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International Monetary Fund (IMF)


Introduction


The International Monetary Fund (IMF) is a United Nations agency headquartered in Washington DC, and a global financial organisation that brings together 190 nations. It was established in 1944 and officially began on December 27, 1945, at the Bretton Woods Conference. It was founded with 29 members and the goal of reconstructing the global monetary system on the theories of Harry Dexter White and John Maynard Keynes.


Nations contribute money to a pool from which nations with balance of payments problems can borrow money through a quota system. The IMF obtains funding primarily through loans and quotas. The majority of IMF finances come from quotas, which are collective funds from members. The size of a member's quota is determined by the importance of its economy and finances on a global scale. Quotas are higher for countries with greater economic significance. Quotas are raised on a regular basis in order to increase the IMF's resources in the form of special drawing rights.



Objectives

The International Monetary Fund's (IMF) primary goals are listed below:

  • to strengthen and advance international monetary cooperation.

  • to protect monetary stability by reducing or removing exchange rate stability.

  • to make it easier for balanced global trade.

  • to encourage high employment through sustained economic growth and financial aid.

  • to decrease poverty globally.

Functions of IMF


The IMF claims that it supports economic growth and stability globally by offering policy recommendations, supporting its members, and working with developing nations to eliminate poverty and promote macroeconomic stability.


Initial pase


The IMF's initial three main responsibilities were:

  • to monitor the international agreements on fixed currency rates,

  • to lend money on short notice to help the balance of payments,

  • to stop the global economic crises from spreading

  • to raise money for infrastructure projects and other economic growth initiatives.

Post-1971 Phase


The post-1971 floating exchange rates significantly changed the IMF's mission. Their role became a lot more active because the IMF now manages economic policy rather than just exchange rates. The difficulty was in promoting and putting into practice a strategy that would lessen the frequency of crises among emerging market nations, particularly middle-income nations that are susceptible to significant capital outflows.


Monitoring: The IMF keeps a close eye on the economic and financial developments in each member nation. It also regularly engages in policy dialogue (also known as Article IV Consultation) with a member nation, typically once a year, to assess its economic conditions with the goal of making policy recommendations. Through the World Economic Outlook and the Global Financial Stability Report, the IMF releases such assessments of the multilateral monitoring on a semi-annual basis.


Financial Assistance: Through a variety of loan instruments or "facilities," the IMF provides loans to its members experiencing balance of payments issues in an effort to speed up the adjustment process and restore economic growth and stability. The majority of IMF loans are generally supported by quota contributions made by its member nations.


Technical Assistance: The IMF offers technical assistance to members in four areas to improve their capacity to develop and carry out successful policies:


  1. Financial and monetary policies,

  2. Fiscal management and policy,

  3. Financial and economic regulation.


Regulatory duties: The IMF performs regulatory duties and, in accordance with the provisions of the Articles of Agreement, focuses on enforcing a code of behaviour for exchange rate policies and payment limitations for current account operations.


Financial responsibilities: To address short- and medium-term Balance of Payments (BOP) disequilibrium, the IMF offers financial assistance and resources to its member nations.

Through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF), and the Rapid Credit Facility (RCF)., low-income nations can borrow on favourable conditions, which means there is a time period during which there are no interest rates.  IMF members in need of immediate balance of payments support might use the Rapid Financing Instrument (RFI).


Conditional loan terms

  • A set of guidelines or requirements that the IMF requests in exchange for financial resources is known as IMF conditionality.

  • A 1952 executive board vote introduced the idea of conditionality.

  • While the IMF does require collateral from nations for loans, it also expects the government seeking help to implement policy changes to address its macroeconomic imbalances.


Membership

  • The IMF now has 185 members, up from 29 at the time of its founding in 1945. Any nation may submit an application to join the IMF.

  • Members were required to adhere to the IMF's Code of Conduct, make periodic membership contributions toward their quota, refrain from imposing currency restrictions until IMF approval was granted, and supply national economic data.

  • To be eligible for IMF membership, a nation must first join the UN.

  • Access to data on each member country's economic policy is available to IMF members.


Organizational structure

  • Each member has one governor on the Board of Governors. At the IMF/World Bank Annual Meetings, the Board of Governors typically holds one annual meeting.

  • The Board of Governors is advised by the International Monetary and Financial Committee (IMFC), which has 24 members and mirrors the makeup of the IMF's Executive Board. It meets twice a year to discuss matters pertaining to the duties of the Board of Governors in overseeing the operation of the global monetary and financial system.

  • The Executive Board oversees the IMF's daily operations under the direction of the IMFC. The Managing Director serves as both the Executive Board's Chairman and the IMF's personnel chief.


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