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What is International Monetary Fund (IMF)

Even before the Second World War ended, the Allied countries began to devote serious thought and efforts in developing a system that would end the chaotic conditions prevailing and pave the way for an orderly conduct of international trade and promote good monetary relations among the countries.  They worked with the objectives of finding a system, which would

1. help in removing the restrictions of trade,

2. ensure free convertibility of currencies (which was suspended during the inter-war period due to the multitude of exchange controls) and maintain stability in exchange rates among the currencies.

In these efforts the USA (represented by Mr. H.D. White) and the UK (represented by Lord Keynes) had a greater role to play.

In June 1944, representative of 44 Allied powers met at Bretton Woods, new Hampshire, USA, to give concrete shape to their ideas.  The agreement reached at this meeting provided for establishing two institutions, which came to the known as the ‘Bretton Woods Twins’.  The institutions set up were the International Monetary Fund (IMF) and the International bank for Reconstruction and Development (World Bank).
 
International Monetary Fund


Objectives

The Articles of Agreement of the International Monetary Fund set out the following as the objectives of the Fund:

1. To promote international monetary co-operation through a permanent institution, which provides the machinery for consultation and collaboration on international monetary problems.

2. To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

4. To assist in the establishment of a multilateral system of payments in respect of currency transactions between members and in the elimination of foreign exchange restrictions, which hamper the growth of world, trade.

5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive to national or international prosperity.

6. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.

Thus the role of the IMF if mainly two fold: It is an organization to monitor the proper conduct of the international monetary system.  Second, it is a source of liquidity for countries in need of foreign exchange to finance temporary balance of payments deficits.

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