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Indian Economy / International Organizations

Functions of International Monetary Fund

International Monetary Fund was established in the year 1944 along with World Bank (IBRD) by the delegates gathered at the Bretton Woods Conference. Currently, IMF has 190 nations as its members. Its functioning is based on quota system (quota is based on the GDP, Openness of the Economy, Economic Variability and Forex Reserves of a country). Quota indicates the relative position of the economy of any country in the world economy.

The size of the quota of any country in IMF determines its maximum financial subscription to the IMF, its voting power and its access to IMF financing. While joining the IMF, the member country must pay 25% of the quota amount in Special Drawing Rights (SDRs) and the remaining 75% amount in member's own currency. The larger the quota a country has, the greater will be its influence in the working of IMF.

Important Functions of IMF

  • The most important role of International Monetary Fund is to uphold the stability of different currencies and to prevent any variations in the rates of exchange.

    It enforces on the member countries, a system of determining par values of their currencies in terms of US Dollars or gold.

  • It exercises continuous surveillance on member countries so that they do not try to manipulate their exchange rates. In case there is any fundamental change in the economies of member countries, it may suggest its members to vary the par values of their currencies.

  • IMF helps the member countries to minimize the balance of payments problems either by loaning or selling foreign currencies to the member countries.

    It advises the members on different economic and financial matters and hence tries to stabilize their economies.

  • It maintains proper equilibrium between the demand and supply of different currencies. If a currency is in huge demand, IMF can increase the supply of the currency by exchanging the currency with gold or by borrowing the currency from the respective country.

  • It offers technical assistance to the member countries by providing services of its experts or by sending the specialists to the member countries in order to cope with the concerned problems.

  • It tries to mitigate the tariff barriers that are inflicted on international trade by different member countries.