INTERNATIONAL MONETARY SYSTEM

• Demand of gold and dollar was increasing and supply was

decreasing, since dollar was convertible to gold leads to collapse of
world monetary system in Bretten-wood conference (1944).

• Thus, International monetary fund (1944) and International Bank of

Reconstruction and Development(IBRD/World Bank) was proposed
under this conference
 INTERNATIONAL MONETARY FUNT(IMF)
 Lends to countries with balance
of payments problems – countries that can’t make their payments
 Pushes for economic reforms – reforms such as allowing free trade or reduce wasteful
spending
 Reports on policies in member states
 These are short-term emergency loans when a country is about to go bankrupt. Usually
associated with LDCs, but recently Greece and Spain have consulted the IMF due to the Euro
zone crisis.
 IMF only lends money if countries agree to:
 Sell their resources cheaply
 Cut public spending
 Critics say this serves to increase the problems of poverty in poor member countries – many
times the country ends up paying more money to pay off the debt than they invest in
education or health care
 INTERNATIONAL MONETARY FUNT(IMF)AL MONETARY
FUND
• At present 190 members, H.Q. Washington D.C , principal aim was to avoid economic
mistakes of 1920’s and 30’s, provide short-term loan for correcting BOP
• Purpose:-
• Only provide short term fund
• Promote international monetary cooperation through a permanent institutions
• To facilitate expansion and balanced growth of international trade
• Promote exchange stability
• Assist members for multilateral system and eliminate foreign exchange restrictions
• Avail fund to member countries for maladjustments in their BOP
 INTERNATIONAL MONETARY FUNT(IMF)

• Controlled and managed by Board of Governors nominated by governors

• Governors and alternative governors are nominated by each country members.
• Each governor is allotted by no. of votes determined by quota allotted by
respective country in the capital of IMF and SDR
• Quota(Top 3)-USA-16.50%,Japan-6.04%,China -6.08%,
• India(11th )-2.63%
• Countries contribution to IMF fund-
https://www.imf.org/external/np/sec/memdir/members.aspx
 INTERNATIONAL MONETARY FUNT(IMF)
SPECIAL DRAWING RIGHTS(SDR)

• Also known as paper gold are in form of international reserve created by IMF in 1969 to solve the
problem of international liquidity.
• Allotted to members in the proportion to their fund quotas and used to settle BOP deficit between
them.
INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT(IBRD)

189 members H.Q Washington D.C, principle aim is to

provide long-term loan for promoting balanced economic
development
Purpose is to provide long term capital for :-
• Rehabilitate war ruined economies
• Finance productive efforts according to peacetime
requirements.
• Develop resources and production facilities in UDCs
• Assuring BOP equilibrium and balanced development
of int. trade
 WORLD BANK
• Aims to help development by advising and lending – with many conditions – such as
reducing wasteful spending or focusing on a particular area of production
• Countries encouraged to lift import and export barriers, cut subsidies and remove
price controls – encouraging free trade
• These are longer term loans, used to put in place infrastructure or other big projects.
• Loans depend on countries agreeing a ‘Structural Adjustment Programme’
• Leads to rapid increase in price of goods in country
• Increases poverty
• Lower investment and cut social spending
• Little evidence that these policies work
• These criticisms are similar to the criticisms of the IMF
WORLD BANK -CONSTITUTION AND
MEMBERSHIP
• Any member country of IMF will automatically become
member of W.B and if it quits automatically expelled from
W.B.
• World Bank Groups
• International Development Association(IDA)-Poverty
• International finance corporation(IFC)-Private Sector
• Multinational Investment Guarantee Agency(MIGA)-FDI
• International Centre for settlement of Investment Disputes
(ICSID)-Disputes