International Monetary Fund (IMF)

• Founding and Mission
  • The IMF was conceived in July 1944 at the United Nations Bretton Woods Conference in New Hampshire, United States.
  • The 44 countries in attendance sought to build a framework for international economic cooperation and avoid repeating the competitive currency devaluations that contributed to the Great Depression of the 1930s.
  • The IMF’s primary mission is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries and their citizens to transact with each other.
  • It promotes international financial stability and monetary cooperation. It also facilitates international trade, promotes employment and sustainable economic growth, and helps to reduce global poverty. The IMF is governed by and accountable to its 189 member countries.

Functions

• Capacity Development

• The IMF provides technical assistance and training to help member countries build better economic institutions and strengthen related human capacities.
• This includes:
  • Designing and implementing more effective policies for taxation and administration,
  • Expenditure management, Monetary and exchange rate policies,
  • Banking and financial system supervision and regulation,
  • Legislative frameworks and economic statistics.

Financial Assistance

• Providing loans to member countries that are experiencing actual or potential balance-of-payments problems is a core responsibility of the IMF.
• Individual country adjustment programs are designed in close cooperation with the IMF and are supported by IMF financing, and ongoing financial support is dependent on the effective implementation of these adjustments.
• In response to the global economic crisis, in April 2009 the IMF strengthened its lending capacity and approved a major overhaul of its financial support mechanisms, with additional reforms adopted in subsequent years.
• These changes enhanced the IMF’s crisis-prevention toolkit, bolstering its ability to mitigate contagion during systemic crises and allowing it to better tailor instruments to meet the needs of individual member countries.

Surveillance

To maintain stability and prevent crises in the international monetary system, the IMF monitors member country policies as well as national, regional, and global economic and financial developments through a formal system known as surveillance.

Governance and Organization

• Board of Governors
  • It is the highest decision-making body of the IMF, consists of one governor and one alternate governor for each member country.
  • The governor is appointed by the member country and is usually the minister of finance or the governor of the central bank. All powers of the IMF are vested in the Board of Governors.
  • The Board of Governors normally meets once a year.
• Executive Board
  • It is responsible for conducting the day-to-day business of the IMF.
  • It is composed of 24 Directors, who are elected by member countries or by groups of countries, and the Managing Director, who serves as its Chairman.
  • The Board usually meets several times each week.
  • It carries out its work largely based on papers prepared by IMF management and staff.
• Ministerial Committees
  • The Board of Governors is advised by two ministerial committees,
• International Monetary and Financial Committee (IMFC).
  • IMFC has 24 members, drawn from the pool of 189 governors, and represents all member countries.
  • It discusses the management of the international monetary and financial system.
  • It also discusses proposals by the Executive Board to amend the Articles of Agreement.
  • And any other matters of common concern affecting the global economy.
• Development Committee
  • It is a joint committee (25 members from the Board of Governors of IMF & World Bank), tasked with advising the Boards of Governors of the IMF and the World Bank on issues related to economic development in emerging markets and developing countries.

Voting Rights

Votes of each member equal the sum of its basic votes (equally distributed among all members) and quota-based votes. A member’s quota determines its voting power.

IMF Quotas

Quotas are the building blocks of the IMF’s financial and governance structure. An individual member country’s quota broadly reflects its relative position in the world economy. Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account.

Multiple roles of quotas

• Resource Contribution: Quotas determine the maximum amount of financial resources a member is obliged to provide to the IMF.
• Voting Power: Quotas are a key determinant of the voting power in IMF decisions. Votes comprise one vote per SDR100,000 of quota plus basic votes (same for all members).
• Access to Financing: The maximum amount of financing a member can obtain from the IMF under normal access is based on its quota.
• SDR Allocations: Quotas determine a member’s share in a general allocation of SDRs.

Quota formula

A quota formula is used to help assess members’ relative position in the world economy and it can play a role in guiding the distribution of quota increases. The current formula was agreed in 2008 and a new quota formula is being discussed in the context of the 15th General Review of quotas.

Special Drawing Rights (SDRs)

• The IMF issues an international reserve asset known as Special Drawing Rights or SDRs, that can supplement the official reserves of member countries. IMF members can voluntarily exchange SDRs for currencies among themselves.
• The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of an SDR basket of currencies.
• SDR basket of currencies includes the U.S. Dollar, Euro, Japanese Yen, Pound Sterling,and the 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.

India and latest quota reforms at IMF

• India’s voting rights in IMF increase to 2.6 percent from the current 2.3 percent, and China’s, to six percent from 3.8, as per the new division.
• The reforms bring India and Brazil into the list of the top 10 members of IMF, along with the U.S, Japan, France, Germany, Italy, the United Kingdom, China, and Russia India and the latest quota reforms at IMF
• India’s voting rights in IMF increase to 2.6 percent from the current 2.3 percent, and China’s, to six percent from 3.8, as per the new division.
• The reforms bring India and Brazil into the list of the top 10 members of IMF, along with the U.S, Japan, France, Germany, Italy, the United Kingdom, China, and Russia.