International Monetary Fund

1. Presentation by-
Rohit Thareja

2. Context
 The IMF's primary purpose is to ensure the stability of
the international monetary system—the system of
exchange rates and international payments that
enables countries (and their citizens) to transact with
one other.
 This system is essential for promoting sustainable
economic growth, increasing living standards,
and reducing poverty. The Fund’s mandate has
recently been clarified and updated to cover the full
range of macroeconomic and financial sector issues
that bear on global stability.

3. History
 Depression of 1930’s

4. Inception
 The IMF, also known as the “Fund,” was conceived at a
United Nations conference convened in Bretton
Woods, New Hampshire, United States, in July 1944.
The 44 governments represented at that conference
sought to build a framework for economic cooperation
that would avoid a repetition of the vicious circle of
competitive devaluations that had contributed to the
Great Depression of the 1930s.

5. Cont…
 The IMF came into formal existence in December 1945,
when its first 29 member countries signed its Articles
of Agreement. It began operations on March 1, 1947.
 Later that year, France became the first country to
borrow from the IMF.
 The IMF's membership began to expand in the late
1950s and during the 1960s as many African countries
became independent and applied for membership.

6. Bretton Woods Agrement
 It created two international institutions-
1. The International Monetary fund. (IMF.)
2. The international Bank for Reconstruction and
Development. (World bank.)

7. Objectives of Agreement.
 Co-operation among member countries.
 Increase trade, growth and employment.
 Stabilize exchange rates.
 Reduce restrictions on payments for trade.
 To reduce BOP crisis.

8. Membership
 The IMF currently has a near-global membership of
188 countries. To become a member, a country must
apply and then be accepted by a majority of the
existing members. In April 2012, Republic of South
Sudan joined the IMF, becoming the institution's
188th member.

9. Members Quota
 A member country's quota defines its financial and
organizational relationship with the IMF, Including-
1. Subscriptions.
2. Voting Power.
3. Access to Financing.
4. SDR Allocations.

10. Governance

11. Board of Governors
 Highest decision making body.
 Consists of One governor and One Alternate governor
for each member country.
 The Governor is appointed by the member country
and is usually the minister of finance or the head of
the central bank.
 Board also elects executive directors.
 Votes by mail-in ballot.

12. Ministerial Committees
 The IMF Board of Governor is advised by two
ministerial committees,
1. IMFC- International Monetary and Financial
Committee.
2. Development Committee.

13. Executive Board
 The IMF's 24-member Executive board takes care of
the daily business of the IMF.
 The Board discusses everything from the IMF staff's
annual health checks of member countries' economies
to economic policy issues relevant to the global
economy. The board normally makes decisions based
on consensus but sometimes formal votes are taken.

14. SDR’s
Special Drawing Rights
 The SDR is an international reserve asset, created by
the IMF in 1969 to supplement the existing official
reserves of member countries.
 The SDR is neither a currency, nor a claim on the IMF.
Rather, it is a potential claim on the freely usable
currencies of IMF members.
 In addition to its role as a supplementary reserve asset,
the SDR serves as the unit of account of the IMF and
some other international organizations.

15. IMF’s Gold Stock
 The IMF holds a relatively large amount of gold among
its assets, not only for reasons of financial soundness,
but also to meet unforeseen contingencies.
 Gold played a central role in the monetary system after
the world war-II.
 The IMF's Articles of Agreement strictly limit the use
of the gold following the Second Amendment in 1978,
but with exceptions.
 The selling of gold by the IMF is rare as it requires an
Executive Board decision with an 85 percent majority
of the total voting power.

16. Borrowing Agreements
 If the IMF believes that its resources might fall short of
members' needs—for example, in the event of a major
financial crisis—it can supplement its own resources by
borrowing.
 Currently it has two standing multilateral borrowing
arrangements and one bilateral borrowing agreement-
1. New Arrangements to Borrow. (NAB)
2. General Arrangements to Borrow. (GAB)

17. Evolution
 The role of IMF evolved over time to carry out
responsibilities in a developing world trade.
 This can be put under 3 stages
1. Bretton Woods System
2. The collapse of Bretton Woods System
3. The Impact of second amendment.

