One of the contributions of the Bretton Woods conference was the establishment of the International Monetary Fund (or IMF), which still administers the international monetary system and operates as a central bank for central banks. Member nations subscribe by lending their currencies to the IMF: the IMF then relents these funds to help countries in balance-of-payments difficulties. In recent years, the IMF has played a key role in organizing a co-operative response to the international debt crisis.
How would an IMF mission operate? Suppose that Poland's economic program is in trouble, because of a rapid inflation. It is having rouble paying interest and principal on its foreign loans. The IMF might send a team of specialists to pore over the country's books. The IMF team would come up with an austerity plan for Poland, generally involving reducing the budget deficit and tightening credit; these measures would slow GNP growth and reduce the trade deficit. When Poland and the IMF agree on the plan, the IMF would lend money to I'oland, perhaps $1 billion, to "bridge" the country over until its balance of payments improves. In addition, there would probably be a "debt rescheduling" where in banks lend more funds and stretch out existing loans.
If the IMF program was successful Poland's balance of payments would soon regain health and the country would resume economic growth.
The World Bank
The Bretton Woods conference also established the World Bank. The Hank is capitalized by lending nations who subscribe in proportion to their economic importance in terms of GNP and other factors.
The Bank makes low-interest loans to countries for projects that are economically sound but cannot get private-sector financing. As a result of such long-term loans, goods and services flow from the advanced nations lo developing countries. In recent years, the World Bank has made new loans averaging $25 billion per year.
While the loans being spent, the advanced world is forgoing domestic spending. When the loans are being "serviced" or repaired, the advanced nations can enjoy somewhat higher imports of useful goods.
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| 3. | Match the following words and phrases in a meaningful way. | ||
| 1. | letters | loans | |
| 2. | short-term | of credit | |
| 3. | to accept | checking deposits | |
| 4. | trust | of large issues of stocks | |
| 5. | long-term | of funds | |
| 6. | sale | credit instruments | |
| 7. | depository | company | |
| 8. | entrust money | withdrawals | |
| 9. | to meet | of banks | |
| development | 10. to goldsmiths | ||
| to manage business | . in the interests of others | ||
| 4. | Discussion Points. |
1. Why do people need banks?
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2. Banks and Business.
3. Risks involved in banking.
Text SELECTING A BANK
The most important thing in the choice of a bank is its integrity. The size and the type of the bank must be taken into consideration too. If you are going into business, there is an advantage for a small business to place an account in a small bank. The staff of such a bank know each customer and can estimate your business better. However, there are the advantages of a larger bank. It is true, that dealings with a large bank are more impersonal. But, it is also true, that a large bank can offer more facilities. Large banks can make a loan at more favourable interest rate. They also can make as large a loan as it is desired. In any case, selecting a bank people learn as much information about the reputation of a bank as possible. As a summary, therefore, the following six guides are suggested.
1. Choose a bank whose officers possess character, leadership, and the willingness to assume a risk provided, there is a reasonable chance of repayment.
2. Choose a progressive bank - one whose officers are alert to curreni industrial trends and are willing to make loans for new products and more efficient processes.
3. Choose a bank that stresses an attitude of friendliness to a small business.
4. Choose a bank that has confidence in the future of your community and thus is willing to invest in it.
5. Choose a bank that quotes reasonable interest rates.
6. Choose a bank that gives good service.
