International Monetary Fund [IMF]

By : Neha Dhyani

Updated : May 25, 2022, 8:30

The International Monetary Fund is an association of 190 nations attempting to formulate worldwide money-related collaboration, secure monetary dependability, work with global trade, promote high business and effortless financial development and decrease poverty.

International Monetary Fund [IMF] Origins

One can trace the origin of the International Monetary Fund to the 1930s, a period of worldwide turmoil.

During World War II, the allies, under the guidance of the US, developed plans for the establishment of an international institution to establish an international monetary order. Delegates from 44 non-communist countries agreed on the basis and operation of the IMF at the Bretton Woods Conference in July 1944.

Although the International Monetary Fund [IMF] began financial operations on March 1, 1947, it was not fully established until December 27, 1945, when 29 countries ratified the charter of the IMF.

International Monetary Fund [IMF] Governance

The “Board of Governors” and the “Executive Board” govern the International Monetary Fund. Each member country sends a delegate to the Board of Governors, usually the heads of central banks or finance ministers.

It meets once a year to make critical decisions such as appointing new members and revising quotas. The Executive Board makes the day-to-day policy decisions of the IMF. The Board of Governors chooses 24 executive directors to oversee policy implementation of member countries.

The “Managing Director” heads the IMF. The Executive Board appoints the MD for a five-year tenure.

International Monetary Fund [IMF] Functions

The primary responsibility of the International Monetary Fund is to monitor the global monetary system. As a result, IMF has a wide range of functionalities. They are:

  • Lending to members with temporary balance-of-payments deficit monitoring monetary and exchange-rate policies
  • Making policy recommendations
  • Promotes international economic cooperation.
  • Provides technical and developmental assistance

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Objectives of the International Monetary Fund

  • Encourage international financial cooperation
  • Promote exchange stability
  • Assist in the establishment of a “multilateral payments system.”
  • Make general resources available to members experiencing balance of payments difficulties under appropriate safeguards
  • Reduce the degree and duration of disequilibrium in their international balance of payments.
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India and the International Monetary Fund

India is one of the founding members of the International Monetary Fund. On May 31, 2000, India paid off all loans to the International Monetary Fund.

The Finance Minister of India serves as the ex-officio Governor on the Board of Governors. Also, the Governor of the Reserve Bank of India acts as the Alternate Governor. Dr Rakesh Mohan, Executive Director of India at the IMF, also represents Bangladesh, Sri Lanka, and Bhutan.

India presently holds a $13114.4 million SDR (Special Drawing Rights) quota at the IMF, ranking 8th with 2.66 per cent of the total votes.

The International Monetary Fund [IMF] is a 190-country organization dedicated to global monetary cooperation, financial stability, international trade facilitation, high employment and long-term economic growth, and poverty eradication. Its monetary management contributed to global economic and financial stability.

Following the footsteps of the Bretton Woods System, the IMF now assists countries experiencing a balance-of-payments problem. Moreover, it also supports governments in dealing with multiple economic issues.

The IMF also offers technical support and capacity building to developing and impoverished countries.

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FAQs on International Monetary Fund [IMF]

Q1. Does the US have veto power in the International Monetary Fund?

There is no concept of veto power in the International Monetary Fund. However, any changes in the quota/ voting shares require 85% votes. But the US alone holds 16.50% of the votes, without which it is impossible to attain this super-majority. Therefore, some scholars say that the US enjoys veto power in the IMF.

Q2. Who is the head of the International Monetary Fund?

The current Managing Director (MD) and Chairperson of the International Monetary Fund is Bulgarian economist Kristalina Georgieva.

Q3. What is the source of funding for the International Monetary Fund?

The funding source for the International Monetary Fund is money paid as capital subscriptions (quotas) by countries when they join the IMF. The economic importance of the member determines its quota.

Q4. What determines the voting power of a country in the International Monetary Fund?

The quota system governs the voting power of a country in the International Monetary Fund. Each member gets a specific number of basic votes, i.e. 5.502 per cent of total votes and an additional vote for every 100,000 SDR of quota held. The US enjoys the maximum vote share, followed by Japan, China, Germany, France, the UK, Italy, India, Russia, and Brazil are in the top ten.