Role of the international monetary fund essay

Among the five multilateral banks, four place their focus on specific world region and are therefore referred to as regional development banks Scott, H. All International Financial Institutions have admissions for only sovereign who are the owner members although they are characterized by a country membership that is broad Irudaya, R.

Role of the international monetary fund essay

General Objectives and Major Functions Article shared by: General Objectives and Major Functions! The IMF was organised in and commenced operations in March, The fundamental object of the IMF was the avoidance of competitive devaluation and exchange control that had characterised the era of s.

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Thus, basically there are three general objectives of the IMF: In essence the Fund is an attempt to achieve the external or international advantages of gold standard system without subjecting nations to its internal disadvantages, and at the same time maintaining the internal advantages of paper standard while bypassing its external disadvantages.

The following are the major functions of the IMF: It functions as a short-term credit institution. It provides machinery for the orderly adjustments of exchange rates.

It is a reservoir of the currencies of all the member countries from which a borrower nation can borrow the currency of other nations.

It is a sort of lending institution in foreign exchange. However, it grants loans for financing current transactions only and not capital transactions. It also provides machinery for altering sometimes the par value of the currency of a member country.

In this way, it tries to provide for an orderly adjustment of exchange rates, which will improve the long-term balance of payments position of member countries.

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It also provides machinery for international consultations. In fine, the Fund contributes to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all member nations.

The Fund is an autonomous organisation affiliated to the UNO. Thus, the quota assigned to a country is determined by its contribution to the capital of the Fund.

The quotas of all the countries taken together constitute the total financial resources of the Fund.

The IMF’s role in the euro-area crisis: financial sector aspects | Bruegel

Moreover, the contributed quota of a country determines its borrowing rights and voting strength. India being one of the largest quota-holders million dollars has the honour of having a permanent seat on the Board of Executive Directors.

Each member nation of the IMF is required to subscribe its quota partly in gold and partly in its own currency. Specifically, a member nation must contribute gold equal to 25 per cent of its quota or 10 per cent of its gold stock and U.

Thus, the Fund gets a pool of foreign currencies to lend, together with gold enables it to acquire additional amounts of currencies whenever its initial supply of some currencies becomes depleted.

Role of the international monetary fund essay

The lending operations of the Fund technically take the form of sale of currency. Any member nation running short of foreign currency may buy the required currency from the Fund, paying for it in its own currency. Since each member contributes gold to the extent of 25 per cent of its quota, the Fund freely permits a member to draw up to the amount of its gold contribution.

Additional drawings are permitted only after certain careful and strict scrutinizes. Since the purpose of the Fund is to make temporary and long-term loans, it expects repayment of loans within 3 to 5 years.

The Fund has also laid down provisions relating to exchange stability. At the same time, the Fund started functioning; members were required to declare the par values of their currencies in terms of gold as a common denominator or in terms of U.

Thus, under IMF arrangements, gold retains its role in determining the relative values of currencies of different nations.

And once the par values of different currencies are fixed, it is quite easy to determine the exchange rate between any two member nations.

However, if at any time a member country feels there is a fundamental disequilibrium in its balance of payments position, it may propose a change in the par value of its currency, i. But devaluation is allowed or even advised by the IMF for the purpose of correcting a fundamental disequilibrium and not for undue competition or for other advantages.

Thus, the decision to devalue should not be taken unilaterally by the member concerned, but only after consultation with the Fund. The Fund has also laid down that member countries should not adopt a system of multiple exchange rates.Role of International Monetary Fund in Uruguay Economic Crisis of Essay Role of International Monetary Fund in Uruguay Economic Crisis of Introduction: The International Monetary Fund (IMF) is mainly responsible for maintaining the economic stability and economic systems of .

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