International finance

There are some important International Financing Institutes which are actively helping the economic development of their member: nations. They are described as follows :

1. International Monetary Fund.
2. International Bank of Reconstruction and Development.
3. International Finance Corporation.
4. Export-Import Bank.

International Monetary Fund :
The Bretton Woods Conference in 1944 took the momentous; decision so as to form two financial organisations of international -repute. They were :
(1) the International Monetary Fund,
(2) the International Bank of Reconstruction and Development. While the former was formed with the main purpose of stabilising the world monetary market, the latter was formed for granting long-term credit for reconstructing the war-devastated economy of the countries and also for developing economically backward-areas of the world.

The IMF was formed with an initial membership of forty five. And for each member a definite sum was fixed to be contributed by them. The aggregate quota was equivalent to $8800 million. In 1947 when the USSR failed to ratify the Fund agreement, the aggregate quota was reduced to $7622-5 million. Each member is entitled to 250 votes with an additional vote for each part of its quota equivalent to -1 million dollars. The management is run by a Board of Governors consisting of forty-eight members. But the real authority is vested in 12 Executive Directors, five of whom are appointed by the members possessing largest member of votes and the other seven are elected by other members.

Naturally the fund is a pool formed by. the subscriptions by the member nations. Each member is obliged to pay into the fund its fixed quota. It may pay in gold either 25 p.c. of its quota or 10 p.c. of its gold and dollar reserves, whichever is less. The “balance of the fixed quota of each member is payable in home -currency of each of them. The Fund quotas are payable in one instalment.

Operation of the Fund. No member nation is found to borrow from the IMF. They sell their own currencies to it in order to get the required foreign exchange. “The object is to enable member nations to meet temporary balance of payment stresses without engaging in competitive devaluation, tightening exchange controls over current account transactions, or restoring to the traditional deflationary remedies and thereby reducing their internal levels of employment, output and national income.

International finance” The IMF impresses upon the member nation that once its balance of payments crises :are over, it is to return the foreign exchange amount as was sold to it. If these were not done, the’ vitality of the institute would be gradually sapped and strong currencies of the fund would “be replenished with the weak and dubious currencies. To obviate such difficulties, the following restrictions have been imposed upon each member in connection with the selling of their currencies to the Fund :
(i) A member may not use the foreign exchange as bought from the fund to meet any large and sustained outflow of capital.
(ii) The foreign exchange drawn from the Fund are utilised; for making payments under circumstances as contained in the Bretton Woods Agreement.
(iii) The resources from the Fund are not utilised for financing relief or reconstruction.
(iv) A member nation may be declared ineligible for having a sanction from the Fund. Neither does it possess any absolute right to purchase currencies from the Fund when the resources are declared to be scarce.
Functions: The functions of the IMF may be stated as follows :

1. to assist in determining the official rate of exchange and.
altering such rate of exchange, as and when necessary, by
entering into an agreement.

2. to help member nations in concluding multilateral trade and
eliminating restrictions on current payment.

3. to allow to buy foreign exchange from the Fund in accordance with clearly defined rules of the institute.

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