International Monetary Fund (IMF) History, Objectives and Functions

13/03/2020 2 By indiafreenotes

International Monetary Fund (IMF) is an international organization established in 1944, headquartered in Washington, D.C., consisting of 190 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF provides policy advice and financing to its members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. Key activities include surveillance over economic, financial, and exchange rate policies, lending to countries with balance of payments problems, and providing technical assistance and training to help countries improve their economic management. The IMF aims to stabilize the international monetary system and act as a forum for cooperation on international monetary problems.

International Monetary Fund (IMF) History:

International Monetary Fund (IMF) was established in December 1945, with its origins tracing back to the Bretton Woods Conference held in July 1944. This pivotal event in the wake of World War II saw delegates from 44 Allied nations gather in Bretton Woods, New Hampshire, USA, to create a new international monetary order. The primary aim was to prevent future economic crises and facilitate post-war reconstruction. The IMF’s initial role was to oversee a system of fixed exchange rates to ensure financial stability and promote international economic cooperation. Over the years, the IMF has evolved. Its functions have expanded to include providing monetary cooperation and financial stability, facilitating international trade, promoting high employment and sustainable economic growth, and reducing poverty around the world. Today, the IMF plays a crucial role in offering financial assistance and policy advice to its member countries facing economic challenges.

International Monetary Fund (IMF) Objectives:

  • Promoting International Monetary Cooperation:

Through a permanent institution that provides a framework for international monetary cooperation.

  • Facilitating the Expansion and Balanced Growth of International Trade:

This aids in promoting and maintaining high levels of employment and real income, contributing to the development of the productive resources of all member countries.

  • Promoting Exchange Stability:

To maintain orderly exchange arrangements among members and avoid competitive exchange depreciation.

  • Assisting in the Establishment of a Multilateral System of Payments:

For current transactions between members and in the elimination of foreign exchange restrictions that hamper the growth of world trade.

  • Providing Resources to Members with Balance of Payments Problems:

The IMF provides temporary financial assistance to member countries to help them address balance of payments problems, thereby providing an opportunity to correct maladjustments in their balance of payments without resorting to measures destructive to national or international prosperity.

  • Reducing the Duration and Degree of Imbalances in International Balances of Payments:

The IMF seeks to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

International Monetary Fund (IMF) Functions:

  • Surveillance:

The IMF monitors the economic and financial developments of its member countries and provides policy advice aimed at fostering stability and growth. This surveillance process helps identify potential risks to the global economy and advises on necessary policy adjustments.

  • Financial Assistance:

The IMF provides financial resources to countries facing balance of payments problems. This support is often conditional on the implementation of economic reform programs designed to restore economic stability and growth.

  • Technical Assistance and Training:

The IMF offers technical assistance and training to help member countries improve their capacity to design and implement effective policies. Areas of assistance include fiscal policy, monetary and exchange rate policies, banking and financial system supervision, and statistics.

  • Capacity Development:

Beyond immediate financial assistance and policy advice, the IMF works to build the institutions and capacity necessary for countries to manage their economies effectively. This involves strengthening governance, combating corruption, and promoting sustainable economic practices.

  • Promoting International Trade:

By working to ensure economic stability and providing mechanisms for crisis prevention and resolution, the IMF facilitates international trade. Stable currencies and economies create an environment conducive to trade.

  • Exchange Rate Stability:

IMF plays a role in promoting exchange rate stability and orderly exchange arrangements among countries. This helps to avoid competitive devaluations and promotes a stable international monetary system.

  • Facilitating Balanced Growth of International Trade:

Through its surveillance, lending, and capacity development functions, the IMF supports policies that foster economic stability, reduce vulnerabilities, and enable balanced growth. This, in turn, contributes to high levels of employment and income.

  • Special Drawing Rights (SDRs):

IMF issues an international reserve asset known as Special Drawing Rights (SDRs) that can be exchanged among governments for freely usable currencies in times of need.

  • Crisis Prevention and Resolution:

IMF plays a key role in preventing economic crises through its surveillance activities and policy advice. When crises do occur, it helps resolve them by coordinating policy responses among countries and providing financial support.