INTERNATIONAL MONETARY

FUND
What Is the International Monetary Fund

The International Monetary Fund (IMF) is an international organization that promotes

global economic growth and financial stability, encourages international trade, and
reduces poverty. Quotas of member countries are a key determinant of the voting power
in IMF decisions. Votes comprise one vote per 100,000 special drawing right (SDR) of
quota plus basic votes. SDRS are an international type of monetary reserve currency
created by the IMF as a supplement to the existing money reserves of member countries.

The IMF's mission is to promote global economic growth and financial stability, encourage
international trade, and reduce poverty around the world.

The IMF was originally created in 1945 as part of the Bretton Woods agreement, which
attempted to encourage international financial cooperation by introducing a system of
convertible currencies at fixed exchange rates.
The IMF’s primary goal is to design a stable international financial system, a
stable system of currency exchange rates and international payments so that
countries can make transactions with one another. In three different ways, it
does this:

1 Keeps a record of the global markets and member countries’ economies

2 Lending to countries facing problems with the balance of payments
3 Providing representatives with practical support
4 Lending to countries that face problems with the balance of trade
5 Providing members with practical support
6 The mandate was revised in 2012 to cover all macroeconomic & financial
sector problems with an impact on global sustainability.
 Basics
International Monetary Fund (IMF) was created on 27
December 1945, it is also known as ‘ The Fund’. It is an
international Financial Institution created to promote
international monetary cooperation ,facilitate
international trade, foster sustainable economic
growth ,make resources available to members
experiencing balance of payment difficulties.
IMF is headquartered at Washington D.C. and has 189
member countries .
Kristalina Georgieva is the managing director of IMF
Gita Gopinath has been appointed as Chief
Economist at IMF( she was the economic
advisor to the CM of Kerala)

Financial year of IMF is from 1st may to 30th

April
IMF is regarded as “ Guardian to good
conduct “ in area of BOP.
Countries contribute funds to a pool through a
quota system from which countries experiencing
balance of payment problems can borrow
money. As of 2016 the fund has SDR 477 billion
(about US$661 billion )
 Special drawing rights SDR
• The main motive of IMF is to provide economic assistance to its members
countries for eliminating the adverse BOP. to solve the problem of
international liquidity it IMF started the concept of paper gold (SDR).
• the SDR is an international reserve acid created by the IMF in the year
1969 to supplement its member countries official reserves.
• The value of SDR is determined by the basket of five currencies. They are :
• US dollar
• Japanese yen
• Euro
• British pound
• Chinese renminbi
 Functions of IMF
• the IMF functions in three main areas :
1. overseeing the economies of the member
countries.
2. Lending the countries with the BOP issues.
3. Offering technical assistance to its member
countries.
Difference between World Bank and IMF

• World Bank gives loan for growth (building

dams etc. )

• IMF gives loans when country desperately

needs money IMF loans means the economy is
do not doing well .
 Formation
• the IMF and World Bank (IBRD) was conceived at a UN
conference of 44 Nations held at Bretton woods, New
Hampshire, United States , in 7th July 1944 primarily by the
ideas of Harry Dexter white and John Maynard Keynes.

• These two international institutions are known as Bretton

woods twins

• IMF came into for formal existence in 1945 with 29 member

countries and the goal of reconstructing the international
payment system. It now plays a central role in the management
of balance of payment difficulties and international financial
crisis.
 Main objectives
1. to promote International Monetary corporation.
2. To ensure balanced international trade.
3. To ensure exchange rate stability.
4. To eliminate and minimised exchange restrictions
.
5. To grant economic assistance to member
countries for eliminating the adverse in balance
in bop.
6. To minimised imbalance in quantum and
duration of international trade .
• India is the founding member of IMF and has eighth
place in general quota.

• IMF is controlled and managed 24 boards of

directors. Voting rights of the members depends
upon the quota in IMF .

• The financial minister is the ex officio governor in

IMF Board of Governors.

• IMF provides periodic assessments of global

prospects in its “World Economic outlook “end of the
financial market in “Global financial stability report. “
 Lending by IMF
• A core responsibility of the IMF is to provide loans
to the member countries experiencing actual or
potential balance of payment problems. This
financial assistance enables countries to rebuild
their international reserves, stabilize their
currencies, continue paying for imports, and restore
conditions for strong economic growth, while
undertaking policies to correct the problems. Unlike
development banks the IMF does not lend for
specific projects.
 Lending by IMF
• SDRs are used as an international reserve asset. our country’s
share in SDR allocations is established in proportion to its
quota . The SDR quota determines a members voting power in
IMF decision. Currently India's quota in the IMF is 2.76%. USA
has bigger biggest quota of 17.46%.
• The country which requires international currency for
international transaction of foreign exchange at the cheaper
rate can apply loan in the IMF. In this situation the member
countries allocated SDR in proportion of which quota in the
IMF.
• The applicant country can take the SDR up to twice of its
maximum limit in SDR.
• IMF is compromised of four key credit lines :

1. FCL (Flexible Credit Line) : this is given to the countries

usually before they get into a problem .they are the ones
with better policies .

2. PLL (Precautionary Lending) : This is for the countries that

are beginning to get weak.

3. SBA (Stand By Arrangement ) : this is given to the countries

that are quite weak but can be rescued quickly .

4. EFF (Extended Fund Facility ): this is for the countries that

are in lot of trouble and will need a help for a long time.