During the early years of the 20th century, the world suffered through the Great Depression. This happened during the 1930s. In addition to this, there were also two world wars. Due to this, the global economic system collapsed quickly. This had a major impact on international trade. As a result, countries were witnessing the plummeting living standards caused by unemployment. During World War II, Anglo-American discussions focused on the increasing demand for an institution that could take care of international finances, cooperation, and even promote international trade.
The Bretton Woods Conference
From 1st July to 22nd July 1944, 730 delegates from 44 allied nations met at the Mount Washington Hotel. The hotel is located in Bretton Woods, State of New Hampshire, United States. The issue at hand was the regulation of post war global monetary, and restoring financial order. The primary debate was between the United Kingdom and the United States delegations. The debate was about the nature of the considered organization. The British delegation wanted a fund that could help all the member nations economically, but only during emergencies or times of crisis. On the other hand, the United States delegation wanted an institution that could function like a bank. It wanted permission for member countries to borrow money for all kinds of purposes. Ofcourse, the money would be borrowed as a loan, and would have to be repaid in a specified time frame. Finally, the United States motion was accepted.
Formation of the IMF
During the Bretton Woods Conference, a lot of agreements were signed to legally establish the General Agreement on Tariffs & Trade (GATT), the International Bank for Reconstruction & Development (World Bank or IBRD) and the International Monetary Fund (IMF). The International Monetary Fund was founded on 27th December, 1945. A treaty called the Articles of Agreement was signed by 29 member countries. The next year, the first meeting was convened by the Board of Governors in Savannah, State of Georgia, United States. The purpose of the meeting was to elect the executive directors, draft the bylaws, and decide the permanent location of the IMF’s headquarters. The Board of Directors selected Washington D.C as the headquarters of the International Monetary Fund. The financial operations of the IMF started on 1st March, 1947.
The primary purpose of the International Monetary Fund is to give technical and financial assistance, oversee exchange rates, and address global financial problems. Currently, the International Monetary Fund has 182 member countries. In order to be a member of the IMF, countries need to deposit a specific amount of money as subscription fee. The countries also need to comply with the terms and conditions of the organization. The other sources of steady income for the International Monetary Fund are gold reserves, loan repayments from debtors, and requested financial resources from shareholders. The money generated by the International Monetary Fund is used for providing monetary assistance to member countries.
In the year 1952, some of the founding policies of the IMF were changed. The concept of standard structural adjustment loans was introduced. These loans helped the borrowing country to adjust the financial or economic structure. Standard structural adjustment loans were again modified in 1956.
Since 1956, lending operations for member countries have been the primary function of the International Monetary Fund. Moreover, many different changes have been made to the drawing policies of the IMF. Since its establishment, the International Monetary Fund has offered financial assistance to numerous countries facing monetary or economic problems. The organization strongly believes in its objectives. It constantly tries to bring a positive change in the overall global financial scenario.
Mandate and Objectives
The primary purpose of the International Monetary Fund has already been discussed above. Here are some key pointers to how the IMF helps member countries, and what are its objectives. The IMF aims to:
● Promote global monetary cooperation
● Facilitate the balanced growth and expansion of global trade
● Promote exchange stability
● Assist member countries in the establishment of a standard multi lateral system of payments
● Make resources available combined with appropriate safeguards to member countries experiencing payment difficulties
Overview of Governing Bodies
The highest decision making body in the International Monetary Fund is the Board of Governors. It comprises of one Governor, and one Alternate Governor. They are appointed to the IMF by each member country. The Board of Governors meet once every year. The Interim Committee comprises of 24 Fund Governors. This committee reflects the composition of all Fund members and the Executive Board. The Interim Committee meets twice every year. It’s primary purpose is to report statistics, and advise the Board of Governors about the functioning and management of the IMF.
The Development Committee also has a similar composition. It maintains a detailed overview of the basic development process. The Development Committee reports directly to the Board of Governors of the IBRD or World Bank, and the International Monetary Fund. The Executive Board comprises of 24 Executive Directors from member countries. It’s responsible for conducting everyday business of the International Monetary Fund. The Executive Board is chaired by the Managing Director, and functions daily at the International Monetary Fund headquarters in Washington D.C. The voting power of the Executive Board depends on quotas. However, it’s very rare for the board to make certain decisions on the basis of voting. Its functions rely on the formation of agreement among all the members.
The Managing Director is chosen by the Executive Board. He is the Chairman of the Executive Board, and also serves as the Chief of operating conducts and staff. He acts under the direct supervision of the Executive Board. The Chairman also handles ordinary business of the International Monetary Fund.
The International staff at the International Monetary Fund comes from different member countries. It’s worth mentioning that Executive Directors represent their respective countries. However, staff members don’t represent their countries, but serve as international civil servants. They are responsible for carrying out and managing the IMF policies.
Most staff members at the International Monetary Fund work at the IMF headquarters in Washington D.C. Some staff members are also assigned to regional offices located in New York, Tokyo and Paris. They may also represent the IMF on temporary basis in IMF member countries. Since its establishment, the International Monetary Fund has assisted numerous countries around the world. The Fund has been the lifeline of the global economy, and assists countries during financial emergencies. Certain changes are made on a frequent basis to the policies. These changes depend on the existing economic scenario, and world monetary situation.