20 International Financial Management considerable inflationary and deflationary tendencies throughout the world, Ibis not at all certain that the actions taken by all the central banks will neutralise each other. Thus, the credit contraction and depression in one country may spread to other countries. Similarly, inflationary spirals in one country may also spread to other countries. ‘There is nothing in the gold standard mechanism itself that can prevent such a world-wide deflation or inflation. The gold standard mechanism lacks a central authority which can co-ordinate the domestic credit policies of the participating countries, ‘i, The gold standard system is costly in that the medium of exchange consists of expensive metal. It is wasteful as well. Gold as a ‘means of international settlement is wasted unnecessarily under the ystem in its orthodox form, For under it “buffer reserves,” Lc reserves above the minimum reserves are generally kept as shock absorbers. 8, Gold standard is unsuitable for an expanding or newly developing economy, cominitted to a poliey of planned economic development 9. Gold standard is an anachronism in present days where every country stresses the goal of full employment as the fundamental objective of its monetary policy. As Robert Bryce has remarked. ‘monetary policy in modern times is recognised as “too important and too close ta the heart of fiscal sovereignty to be entrusted to any automatic or even semi-automatic system.” Further, in the modern world of paper money and bank credit, there is no escape from a ‘managed’ currency. Thus, when managed. jes are a fit accompli. gold standard loses its powers. It may be concluded, that while in gold standard gold is regarded as a master, in the present interaational monetary set-up gold will serve merely as a measure, It would not perform an eminently us role in a modern international payments system. It would serve as 2 ‘common denominator for different curreneies. It would also remain th ‘most liquid international asset. But the glitter of gold will nothave th charm of traditional gold standard system in the modern monetar: mechanism. Q.5. Explain the objectives, Or; international Monetary Fund. Ans. International Monetary Fund In view of serious monetary chaos throughout the inter-wa: period and its adverse repurcussions on international trade, payment adjustments and capital movements, the international negotiation ‘were started in 1943 for correcting disorder in the monetary system. In these negotiations the United States proposal put forward by Deate: sation and functions of ‘aternational Financial Management ‘snd White advocated the institution of a stabi ‘termed a5 “Dextor- White Plan.” The British pro Tord J.M. Keynes, was more ambitious. It ‘ereation of an international clearing union andw Plan”, At a meeting of the representatives of Bretton Woods; New Hampshire in the United compromise between the American and the Brit Spon. This led to the creation of International Mo December, 1945 with a membership of 30 ca femmenced its operations in March, 1947. presently risen to 184, Objectives ‘The purposes arid objectives of the IMF wen GF its Arlicles of Agreement. Two amendments ‘this Article in 1969 and 1978. In its present forr Find are as (i) Promotion of international monetary e ‘Semmanent institution that provides the machi Sad collaboration on international monetary mi Gi) Expansion and balanced growth of glo! Geemotion and maintenance of high levels of Heeeme and the development of productive rosou sesuntries. (iii) Promotion of exchange rate stability Peepetitive depreciation of exchange rates. Gy) Establishment of multilateral syste Perersion of national currencies and the eli Geetrols and exchange restrictions that ham sade. (e) Re-cstablishment of multilateral trad exuntries foi) Imparting of confidence to the membe Geetieble to them the resources of the F Geteserds, thus providing them with op Getedustments in their balance of payment: Gessures destructive of national or internation (Sid Shortening of the duration and less S=Saibrium in the international balance members. ‘Grganisation The organisation of the IMF consists of al Beeestive Board, a Managing Director, a Co © Sestquarter of the IMF is located in Washingto