INTERNATIONAL MONETARY

SYSTEM
(IMF)
WHAT IS IMF

• “It is an organization of 186 countries ,working to

foster global monetary cooperation , secure
financial stability ,facilitate international trade
,promote high employment and sustainable
economic growth and reduce poverty” .

• The IMF is the most detailed attempt to organize

the conduct of international monetary affairs.
The Creation of the IMF
 The International Monetary Fund was created in July
1944, originally with 45 members, with a goal to stabilize
exchange rates and assist the reconstruction of the world's
international payment system.
 Countries contributed to a pool which could be borrowed
from, on a temporary basis, by countries with payment
imbalances. It is a cooperative of 185 member countries
 Their objective is to promote world economic stability and
growth.
 The member countries are the shareholders of the
cooperative, providing the capital of the IMF through
quota subscriptions
Who runs the IMF?

Member Countries

Board of Governors

Executive Board
Headquarters in
Washington D.C. Managing Director
IMF Managing Directors Dominique Strauss-Kahn

First Deputy Managing Dir

Deputy Managing Deputy Managing
Dir Dir
MEMBERSHIP

There are two types of members:

1)ORIGINAL MEMBERS: All those countries whose

representatives took part in BRETTONWOODS
CONFERENCE and who agreed to be the members of the
fund prior to 31st December,1945.

2)ORDINARY MEMBERS: All those who became its

members subsequently.

*BANK has the authority to suspend any member and

similarly every member is free to resign.
 The Managing Director is Chair person of the EB
 Meets thrice a week, more if required
 Five largest shareholders of IMF – US, japan,
Germany, UK & France along with China, Russia
and Saudi Arabia have their own seats on EB
 Other members are selected for 2 year terms by
groups of countries known as constituencies
 The Board of council may delegate to the Executive
Board all except certain reserved powers.
 The Board of Governors normally meets once a
year.
• Key policy issues relating to international monetary
system are considered twice a year by IMFC
• Development committee reports to the Governors on
development policy and other related matters
• IMF has a weighted voting system – the larger the
country’s quota (dependent on its economic size)
more votes for the country
OBJECTIVES OF THE IMF

 INTERNATIONAL MONETARY CO OPERATION

 TO FACILITATE EXPANSION AND BALANCED GROWTH OF INTERNATIONAL
TRADE
 TO PROMOTE EXCHANGE STABILITY
 GENERATING HIGHER EMPLOYMENT AND INCOME
 ABOLITION OF EXCHANGE RESTRICTION
 AID TO MEMBERS DURING EMERGENCY
 TO SHORTEN THE DURATION AND LESSEN THE DEGREE OF DISEQUILIBRIUM
IN THE INTERNATIONAL BALANCE OF PAYMENTS OF MEMBERS.
RESOURCES OF THE FUND

• QUOTAS AND THEIR FIXATION: The fund has general

account based on quotas allocated to its members .when a
country joins the fund, it is assigned a quota that governs
the size of its subscription, its voting power and its
drawing rights .

• FUND BORROWING: It was in force from October 1962

to December 1998 .At that time its total borrowing was
SDR 17 billion .
• The IMF is one of several autonomous organizations
designated by the United Nations (UN) as
“Specialized Agencies,”
• UN has established working relationships.
• The IMF is a permanent observer at the UN.
• The Articles of Agreement that created the IMF and
govern its operations were adopted at the United
Nations Monetary and Financial Conference in
Bretton Woods, New Hampshire, on July 22, 1944.
• It entered into force on December 27, 1945.
Quotas & subscriptions

• Quota subscriptions generate most of the IMF's

financial resources.
• Each member country of the IMF is assigned a quota,
based broadly on its relative size in the world
economy.
• A member's quota determines its maximum financial
commitment to the IMF and its voting power, and has
a bearing on its access to IMF financing.
 A new country is assigned an initial quota in the same range
as the quotas of existing members
 The quota formula is a weighted average of GDP (weight of
50 percent), openness (30 percent), economic variability (15
percent), and international reserves (5 percent )
 For this purpose, GDP is measured as a blend of GDP based
on a market exchange rates (weight of 60 percent) and on PPP
exchange rates (40 percent).
 Quotas are denominated in Special Drawing Rights (SDRs)
 The formula also includes a “compression factor” that reduces
the dispersion in calculated quota shares across members.
Special Drawing Rights

 The SDR is an international reserve asset, created by

the IMF in 1969 to supplement its member countries'
official reserves.
 Its value is based on a basket of four key international
currencies, and SDRs can be exchanged for freely
usable currencies.
 With a general SDR allocation that took effect on August
28 and a special allocation on September 9, 2009, the
amount of SDRs increased from SDR 21.4 billion to SDR
204.1 billion (currently equivalent to about $324 billion).
 The value of the SDR was initially defined as
equivalent to 0.888671 grams of fine gold.
 the SDR was redefined as a basket of
currencies, today consisting of the euro,
Japanese yen, pound sterling, and U.S. dollar.
 The U.S. dollar-value of the SDR is posted daily
on the IMF's website.
 It is calculated as the sum of specific amounts of
the four currencies valued in U.S. dollars, on the
basis of exchange rates quoted at noon each
day in the London market.
Lending Policies
 A member country may request IMF financial
assistance if it has a balance of payments need
—that is, if it cannot find sufficient financing on
affordable terms to meet its net international
payments while maintaining adequate reserve
buffers going forward.
 An IMF loan provides a cushion that eases the
adjustment policies and reforms that a country
must make to correct its balance of payments
problem and restore conditions for strong
economic growth.
MAIN FUNCTIONS OF THE FUND

