What is International Monetary Fund (I.M.F.)?

The International Monetary Fund was founded at the Bettenwoods Conference for monetary cooperation among countries, while the International Bank for Reconstruction and Development was established for the reconstruction of war-torn countries and the economic development of backward countries.

When was the International Monetary Fund established? After 30 countries signed the Articles of Agreement, the International Monetary Fund was founded on December 27, 1945.

What are the objectives of the International Monetary Fund?

Its objectives, according to the International Monetary Fund’s Memorandum of Understanding, are as follows:

1. The Bank’s Permanent Institution promotes international monetary cooperation.
2. To create and maintain a high level of employment among nations by providing appropriate facilities for the spread and balanced growth of international trade.
3. Preventing competitive exchange depreciation among member nations and maintaining a regular exchange mechanism to promote exchange stability.
4. To help in the development of multilateral payment systems and the removal of foreign exchange limitations.
5. To inspire trust in member nations by providing them with financial resources, allowing them to correct balance-of-payments imbalances without resorting to actions that risk national or international development.
6. Reduce the duration and magnitude of the international balance of payments imbalance. Establishing an international payment system in which each country is ready to accept payments in the other’s currency in a short period of time by gradually abolishing exchange restrictions. Each Fund member countries must trade in foreign exchange in accordance with specified regulations, which may only be changed with the Monetary Fund’s approval. Everyone’s faith in the individual countries’ currencies persists due to appropriate balance of payments, which is necessary for economic success.

Functions of International Monetary Fund

The Monetary Fund performs the following functions in order to achieve its goals:

1. Setting exchange rates

One of the primary goals of the Monetary Fund’s creation was to maintain exchange rates in member countries by limiting competitive devaluation, allowing governments to receive foreign exchange receipts. Gold was used as the medium of exchange rate determination for this reason. For each take, the Monetary Fund’s currency was denominated in gold and US dollars. The adoption of gold as a way of measuring currency worth made finding the parity rate of various currencies easier.

The parity rates of exchange in various currencies were computed using gold. The member nations were granted some flexibility in changing the currency’s exchange rate. Only after notifying the Monetary Fund can a member state modify its initial equity rate by up to 10%. Prior clearance from the International Monetary Fund would be necessary for conversions between 10% and 20%. The Monetary Fund had the authority to give or deny such authorization, but it had to notify the Member State within 72 hours of its decision. A change of more than 20% was only permitted with the approval of two-thirds of the fund’s members.

2. Provides Financial Aid

The Monetary Fund’s principal mission is to support all nations in balancing their balance of payments. When a country’s trade or balance of payments is in crisis, the monetary fund provides the required funds for a period of time.

3. Technical Assistance

The Fund makes arrangements to give support in economic policies by sending representatives to its headquarters in Washington and other nations. This aid might be for anything from a broad balance of payments difficulty to a specific economic or financial crisis.

The Monetary Fund’s Central Banking Service and Fiscal Affairs Department offer the majority of the technical support.

4. Training Program

Since 1951, the International Monetary Fund has organized training for representatives of member nations. International payments, economic development and the financial system, and numeracy and analysis are among the topics covered in training programs.

5. Advice on Exchange Control

When experts from the International Monetary Fund provide foreign exchange assistance to developing nations, they frequently discuss currency and finance policies and how to improve them.

Frequently Asked Questions – International Monetary Fund