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International Business

notes 9.2 international monetary fund (imf)

9.2.1 Background

A landmark in the history of world economic co-operation is the creation of International
Monetary Fund, briefly called IMF. The establishment of an International Monetary Fund was
the outcome of a conference held at Bretton Woods (U.S.A.) in 1944. The conference gave birth to
the IMF organization along with IBRD.
The IMF came into existence in December 1945, and it announced its readiness to commence
exchange transactions in March 1947. At present, the IMF has 187 countries as its members. The
IMF is a pool of central bank reserves and national currencies which are available to its members
under certain conditions. It can be regarded as an extension of the central bank reserves of the
member countries.

9.2.2 objectives of imf

The main purposes setting up of IMF are:
1. Creation of international monetary co-operation: The first and foremost objective of the
fund is to promote international monetary cooperation through a permanent institution.
2. Promotion of balanced growth of International Trade: The second important objective of
the fund is to facilitate the expansion and balanced growth of international trade and to
contribute thereby to the promotion and maintenance of high levels of employment of the
member countries.
3. Stability in exchange rate: One of the main objectives of IMF is to promote exchange
stability, to maintain orderly exchange arrangements among members and to avoid
competitive exchange depreciation.
4. Multilateral Payments Arrangement: This objective is to assist in the establishment of a
multilateral system of payment in respect of current account transactions between members
and in the elimination of foreign exchange restrictions, which hamper the growth of world
trade.
5. To correct maladjustments in the balance of payments: The important objective is to give
confidence to members by making the fund’s resources available to them under adequate
safeguards. Thus, it provides them with an opportunity to correct maladjustments in their
balance of payments without resorting to measures destructive of national and international
prosperity. The IMF does not interfere in the internal economy of the member countries in
order to restore equilibrium in their balance of payments.
6. To shorten the duration and lessen the degree of disequilibrium: The objective is to shorten
the duration and lessen the degree of disequilibrium in the international balance of
payments of members.
7. Abolition of exchange restrictions: The fund will try to remove all sorts of restrictions and
controls on foreign exchange imposed by the member countries.
8. Help in international payments: The fund will lend or sell to its member nations currencies
of other countries. This facilitates foreign exchange transactions among the members.
9. Aid to member countries during emergency: The fund aims at providing short-term
monetary assistance to member nations during emergency.

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