[PDF Notes] Essay on Critical Appraisal ofInternational Monetary fund

The IMF has been quite successful and its working quite satisfactory in many fields as discussed below:

1. Expansion of Fund:

Since its inception, the IMF has progressed greatly both in membership and resources. Initially, the Fund started with only 30 members with quotas totaling $ 7,000 million.

In April 1986, the membership has increased to 149 quotas aggregating about SDR 90 billion. During 1948 to 1986, the member countries have purchased various currencies from the Fund equal to SDR 97 billion.

2. Provision of Credit:

The performance of the IMF has also been satisfactory in respect of the provision of financial assistance to its member countries. The total outstanding credit increased from SDR 8038 million 1980 to SDR 34640 million in 1986.

3. Exchange Stability:

The IMF has been making sincere efforts to promote exchange stability among the member countries. The exchange stability as experienced during the IMF era is definitely superior to the chaotic condition of fluctuating exchange rates.

Under the IMF system, exchange stability does not mean rigidity of exchange rates. The IMF aims at combing the merits of stability with flexibility in the exchange management.

4. Expansion of World Trade:

The IMF has contributed to the expansion of international trade in the following ways: (a) By providing credit facilities to member countries, the Fund has reduced the necessity of imposing trade and exchange controls, (b) The IMF helps the deficit countries to correct their disequilibrium in balance of payments, (c) The IMF also promotes world trade by providing facilities for multilateral trade and payments.

5. Machinery for Consolation:

The IMF machinery set up for providing expert guidance to the member countries in monetary matters has proved very useful. The fiscal and financial policies of the member countries are formulated keeping in view the guidelines suggested by the Fund.

6. Increase in International Liquidity:

With the establishment of the scheme of SDRs. the IMF has increased the international liquidity. It provides credit to the needy countries through its two accounts, i.e. the General Account and the Special Drawing Account.

7. Reform of International Monetary System:

The IMF attempts to reform international monetary system. In July 1972, the IMF set up the Committee on Reform of the International Monetary System and Related Issues, known as the Committee of Twenty, which submitted its report in June 1974 and its recommendations were implemented.

In January 1976, the Ministerial Committee of the Board of Governors of the IMF agreed to adopt a package of measures to reform the world’s monetary system, including the steps to help the developing countries. The main features of the agreement were as follows:

(i) Members were allowed be borrow 45% more from the Fund through its normal credit channels.

(ii) The IMF was to set up a special Trust Fund to help poor countries (i.e., the countries with per capita income of less than $ 360)

(iii) The IMF has sold one-sixth of its holding of gold i.e. 25 million ounces). The profit of $ 4.6 billion was credited into the Trust Fund.

(iv) The Ministerial Committee had given formal sanction to the floating of currencies as a legal system, specifying that no currency value need be set in terms of gold.

(v) Paper gold in the form of SDRs, had been recognised as the principal reserve asset in the international monetary system.

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