International Monetary Fund
Establishment of International Monetary Fund
World war II had its adverse effect on the global economy.To remedy the situation,an international monetary conference was convened in 1994,at Bretton Woods in America.It was attended by the representatives of 44 countries.India also participated therein.It was decided in this Conference that two institutions be set up for the economic development of all countries:
1) International Monetary Fund
2) International Bank of Reconstruction and Development/World Bank.
Consequently,International Monetary Fund(IMF) was founded on 27thDecember1945.The Fund was established with the objective of solving the problem of balanced growth of world trade,international monetary co-operation,the balance of payments of member countries and their temporary disequilibrium.In 2009,the number of member countries of IMF was 186.Its headquarters are in Washington.Currently there are 188countries who are members of International Monetary Fund.
Purpose of International Monetary Fund
According to the Article I of the Bretten Woods Agreements,the following are the main purposes of the IMF.
- To promote international monetary cooperation through a permanent institution, which provides the machinery for consultation and collaboration on international monetary system.
- To facilitate expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high level of employment and real income to the development of the productive resources of all members as primary objectives of economic policy.
- To promote exchange stability,to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation.
- To assist member-nations in the establishment of a multilateral system of payments in respect of current transactions and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
- To give confidence to members by making the Fund’s resources available to them to correct maladjustments in their balance of payments and to prevent them from restoring to measures destructive of national or international prosperity.
- In accordance with the above objectives,to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
Objectives of International Monetary Fund
1.To promote International Monetary Co-operation
The main objective of the Fund is to promote monetary cooperation among member countries of world.It provides expert advice for solving international monetary problems.
2.To establish a system of Multilateral Payments
The Fund aims at establishing multilateral payments system among member countries.For this,IMF provides for conversion of currency of different countries into each other.It also has its own currency i.e.,Special Drawing Right(SDR,which is acceptable to all member nations.IMF also lends or sells currencies of other countries countries to its member countries.By developing system of multilateral payments IMF promotes international trade.
3.To maintain Stability in Exchange Rate
Earlier maintaining stability in the rate of exchange was one of the objectives of IMF.But at present this objective is dropped.Now rate of exchange is decided on the basis of market forces of demand and supply.
4.To abolish Exchange Restrictions
It will try remove all restrictions and control on foreign exchange imposed by the member countries.
5.To Provide aid to members during Emergency
The fund aims at providing short-term monetary help to member countries during emergency.
6.To reduce disequilibrium in balance of Payments
The fund also provides monetary help to member countries to reduce disequilibrium in their balance of payments.
7.To help in profitable investment of capital
Another objective of the fund is to help the member countries invest their long-term funds in profitable activities special help to rich countries to invest their capital in poor countries.
8.To promote Balanced Economic Development
The fund aims at promoting economic development of member nations.For this,it promotes foreign trade thereby increases employment opportunities and national income.
9.To prevent Spreading of financial Crisis
IMF encourages member nations to adopt healthy economic policies so that spread of financial crisis could be prevented from one nation to other nations.