NOTES ON IMF.

International Monetary Fund (IMF): General Objectives and Major Functions!

A landmark in the history of world economic co­operation is the creation of the International Monetary Fund, briefly called IMF. The IMF was organised in 1946 and commenced operations in March, 1947.

The fundamental object of the IMF was the avoidance of competitive devaluation and exchange control that had characterised the era of 1930s. It was set up to administer a “code of fair practice”, in the field of foreign exchange and to make short-term loans to member nations experiencing temporary deficits in their balance of payments, to enable them to meet these payments without resorting to devaluation or exchange control, while at the same time following’ international policies to maintain domestic income and employment at high levels.

Thus, basically there are three general objectives of the IMF:

(i) The elimination or reduction of existing exchange controls,

(ii) The establishment and maintenance of currency convertibility with stable exchange rates, and

(iii) The widest extension of multi-lateral trade and payments.

In essence the Fund is an attempt to achieve the external or international advantages of gold standard system without subjecting nations to its internal disadvantages, and at the same time maintaining the internal advantages of paper standard while bypassing its external disadvantages.

The following are the major functions of the IMF:

1. It functions as a short-term credit institution.

2. It provides machinery for the orderly adjustments of exchange rates.

3. It is a reservoir of the currencies of all the member countries from which a borrower nation can borrow the currency of other nations.

4. It is a sort of lending institution in foreign exchange. However, it grants loans for financing current transactions only and not capital transactions.

5. It also provides machinery for altering sometimes the par value of the currency of a member country. In this way, it tries to provide for an orderly adjustment of exchange rates, which will improve the long-term balance of payments position of member countries.

6. It also provides machinery for international consultations