INTERNATIONAL

MONETARY
FUND
By- Akanksha Shukla
Aman Deep Rai
Akash Singh
Akanksha Bharti
Introduction

• The IMF is an intergovernmental institution

established by an international treaty in 1945
to create a framework for international
economic cooperation focusing on balance of
payment problems and the stability of
currencies.
• IMF headquarters is in Washington D.C, U.S.A
Origin of IMF
• IMF was founded on 27th december,1945.
During the closing years of World War
Second.
• Different countries realized that there must
be a common International Forum for
achieving economy cooperation, promoting
International Trade and providing help to
needy nations during emergency. So IMF was
formed for this purpose.
Origin of IMF
• World War Second had its adverse effect on
global economy. To remedy the situation, an
international monetary conference was made
in 1944, at Bretton Woods in America. It was
attended by the represenatives of 44
countries. India also participated therein.
• It was decided in this Conference to set up
IMF for the economic development of all
countries.
History of IMF
The IMF has played a part in shaping the global economy since
the end of World War II.
• Cooperation and reconstruction (1944–71): As the Second
World War ended, the job of rebuilding national economies
begun. The IMF was charged with overseeing the international
monetary system to ensure exchange rate stability and
encouraging members to eliminate exchange restrictions that
hindered trade.
• The end of the Bretton Woods System (1972–81): After the
system of fixed exchange rates collapsed in 1971, countries
were free to choose their exchange arrangement. Oil shocks
occured in 1973–74 and 1979, and the IMF steped in to help
countries deal with the consequences.
• Debt and painful reforms (1982–89): The oil shocks lead to
an international debt crisis, and the IMF assisted in
coordinating the global response.
• Societal Change for Eastern Europe and Asian Upheaval
(1990–2004): The IMF played a central role in helping the
countries of the former Soviet bloc transition from central
planning to market-driven economies.
• Globalization and the Crisis (2005 - present):The
implications of the continued rise of capital flows for
economic policy and the stability of the international
financial system are still not entirely clear. The current
credit crisis and the food and oil price shock are clear signs
that new challenges for the IMF are waiting just around the
corner.
Objectives of IMF
• International Monetary Co-Operation: The most important
objective of the Fund is to establish international monetary
co-operation amongst the various member countries through
a permanent institution that provides the machinery for
consultation and collaborations in various international
monetary problems and issues.
• Ensure Exchange Stability: Another important objective of
the Fund is to ensure stability in the foreign exchange rates
by maintaining orderly exchange arrangement among
members and also to rule out unnecessary competitive
exchange depreciations.
• Balanced Growth of Trade: IMF has also another important
objective to promote international trade so as to achieve its
required expansion and balanced growth. This would ensure
development of production resources and thereby promote
and maintain high levels of income and employment among all
its member countries.
• Eliminate Exchange Control: Another important objective of
the Fund is to eliminate or relax exchange controls imposed
by almost each and every country before Second World War
as a device to deliberately fix the exchange rate at a
particular level. Such elimination of exchange controls was
made so as to give encouragement to the flow of international
trade.
• Multilateral Trade and Payments : To establish a
multilateral trade and payment system in respect to
current transactions between members in place of
the old system of bilateral trade agreements.
• Balanced Growth: To help the member countries,
especially the backward countries, to attain balanced
economic growth by exchange the level of
employment.
• Correction of BOP Maladjustments: IMF also helps the
member countries in eliminating or reducing the
disequilibrium or maladjustments in balance of
payments. Accordingly, it gives confidence to members
by selling or lending Fund’s foreign currency resources
to the member nations.
• Promote Investment of Capital: Finally, the IMF also
promotes the flow of capital from richer to poorer or
backward countries so as to help the backward
countries to develop their own economic resources for
attaining higher standard of living for its people, in
general.
Structure of IMF
• The IMF, which started functioning in March 1947,
is an autonomous organisation and is affiliated to
UNO.
• As per Fund Agreement, the headquarters of the
IMF should be located in that country which usually
possess the highest quota of capital of the IMF.
Accordingly, the head office of IMF is located at
Washington.
• At the initial stage, the IMF had 30 countries as its
members. Later, as on April 30, 1986, the total
membership of the IMF rose to 149.
• Since inception, the management of the IMF is rested
on two bodies:
a. Board of Governors and
b. Board of Executive Directors.
• Every member country appoints one Governor for
participating in the meetings of Board of Governors and
also appoints one Alternate Governor to represent the
Governor is respect of its absence. The Board of
Governors in authorized to formulate the general
policies of the Fund. To carry on day to day activities of
the IMF, the Board of Executive Directors in formed.
• At present, there are 22 members in the Board of
Executive Directors, six of which are appointed by
members maintaining largest quotas, i.e. USA, UK,
Germany, France, Japan and Saudi Arabia and the
remaining sixteen directors are elected by other
nations. The Managing Director of Board of Directors,
the top most official of IMF, in elected by the Board
of Directors. He is responsible for organisation and
management of the Fund.
Functions
The IMF's main goal is to ensure the stability of the international monetary
and financial system. It helps resolve crises, and works with its member
countries to promote growth and alleviate poverty.
• Economic and Financial Surveillance : The IMF promotes economic
stability and global growth by encouraging countries to adopt sound
economic and financial policies. To do this, it regularly monitors global,
regional, and national economic developments.
• Technical Assistance and Training: IMF offers technical assistance and
training to help member countries strengthen their capacity to design and
implement effective policies. Technical assistance is offered in several
areas, including fiscal policy, monetary and exchange rate policies,
banking and financial system supervision and regulation, and statistics.
• IMF Lending: In the event that member countries experience difficulties
financing their balance of payments, the IMF is also a fund that can be
tapped to facilitate recovery.
• Research and Data : Supporting all three of these activities is the IMF's
economic and financial research and statistics.
Membership
• The IMF currently has a near-global membership of
189 countries. To become a member, a country must
apply and then be accepted by a majority of the
existing members.
• Upon joining, each member of the IMF is assigned a
quota, based broadly on its relative size in the world
economy.
How is the IMF Financed?

