International Monetary Fund (IMF)
Memon, Ziaul Haque, Economic Review
International Monetary fund was established in 1944 at the International Monetary and Financial Conference, Bretton Woods, New Hampshire, USA. It came into official existence on December 27, 1945 when 29 countries signed its Articles of Agreement hence commenced financial operations on March 1, 1947. There are 182 members as of September 1, 1998 and approximately 2,700 people are working for IMF from 110 countries. Mr. Camille Gutt, from Belgium was the first Managing Director of IMF and served from 1946 to 1951. France was the first member who availed IMF resources on May 8, 1947. The currency of IMF is Special Drawing Rights (SDR).
Valuation of Special Drawing Rights
SDR is IMF's official currency. It is calculated by selecting basket of currencies of top 5 countries for their large exports of goods and services during last five-year period ending 12 months before the effective date of revision. At present United States, Germany, Japan, United Kingdom and France are in the basket. for calculating the value of SDR, the first step is to evaluate the "currency amount" that can be computed by multiplying the percentage weights assigned as per their exports of goods and services with their average exchange rates for last three months at noon in London, the second step is to solve it with its "Current Exchange Rate" for each currency; the third step is just to add all currencies that ultimately calculate 1 SDR in comparison with US$. At present one SDR is equal to US$ 1.35784; or in other words one US dollar is equivalent to SDR 0.736464.
The "interest rate on SDR" is being calculated by taking weighted average yields of the following Money Market instruments:
* Market yield on 3 months Treasury bills of USA, UK and France.
* Market yield on 3 months German Interbank Deposit Rate; and
* Market yield on 3 months rate of Japanese Certificate of Deposits.
The IMF was created to promote international monetary co-operation between the member countries. It was formed to act as monitor of world currencies by helping to maintain an orderly system of payments between all countries. Lends money to members who face serious balance of payment deficit. Apart from above following are the functions of IMF:
* To facilitate the expansion and balanced growth of international trade
* To promote exchange stability
* To assist in the establishment of a multilateral system of payments
* To make its general resources temporarily available to its members experience in balance of payments difficulties under adequate safeguards.
* To shorten the duration and lessen the degree of dis-equilibrium in the international balances of payments of members
* To provide technical support to its members.
Areas of Activity
Surveillance is the process by which the IMF appraises its members' exchange rate policies within the framework of a comprehensive analysis of the general economic situation and the policy strategy of each member.
Loans as of July 31. 1999: 94 Countries (SDR 63.6 billion = $87 billion).
Technical Assistance: Technical assistance consists of expertise and support provided by the IMF to its members as follow:
* the design and implementation of fiscal and monetary policy
* institution-building (such as the development of central banks or treasuries)
* the handling and accounting of transactions with the IMF
* the collection and refinement of statistical data
* to train officials at the IMF Institute together with other international financial organizations, through the Joint Vienna Institute, the Singapore Regional Training Institute, the Middle East Regional Training Programme, and the Joint Africa Institute.
Members avail IMF's financial resources by purchasing (drawing) other members' currencies or SDRs with an equivalent amount of their own currency. …