IMF and Its Structure in Bretton Woods system ...
The IMF was officially established on December 27, 1945, when the 29 participating
countries at the conference of Bretton Woods signed its Articles of Agreement. It commenced its financial operations on March 1, 1947. The IMF is an international organisation, which today consists of 183 member countries. The purposes of the IMF are to promote international monetary cooperation by establishing a global monitoring agency that supervises, consults, and collaborates on monetary problems. It facilitates world trade expansion and thereby contributes to the promotion and maintenance of high levels of employment and real income. Furthermore, the IMF ensures exchange rate stability to avoid competitive exchange depreciation. It eliminates foreign exchange restrictions and assists in creating systems of
payment for multilateral trade. Moreover, member countries with disequilibriums in their balance of payments are provided with the opportunity to correct their problems by making the financial resources of the IMF available for them.
Operations
When joining the IMF, each country must contribute a certain sum of money, which is called a quota subscription and is a sort of credit deposit. These quotas form the largest source of money at the IMF’s disposal and the IMF uses this money to grant loans to member countries with financial difficulties. Each nation that has joined the system can immediately withdraw 25 per cent of its quota in case of payment problems and it may request more if this sum is insufficient. The debts have to be paid back as soon as possible. Additionally, the country must demonstrate how the payment difficulties will be solved. The higher a country’s contribution is, the higher is the sum of money it can borrow from the IMF. Furthermore, the quotas determine the voting power of each member. The money, which the IMF lends, should not be compared to a loan of a conventional credit institution.
For the country that files an application it is rather an opportunity to buy a foreign currency and paying with gold or the national currency. Within three to five years the country has to pay back its debts. According to the IMF in the course of a typical year circa 20 currencies are borrowed and “most potential borrowers want only the major convertible currencies: the U.S. dollar, the Japanese yen, the deutsche mark, the pound sterling, and the French Franc.” Therefore, although quotas are worth about $193 billion in theory, the sum at the IMF’s disposal is deceptively large. The IMF has no control over national economic policies of its members. On the contrary, the chain of command runs from the governments of the member countries to the IMF. The highest authority is the Board of Governors, which consists of one Governor (usually the minister of finance or the head of the central bank) of each member country. Additionally, there is an equal number of Alternates (representative Governors). The Board of Governors gathers only on the occasion of annual meetings.
The IMF’s day-to-day work is managed by the Executive Board, which is formed of 24
Executive Directors who meet at least three times a week to supervise the implementation of the IMF’s policies. The member countries with the highest quotas send one Executive Director to the Board, who has as many votes as the quota regulation assigns to his country. The remaining Directors are elected by the rest of the countries and they only have as many votes as they had in the election. This point illustrates the dominance of the USA in the System of Bretton Woods as the “United States, with the world’s largest economy, contributes most to the IMF, providing about 18 percent of total quotas (about $35 billion)”. Thus the USA have most votes, by now more than 265
Regards,
ADJ
The IMF was officially established on December 27, 1945, when the 29 participating
countries at the conference of Bretton Woods signed its Articles of Agreement. It commenced its financial operations on March 1, 1947. The IMF is an international organisation, which today consists of 183 member countries. The purposes of the IMF are to promote international monetary cooperation by establishing a global monitoring agency that supervises, consults, and collaborates on monetary problems. It facilitates world trade expansion and thereby contributes to the promotion and maintenance of high levels of employment and real income. Furthermore, the IMF ensures exchange rate stability to avoid competitive exchange depreciation. It eliminates foreign exchange restrictions and assists in creating systems of
payment for multilateral trade. Moreover, member countries with disequilibriums in their balance of payments are provided with the opportunity to correct their problems by making the financial resources of the IMF available for them.
Operations
When joining the IMF, each country must contribute a certain sum of money, which is called a quota subscription and is a sort of credit deposit. These quotas form the largest source of money at the IMF’s disposal and the IMF uses this money to grant loans to member countries with financial difficulties. Each nation that has joined the system can immediately withdraw 25 per cent of its quota in case of payment problems and it may request more if this sum is insufficient. The debts have to be paid back as soon as possible. Additionally, the country must demonstrate how the payment difficulties will be solved. The higher a country’s contribution is, the higher is the sum of money it can borrow from the IMF. Furthermore, the quotas determine the voting power of each member. The money, which the IMF lends, should not be compared to a loan of a conventional credit institution.
For the country that files an application it is rather an opportunity to buy a foreign currency and paying with gold or the national currency. Within three to five years the country has to pay back its debts. According to the IMF in the course of a typical year circa 20 currencies are borrowed and “most potential borrowers want only the major convertible currencies: the U.S. dollar, the Japanese yen, the deutsche mark, the pound sterling, and the French Franc.” Therefore, although quotas are worth about $193 billion in theory, the sum at the IMF’s disposal is deceptively large. The IMF has no control over national economic policies of its members. On the contrary, the chain of command runs from the governments of the member countries to the IMF. The highest authority is the Board of Governors, which consists of one Governor (usually the minister of finance or the head of the central bank) of each member country. Additionally, there is an equal number of Alternates (representative Governors). The Board of Governors gathers only on the occasion of annual meetings.
The IMF’s day-to-day work is managed by the Executive Board, which is formed of 24
Executive Directors who meet at least three times a week to supervise the implementation of the IMF’s policies. The member countries with the highest quotas send one Executive Director to the Board, who has as many votes as the quota regulation assigns to his country. The remaining Directors are elected by the rest of the countries and they only have as many votes as they had in the election. This point illustrates the dominance of the USA in the System of Bretton Woods as the “United States, with the world’s largest economy, contributes most to the IMF, providing about 18 percent of total quotas (about $35 billion)”. Thus the USA have most votes, by now more than 265
Regards,
ADJ
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