IE - LECTURE 7
INTERNATIONAL MONETARY FUND
OBJECTIVES OF IMF
To promote international monetary cooperation, facilitate the expansion of trade, and thus, to contribute towards increased employment and improved economic conditions in all member countries.
1. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
2. To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
3. To promote exchange stability, maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
4. To assist in the establishment of a multilateral system of payments with respect to current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
5. In accordance with the above to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
Vision of IMF
◆ Strive to promote sustained non-inflationary economic growth that benefits all people of the world.
◆ Be the centre of competence for the stability of the international monetary system.
◆ Focus on its core macroeconomic and financial areas of responsibility, working in a complementary fashion with other institutions established to safeguard global public goods,
◆ Be an open institution, learning from experience and dialogue and adapting continuously to changing circumstances
The Fund maintains a large pool of financial resources, makes them available to member countries-temporarily and subject to conditions-to enable them to carry out programmes to remedy their payments deficits without resorting to restrictive measures that would adversely affect national or international prosperity.
Members make repayments to the Fund so that its resources are used on a revolving basis and are continuously available to countries facing payments difficulties. The policy adjustments that countries make in connection with the use of Fund’s resources support their credit worthiness and thus facilitate their access to credit from other official sources and from private financial markets.
These policies evolve in response to changing world economic conditions and the needs of Fund’s members. They apply equally to all member countries, whether industrial or developing, whether their payments are in deficit or surplus, regardless of their economic system.
The Fund is particularly concerned with global liquidity – that is, the level and composition of the reserves that are available to members for meeting their trade and payments requirements. In 1969, the Fund was given the responsibility for creating and allocating Special Drawing Rights (SDRs).
SDR’s are also known as “paper gold” although they have no physical form, have been allocated to member countries since 1969 (as book 2 keeping countries) as a percentage of their quotas. So far IMF has allocated SDR 21.4 billion, equivalent to $ 29 bn. The SDR is IMF’s unit of account. Members may use SDRs in transactions among themselves, with 16 “institutional holders” of SDRs and the IMF. The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold, also to one dollar. As of September 2, 2003, US $1 = SDR 0.673778; ISDR...
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