18. Bretton Woods System
 The Bretton Woods system of monetary
management established the rules for commercial and
financial relations among the world's major industrial
states in the mid-20th century.
 The Bretton Woods system was the first example of a
fully negotiated monetary order intended to govern
monetary relations among independent nation-states.

19. Cont…
 The U.S. agreed separately to link the dollar to gold.
 Foreign governments and central banks were able to
exchange dollars for gold.
 Bretton Woods established a system of payments based on
the dollar, in which all currencies were defined in relation
to the dollar, itself convertible into gold, and above all, "as
good as gold".
 The U.S. currency was now effectively the world currency,
the standard to which every other currency was pegged. As
the world's key currency, most international transactions
were denominated in US dollars.

20. Readjustment
 Bop difficulties- The Bretton Woods arrangements
were largely adhered to and ratified by the
participating governments.
 It was expected that national monetary reserves,
supplemented with necessary IMF credits, would
finance any temporary balance of
payments disequilibria. But this did not prove
sufficient to get Europe out of its conundrum.
 Postwar world capitalism suffered from a huge dollar
shortage.

21. Nixon Shock
 In 1970, U.S. President Richard Nixon lifted import
quotas on oil in an attempt to reduce energy costs;
instead, however, this exacerbated dollar flight, and
created pressure from petro-dollars.
 Still, the U.S. continued to draw down reserves. In 1971
it had a reserve deficit of $56 billion; as well, it had
depleted most of its non-gold reserves and had only
22% gold coverage of foreign reserves. In short, the
dollar was tremendously overvalued with respect to
gold.

22. The Collapse of BWS
 The system dissolved between 1968 and 1973. In
August 1971, U.S. President Richard Nixon announced
the "temporary" suspension of the dollar's
convertibility into gold.
 Since the collapse of the Bretton Woods system, IMF
members have been free to choose any form of
exchange arrangement they wish.

23. Cont…
 Allowing the currency to float freely.
 Pegging it to another currency or a basket of
currencies
 Adopting the currency of another country,
 Participating in a currency bloc, or forming part of a
monetary union.
1971 marked the end of BWS.

24. The Impact of Second Amendment
IMF member states can be divided into-
 IMF supplier states- Countries which have no
intention of using the IMF’s services.
 IMF Consumer states- May or may not need IMF
financing for foreseeable future.
 In recent times a third group has emerged, Developing
Countries, that have access to financial markets and
have large reserves.

25. Reasons for Emergence
 End of communism and Emergence of
Globalization- The fall of the Berlin wall in 1989 and
the dissolution of the Soviet Union in 1991 enabled the
IMF to become a (nearly) universal institution. In
three years, membership increased from 152 countries
to 172, the most rapid increase since the influx of
African members in the 1960s.

26. Cont…
 Economic Surveillance - To maintain stability and
prevent crises in the international monetary system,
the IMF reviews country policies, as well as national,
regional, and global economic and financial
developments through a formal system known
as surveillance. The IMF provides advice to its
188 member countries, encouraging policies that foster
economic stability, reduce vulnerability to economic
and financial crises, and raise living standards.

27. Cont…
 Technical Assistance - The IMF provides technical
assistance and training to help member countries
strengthen their capacity to design and implement
effective policies. Technical assistance is offered in
several areas, including tax policy and administration,
expenditure management, monetary and exchange
rate policies, banking and financial system supervision
and regulation, legislative frameworks, and statistics.

28. Cont…
 Lending Policies - IMF financing provides member
countries the breathing room they need to correct
balance of payments problems. In an early response
to the recent global economic crisis, the IMF
strengthened its lending capacity and approved
amajor overhaul of the mechanisms for providing
financial support in April 2009, with further reforms
adopted in August 2010 and December 2011.

29. Agenda
 Addressing the global financial crisis.
 Limiting the impact of high food and fuel prices on
poor.
 Sovereign wealth funds, getting consensus.
 Helping to reduce global payment imbalances.
 Working on exchange rate stability.
 Tracking global trends
 Analyzing economic impact of global warming.

30. Questions?

31. Thankyou.