• The IMF is financed by member countries who contribute funds on

joining.
• They can also increase this throughout their membership.
• The IMF can also ask its member countries for more money.
• IMF financial resources have risen from about $50 billion in 1950 to
nearly $300 billion last year, sourced from contributions from its 189
members. This initial amount depends on the size of the countries
economy. E.g. the US deposited the largest amount with the IMF. The
US currently has 16% of voting rights at the IMF, a reflection of its
quotas deposited with IMF. The UK has 4% of IMF Voting rights.
• Loans at a discounted rate are also available to developing countries
to ‘deal with poverty reduction.’
How do IMF Lend?
• Any member of the IMF may request funding.
• Agree to abide by the transparency standards,
codes and policies of the facility.
• Agree to a balance of payment resolution.
• Submit a repayment strategy including the
policy change recommendations in a Letter of
Intent to the Executive Board of the IMF for
approval.
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 member's quota subscription determines the
maximum amount of financial resources the
member is obliged to provide to the IMF.
• A member must pay its subscription in full upon
joining the IMF: up to 25 percent must be paid in
the IMF's own currency, called Special Drawing
Rights (SDRs) or widely accepted currencies
(such as the dollar, the euro, the yen, or pound
sterling), while the rest is paid in the member's
own currency.
• Voting power: The quota largely determines a
member's voting power in IMF decisions. Each
IMF member has 250 basic votes plus one
additional vote for each SDR 100,000 of quota.
• 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 )
• 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)
Special Drawing Rights
• Special drawing rights were created by the IMF in
1969 and were intended to be an asset held in
foreign exchange reserves.
• They were Issued to supplement a shortfall of
preferred foreign exchange reserve assets, namely
Gold and the US dollar.
• They were allocated to participating members in
portion to their Fund quotas.
• The value of a SDR is defined by a weighted
currency basket of four major currencies: the US
dollar, the Euro, the British pound, and the Japanese
yen.