Wednesday, 8 August 2012

The establishment of International monetary Fund (IMF) constitutes an attempt to return to the gold standard or Discuss the relation between IMF and gold standard and important features of new system

No doubt gold has been given primary importance in the operation of fund but we can not say that it is a return to the gold standard. Any how gold importance has following reasons :

1. Each member of IMF is required to pay 25% to 10% of its quota in the shape of gold or USA dollar.

2. The exchange rate value  of each currency is expressed in terms of gold or U.S.A. dollar, at the time of membership.

The IMF may purchase the scarce giving gold.

4. IMF has encouraged the multilateral transactions like the gold standard.

Due to above reason some people say that it is actually return to the gold standard. In fact IMF has failed to stabilize the exchange rates. The currencies of the countries are not freely convertible with one another. Bilateral agreements are also taking place. When all these essential conditions of the gold standard have not been satisfied. So how we can say that setting up of IMF constitutes a return to the gold standard.

After the world war IMF has contributed to the reconstruction and expansion of world trade. But in the past years it faced certain difficulties. Various countries devalued their currencies in competition and it created problems.

Since the world war 2 demand for gold is increasing in all the field while the supply of gold has not increased according the same ratio. So different proposals have been given to increase the supply of gold.

1. Raise In The Dollar Price :-
It is suggested that the dollar price or gold should be raised to encourage the production of gold.

2. Substitute Of Gold :-
The second suggestion is to discover the substitute of gold which should replace the gold completely. All the members have accepted these proposals. In case of deficits IMF  has allowed the members to meet this deficit by the creation of special drawing rights, ( SDRS ) with the IMF.
Due to the establishment of this new international currency the reserves and liquidity has been increased.

After 1960 the importance of U.S.A dollar starts falling. Due to the deficit in the balance of payment the U.S.A. declared that the dollar was no longer convertible for gold. This declaration upsets the whole IMF system. So now all the world countries have adopted the fluctuating exchange rates.
These are so many monetary problems which the countries are facing, so new system is being advised by IMF. The main features of new system are following :

1. Democratic System :-  It has been suggested that all the members of the IMF should be allowed to participate in the formulation of economic policies.

2. Creation Of SDR'S :-  The most important development in the IMF is the creation of special drawing rights in 1969. These are now valued in terms of basket of 17 countries weighted according to their international importance.

3. Co-Operation and Consultation :-  The members of IMF have been advised to sit together and consult, assess, cooperate and suggest measures to improve the IMF system.

4. Assistance To The Affected Country :-  If any country faces unfavourable balance of payment problem, the fund will provide the medium term assistance to the affected country.


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