth and liquidity
The Role of IMF in
Central Banking • Define the components of balance of
payments, deficits and its causes,
solutions and financing

• Examine the devaluation of the

Philippine Peso
The Role of IMF in
Central Banking
The International Monetary
Fund (IMF) works to achieve
sustainable growth and
prosperity for all of its 190
member countries.
It does so by supporting
economic policies that promote
financial stability and monetary
cooperation, which are essential
to increase productivity, job
creation, and economic
well-being. The IMF is governed
by and accountable to its
member countries.
 MAIN TOPICS SUB TOPICS
• Enumerate the roles played by
International Monetary Fund in
central bank system

• Identify the effects of IMF in central

bank decision making
The Role of IMF in
• List the advantages and disadvantages
Central Banking of IMF intervention in local central
bank operation
The IMF has three critical missions:
1. furthering international monetary cooperation,
2. encouraging the expansion of trade and economic
growth, and;
3. discouraging policies that would harm prosperity.
• To fulfill these missions, IMF member countries work
collaboratively with each other and with other
international bodies.
The IMF has three critical missions:
1. furthering international monetary cooperation,
2. encouraging the expansion of trade and economic
growth, and;
3. discouraging policies that would harm prosperity.
• To fulfill these missions, IMF member countries work
collaboratively with each other and with other
international bodies.
How does the IMF give
policy advice?
A core responsibility of the IMF
is monitoring the economic and
financial policies of member
countries and providing them
with policy advice, an activity
known as surveillance.
As part of this process, which
also takes place at the global and
regional levels, the IMF identifies
potential risks and recommends
appropriate policy adjustments
to sustain economic growth and
promote financial stability.
Unlike development banks, the
IMF does not lend for specific
projects. Instead, the IMF
provides financial support to
countries hit by crises to create
breathing room as they
implement policies that restore
economic stability and growth.
The IMF provides technical assistance
and training – known as capacity
development as one of its core
functions. Capacity development
accounts for around a third of the
IMF’s annual spending. It is available to
all members upon their request and is
tailored to a country’s specific needs.
Capacity development can help
countries to improve tax collection and
bolster public finances.
It can help countries to
modernize their monetary and
exchange rate policies, develop
legal systems, or strengthen
governance. Capacity
development also can help
countries collect and
disseminate data to inform
decision-making.
 MAIN TOPICS SUB TOPICS
• Enumerate the roles played by
International Monetary Fund in
central bank system

• Identify the effects of IMF in central

bank decision making
The Role of IMF in
• List the advantages and disadvantages
Central Banking of IMF intervention in local central
bank operation
Technical assistance helps
countries develop more effective
institutions, legal frameworks, and
capacity. It may entail monetary
policy, exchange rate regimes, or
macroprudential policies. It can also
help countries move toward inflation
targeting or improve central bank
operations, such as open market
operations and foreign exchange
management.
The IMF’s Central Bank
Transparency Code (CBT) helps
central banks to guide their
transparency practices, as a
prerequisite for central bank
independence. The CBT reviews,
conducted by IMF staff, provide a
view on central bank transparency
and facilitate more effective dialogue
between the central bank and its
various stakeholders.
To inform policy development and
research, the IMF works with its
members to create and maintain
databases. For example:

• The IMF tracks countries’

monetary policy arrangements
(AREAER), central banks’ legal
frameworks (CBLD), and
monetary operations and
instruments (MOID).
• The IMF has an annual survey with
details on macroprudential
measures and institutions, enabling
comparisons across countries and
over time.
• The IMF’s comprehensive historical
database of macroprudential
measures (iMaPP) integrates the
latest survey information. IMF
economists use the database to
measure policy effects. It is also
freely available to researchers.
• The IMF has comprehensive,
structured data on central banks’
direct market interventions. For
example, IMF economists used the
Central Bank Interventions
Database (CBID) to track efforts
to support financial markets during
the COVID-19 pandemic.
• Established following World War II
to help with post-war recovery, the
International Monetary Fund (IMF)
serves as a lender to modern
governments and an overseer of
international financial markets. It has
no shortage of both supporters and
critics.
 MAIN TOPICS SUB TOPICS
• Enumerate the roles played by
International Monetary Fund in
central bank system

• Identify the effects of IMF in central

bank decision making
The Role of IMF in
• List the advantages and disadvantages
Central Banking of IMF intervention in local central
bank operation
 Advantages of the International
Monetary Fund
• The IMF assists member nations in
several different capacities.

Provides Loans to Member Nations

• Its most important function is its
ability to provide loans to member
nations in need of a bailout. The IMF
can attach conditions to these loans,
including prescribed economic policies,
to which borrowing governments must
comply.
Fills Deficit Gaps
• If a country has a balance of payments
deficit, the IMF can step in to fill the
gap.

Technical Support and Assistance

• It serves as a council and adviser to
countries attempting a new economic
policy. It also publishes papers on new
economic topics.
Disadvantages of the International
Monetary Fund

Despite its lofty status and commendable

objectives, the IMF is attempting to pull
off a nearly impossible economic feat:
perfectly timing and sizing economic
intervention on an international scale.
The IMF suffers from some criticism.
Too Much or Too Little Intervention
• The IMF has been criticized for not
doing much and for overreaching. It
has been criticized for being too slow
or too eager to assist failing national
policies. Since the United States, Japan,
and Great Britain feature prominently
in IMF policies, it has been accused of
being a tool for free-market countries
only. Simultaneously, free-market
supporters criticize the IMF for being
too interventionist.
Creates Moral Hazard
• Some member nations, such as Italy
and Greece, have been accused of
pursuing unsustainable budgets
because they believed the world
community, led by the IMF, would
come to their rescue. This is no
different than the moral hazard
created by government bailouts of
major banks.
Thank you ☺