international-monetary-fund

  • The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
  • It was created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership.
  • The IMF was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944.
    • The IMF, as per Bretton Woods agreement to encourage international financial cooperation, introduced a system of convertible currencies at fixed exchange rates, and replaced gold with the U.S. dollar (gold at $35 per ounce) for official reserve.
    • After the Bretton Woods system (system of fixed exchange rates) collapsed in 1971, the IMF has promoted the system of floating exchange rates. Countries are free to choose their exchange arrangement, meaning that market forces determine the value of currencies relative to one another. This system continues to be in place today.
  • The IMF's primary purpose is to ensure the stability of the international monetary system - The system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. 
  • The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.

 

Source: IMF

  • Governance of IMF: Decision making at the IMF was designed to reflect the relative positions of its member countries in the global economy.
  • Board of Governors: It consists of one governor and one alternate governor for each member country. Each member country appoints its two governors.
  • The Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee.
  • IMF finances:
    • Quotas: Quota subscriptions are a central component of the IMF’s financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy.
      • Quotas determine the maximum amount of financial resources a member is obliged to provide to the IMF.
      • Quotas are a key determinant of the voting power in IMF decisions. Votes comprise one vote per SDR100,000 of quota plus basic votes (same for all members).
    • Special Drawing Rights (SDR): The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
    • Gold: Gold remains an important asset in the reserve holdings of several countries, and the IMF is still one of the world’s largest official holders of gold.
    • Borrowing Arrangements: While quota subscriptions of member countries are the IMF's main source of financing, the Fund can supplement its quota resources through borrowing if it believes that they might fall short of members' needs.
    • Through New Arrangement to Borrow (NAB), a number of member countries and institutions stand ready to lend additional resources to the IMF. 

Functions of IMF:

  • Provides Financial Assistance: To provide financial assistance to member countries with balance of payments problems, lends money to replenish international reserves, stabilize currencies and strengthen conditions for economic growth. Countries must embark on structural adjustment policies monitored by the IMF.
  • IMF Surveillance: It oversees the international monetary system and monitors the economic and financial policies of its 189 member countries. As part of this process, which takes place both at the global level and in individual countries, the IMF highlights possible risks to stability and advises on needed policy adjustments.
  • Capacity Development: It provides technical assistance and training to central banks, finance ministries, tax authorities, and other economic institutions. This helps countries raise public revenues, modernize banking systems, develop strong legal frameworks, improve governance, and enhance the reporting of macroeconomic and financial data. 
  • It also helps countries to make progress towards the Sustainable Development Goals (SDGs).