[PDF Notes] Essay on Maintaining Exchange Stability of International Monetary fund

One of the basic objectives of the IMF was to establish reasonable exchange stability and to discourage fluctuations in the exchange rates. The main arrangements made by the Fund to ensure stability in the exchange rate are as given below:

(i) Each member country declares a par value of its currency in terms of gold as a common denominator or in terms of U.S. dollars.

(ii) Members agree to keep up the free convertibility of their currencies at not more than 1% above or below its par value.

(iii) When devaluation becomes necessary a member may devalue up to 10% by merely informing the Fund, but greater or subsequent change requires the approval of the governing body.

(iv) The fund may declare a currency scarce in which case it may be rationed out and the concerned country may even be asked to revalue and maintain imports.

(v) Members are forbidden to go in for multiple exchange rates.

(vi) Members are forbidden to buy or sell gold at prices other than the declared par value.

(vii) The fund acts as the international lender of the last resort and provides financial assistance to member countries to meet temporary deficits in their balance of payments.

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