• DETERMINING THE RATE OF EXCHANGE BY EVERY

COUNTRY
• FUND LENDING

• CREDIT TRANCHES

• A CENTRAL BANK’S BANK

• TRAINING AND TECHNICAL ASSISTANCE

• CONSULTANCY ROLE
 Surveillance (like a doctor)
Gathering data and assessing economic policies of
countries

 Technical Assistance (like a teacher)

Strengthening human skills and institutional capacity of
countries

 Financial Assistance (like a banker)

Lending to countries to support reforms
• Surveillance (like a Doctor)

• Surveillance over Members’ Economic Policies

• countries agree to pursue economic policies that are
consistent with the objectives of the IMF.
• The Articles of Agreement confer on the IMF the legal
authority to oversee compliance by members with this
obligation
• IMF is “the only organization that has a mandate to
examine on a regular basis the economic
• circumstances of virtually every country in the world.”
Technical Assistance (like a teacher)
• Strengthening human skills and institutional capacity
of countries
• Helps members in strengthening their policy
formulation and implementation, and the legal,
• institutional, and market frameworks within which they
operate.
• It also constitutes an important complement to IMF
surveillance and lending operations in member
countries.
Financial Assistance (like a banker)

• Lending to countries to support reforms

• Improving financial sector surveillance.
• Development of standards and codes of
• good practice.
• Enhancement of transparency in the IMF
• and its member countries.
• Involvement of the private sector in crisis resolution
ACHIEVEMENTS OF THE IMF

INTERNATIONAL MONETARY CO-OPERATION

EXCHANGE STABILITY

CHECKING COMPETITIVE DEPRECIATION

INCREASED ASSISTANCE

INCREASE IN CAPITAL RESOURCES

EXPANSION OF TRADE

GURANTEE AGAINST COMPETITIVE DEVALUATION

ADVANTAGES TO INDIA

 FINANCIAL ASSISTANCE FROM THE FUND

loan given by IMF to INDIA
YEAR 1991 1994 1996 1998 2000
IN MILLION $ 2,623 5,040 2,374 664 26

 HELPS IN FOREIGN EXCHANGE CRISIS

 FREEDOM FROM STERLING
 MEMBERSHIP OF THE WORLD BANK
 ECONOMIC CONSULTATION
The current relationship between
IMF and India

The relationship between the IMF and India has grown strong
over the years. In fact, the country has turned into a creditor to
the IMF. India and IMF must continue to boost their relationship
this way, as it will prove to be advantageous for both.
The International Monetary Fund, or IMF, predicted lower growth
in India and economic contractions in the US, Japan and euro
region next year, calling for further interest rate cuts and fiscal
stimulus.
India recorded a GDP growth of 9.8% in 2006 and 9.3% in 2007.
Its estimate for India’s growth in 2009 is now 6.3%.
Cont..

• An economist said India could grow faster than IMF’s

estimate. “Growth next year will definitely be slower than
this year, but it may still touch 7%. New oil refineries
coming up next year will also boost GDP (gross domestic
product). I agree with IMF that growth momentum will
slow further, but it may pick up towards the end of next
year,” said Dharmakirti Joshi, principal economist with
credit rating agency Crisil Ltd.
 Criticism
Many observers comment on the fact that the IMF has a
”one size fits all” mentality, that whatever the situation the
IMF prescribes basically the same set of policies.

IMF does not adequately monitor the impact of its

decisions on the poor.

Some of U.S. critics say, IMF is an incredibly wasteful

organization that takes valuable funds and pours it down
the drain of developing economies whose leaders become
fabulously rich off the money without any intention of ever
helping out anyone.

the IMF has no effective authority over the domestic

economic policies of its members.
CONCLUSION

 The IMF’s primary purpose is to safeguard the stability of the international monetary
system—the system of exchange rates and international payments that enables countries
(and their citizens) to buy goods and services from each other. This is essential for achieving
sustainable economic growth and raising living standards.

 providing advice to members on adopting policies that can help them prevent or resolve
a financial crisis, achieve macroeconomic stability, accelerate economic growth, and
alleviate poverty;
 making financing temporarily available to member countries to help them address
balance of payments problems—that is, when they find themselves short of foreign
exchange because their payments to other countries exceed their foreign exchange
earnings; and
 offering technical assistance and training to countries at their request, to help them build
the expertise and institutions they need to implement sound economic policies .