The IMF is About Money... No Really.

Pay attention in your international finance courses people! Especially people at the BBC!

The BBC "economics correspondent" reports:

"The votes they cast are weighted by the country's subscription to the IMF, known as its quota. That in turn is roughly related to the nation's share of the world economy.

But the weights are behind the times.

China and many other emerging economies are underrepresented. Western Europe gets more than its share of the votes.

Here are some examples: China's share of the global economy (using a measure known as purchasing power parity GDP) is 13.6%, but its share of the vote is 3.82%.

The UK and France each account for 2.9% of PPP GDP, but each has 2.9% of the vote."

The IMF does not determine the shares by a country's representation as part of the "global share of GDP". Get this through your heads: the IMF is about MONEY. And I don't mean wealth, I mean it is about CURRENCY. Not people, not development, but monetary stability! It was not designed, nor meant to "represent" the world or the share of GDP, it was designed to stabilize currency and hopefully by that stabilize prices so our global economy would not go down the tubes as it did just before WWII.

The BBC needs to do what every lazy student does and FGI*. If the reporter had done that, he would know the quotas are determined by Special Drawing Rights (SDR), based on a currency basket not a goods basket like the PPP he incorrectly states. The basket is evaluated periodically, and is used to determine how much each country allots. The dollar, euro, and yen dominate this basket, period. Representational fairness hasn't got a thing to do with it.

The proper critique would be that the basket does not include the yuan, the rupee, the Australian dollar, or the Canadian dollar. That determines the under representation. Get the argument straight.

The IMF is not the UN, it is not the World Bank. It is a gigantic reserve of currency, which acts for the sole purpose of stabilizing macroeconomic indicators. The EU will get more representation as its currency begins to compete even more with the dollar. Measuring it on GDP is not right. Why? Yeah, China might have more GDP share in the world, but how is that affecting the value of the dollar and euro on the market?

It's called the International Monetary Fund. Not the International Output Fund, or the International Development Fund. Get currency on your brain, folks. This is what this is all about.

*Or in this case FWI; freakin' wiki it.