INTERNATIONAL MONETARY FUND :-
International Monetary Fund was established in 1947. Following were the main objectives of this fund.
1. To promote exchange rate stability among the different countries.
2. To make an arrangement of goods exchange between the countries.
3. To promote short term credit facilities to the member countries.
4. To assist in the establishment of International Payment System.
5. To make the member countries balance of payment favourable.
6. To facilitate the foreign trade.
7. To promote The international monetary corporation.
Management Of Fund :-
The twelve member executive committee manages the affairs of IMF. Five members are the representatives of U.K, U.S.A, China, France and India. The remaining are elected by the other members countries. Its head office in in U.S.A.
Source Of IMF :-
The initial capital of IMF was 8.5 billion dollar which was contributed by the 49 members. The quota of each member country was fixed in proportion to the national income and volume of foreign trade. Every country was required to pay in the form of gold and domestic currency.
FUNCTIONS OF IMF FUND1. Merchant Of Currencies :-
IMF main function is to purchase and sell the member countries currencies.
2. Helpful For The Debtor Countries :-
If any country is facing adverse balance of payment and facing the difficulty to get the currency of creditor country, it can get short term credit from the fund to clear the debt. The IMF allows the debtor country to purchase foreign currency in exchange for its own currency upto 75% of its quota plus an addition 25% each year. The maximum limit of the quota is 200% in special circumstances.
3. Declared Of Scarce Currency :-
If the demand of any particular country currency increases and its stock with the fund falls below 75% of its quota, the IMF can declare it scare. But IMF also tries to increase its supply by these methods.
1. Purchasing :- IMF purchases the scare currency by gold.
2. Borrowing :- IMF borrows from those countries scare currency who has surplus amount.
3. Permission :- IMF allows the debtor countries to impose restrictions on the imports of creditor country.
4. To promote exchange stability :- The main aim of IMF is to promote exchange stability among the member countries. So it advises the member countries to conduct exchange transactions at agreed rates. On the other hand one country can change the parity of the currency without the consent of the IMF but it should not be more than 10%. If the changes are on large scale and IMF feels that according the circumstances of the country these are essential then it allows. The country can not change the exchange rate if IMF does not allow.
5. Temporary aid for the devalued currency :- When the devaluation policy is indispensable or any country then IMF provides loan to correct the balance of payment of that country.
6. To avoid exchange depreciation :- IMF is very useful to avoid the competitive exchange depreciation which took place before world war 2.