International Monetary Fund

• The formation of the IMF was initiated in 1944 at the Bretton Woods Conference. IMF came into operation on 27th December 1945 and is today an international organization that consists of 189 member countries.
• Headquartered in Washington, D.C.

Objectives of IMF

1. Foster global monetary cooperation
2. Secure financial stability
3. Macro-economic growth
4. Facilitate international trade
5. And reduce poverty around the world
6. Promote high employment and sustainable economic growth
7. Policy advise & financing for developing countries,
8. Promotion of exchange rate stability, and an international payment system

IMF Members:

• Any other state, whether or not a member of the UN, may become a member of the IMF in accordance with IMF Articles of Agreement and terms prescribed by the Board of Governors.
• Membership in the IMF is a prerequisite to membership in the IBRD.
• Pay a quota subscription: On joining the IMF, each member country contributes a certain sum of money, called a quota subscription, which is based on the country’s wealth and economic performance (Quota Formula).
• It is a weighted average of
• GDP (weight of 50 percent)

Note: GDP of member country is measured through a blend of GDP—based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent).

• Openness (30 percent),
• Economic variability (15 percent),
• International reserves (5 percent).

Special Drawing Rights (SDRs)

• It is the IMF’s unit of account and not a currency.
• The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a SDR basket of currencies
• SDR basket of currencies includes the
• S. dollar
• Euro
• Japanese yen
• Pound sterling and
• Chinese renminbi (included in 2016).
• The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.
• Quotas are denominated (expressed) in SDRs.
• SDRs represent a claim to currency held by IMF member countries for which they may be exchanged.
• Members’ voting power is related directly to their quotas (the amount of money they contribute to the institution).
• IMF allows each member country to choose its own method of determining the exchange value of its money. The only requirements are that the member no longer base the value of its currency on gold (which has proved to be too inflexible) and inform other members about precisely how it is determining the currency’s value.

IMF and India

• India is a founder member of the IMF.
• International regulation by IMF in the field of money has certainly contributed towards expansion of international trade. India has, to that extent, benefitted from these fruitful results.

Criticisms of the IMF

1. Conditions of loans worsen the Economic crisis
2. Neo-Liberal Criticisms: There is also criticism of neo-liberal policies such as privatisation.
3. Lack of transparency and involvement