Thursday, July 14, 2011

International Monetary Fund (IMF)

  • Established on December 27, 1945 in Washington D.C. on the recommendations of Bretton Woods Conference. But it started its operations on March 1, 1947.
  • At present 185 nations are members of the IMF. Dominique Strauss Kahn is the present MD of IMF.

Objectives of IMF
  • To promote international monetary co – operation.
  • To ensure balanced international trade.
  • To ensure exchange rate stability.
  • To eliminate or to minimize exchange restrictions by promoting the system of multilateral payments.
  • To grant economic assistance to member countries for eliminating the adverse imbalances in balance of payments.
  • Main function is to stabilize exchange.
  • Offers facilities to the member nations for the expansion of international trade, the control of international exchange and to avoid competitive exchange depreciation.
  • The capital resources of the IMF comprise Special Drawing Rights (SDRs) and currencies that members pay under quotas calculated for them when they join the IMF.
  • Every IMF member is required to subscribe to the IMF an amount equal to its quota. The quota of a member is largely determined by its economic conditions relative to other members. An amount, not exceeding 25 per cent of the quota, is to be paid in reserve assets, the balance in member’s own currency.
  • The quota determines both the amount of foreign exchange a member may borrow from the Fund and its voting power on IMF policy matters. The members with the largest quotas are USA, Japan and Germany in first, second and third spots. India is placed at the thirteenth spot (1961 per cent share in total quota).
  • The IMF makes its resources available to its members to meet their short – term or medium – term payment difficulties, subject to established limits and conditions with respect to the amount of its drawing rights.
  • Member – countries are given borrowing or drawing rights with the fund which they can use, together with their own nationally held international reserves, to finance the balance of payments deficits.

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