international monetary fund (IMF) - Definition, What is international monetary fund (IMF), Advantages of international monetary fund (IMF), and Latest News - ClearTax (2024)

Introduction to international monetary fund (IMF)

What is the International Monetary Fund or IMF?

The International Monetary Fund (IMF) is an international organisation which was brought into operation to boost the global economic growth and financial stability, international trade and to decrease poverty. The formation of the International Monetary Fund or IMF was initiated in the year 1944 at the Bretton Woods conference and it came into operation on the 27th of December in the year 1945. This international organisation is headquartered in Washington D.C., and consists of 189 member countries.

The International Monetary Fund or IMF focuses on fostering global monetary cooperation, securing financial stability, facilitating and promoting international trade, employment and economic growth around the world. The IMF is a special agency of the United Nations. The voting power in the International Monetary Fund or IMF is determined by the quotas of member countries.

The votes include one vote per 100,000 special drawing right or SDR of quota plus essential votes. The Special Drawing Rights or SDRs are a special kind of international monetary reserve currency that is produced by the IMF as supplement to the existent money reserves of the member countries.

Out of the total 196 countries of the world, 189 countries are members of the International Monetary Fund or IMF. The countries that are not a part of the IMF are Cuba, North Korea, Monaco, Taiwan, Vatican City, and East Timor Liechtenstein. The International monetary fund also includes members who are not sovereign countries. These countries include Barbados, Aruba, Hong Kong, Anguilla, Cabo Verde, Curacao, Macao, Netherlands Antilles, Saint Maarten, Timor Leste, and Montserrat. All the members of the IMF do not get equal votes; they have voting shared through quotas.

How was the International Monetary Fund or IMF formed?

The path to the development of the International Monetary Fund or IMF was paved by the breakdown of international monetary cooperation during the Great Depression. The IMF was formed with the mission of improving economic growth and reducing poverty in the world. As discussed above, the IMF was initially formed in the year 1944 and only came into function in December 1945.

When the International Monetary Fund or IMF first came into operation, it had only 29 member countries who had all agreed to bind to the treaty. The financial operations of the IMF began on the 1st of March 1947. At present, the International Monetary fund consists of 189 member countries. The IMF is often regarded as a key organisation in the International Economic system which focuses on rebuilding the international capital and maximising national economic sovereignty along with human welfare.

The parent organisation of the International Monetary Fund or IMF is the United Nations that handles the proper functioning and Administration of the IMF. A managing director who is elected by the executive board for a 5 year term of office is the one who heads the International Monetary Fund or IMF. Along with the parent organisation and the managing director, the organisation structure of the International Monetary fund consists of the Board of Governors, ministerial committees, and the executive board.

India is one of the founder members of the International Monetary Fund or IMF and India’s Union Finance Minister is the ex-officio governor on the board of governors of the IMF. Along with this, each member country also has an alternate governor. As for India, this alternate governor is the governor of the Reserve Bank of India or RBI. India also has an Executive director who represents the country on the international level. India’s quota in the IMF has increased through the years and India is now the eighth largest quota holding country in the organization.

The role and responsibilities of the Board of Governors

• Each member in the board of governors has been elected and appointed by his or her respective country.
• One of the important roles of the board of governors is to elect and appoint executive directors to the executive board.
• The board of governors is advised by the International Monetary and Financial Committee or IMFC and the development committee.
• During the IMF-World bank annual meetings, an annual meet up of the board of governors and World Bank group is held to discuss the work of their respective institutions.

The role and responsibilities of the Ministerial Committees

There are two ministerial committees in the International Monetary Fund or IMF— International Monetary and Financial Committee (IMFC) and Development Committee. Both these committees have the following roles and responsibilities:

• The ministerial committees manage the international monetary and financial system.
• The committees work towards solving issues in the developing countries which are related to economic development.

The role and responsibilities of the Executive Board

• The executive board is a 24 member board that discusses all aspects of the funds.
• The decisions made by the executive board are mainly based on the consensus but sometimes formal votes of the members are also taken.

What are the objectives of the International Monetary Fund or IMF?

Now that we have seen the basics of the International Monetary Fund and have also gone through its formation and structure, let us have a brief look at the objectives of the IMF with which it operates. As we have discussed above, the main aim and objective of the International Monetary Fund of IMF remains the growth of international monetary cooperation and reduction in poverty. With this aim, the IMF was initiated and brought into operation. The main objectives with which the International Monetary Fund or IMF operates are as follows:

• The improvement and promotion of the global monetary cooperation of the world.
• Provision of security and financial stability by eliminating or minimising the exchange rate stability.
• Facilitation of a balanced international trade.
• Reduction of poverty around the world.
• Promotion of high employment through economic assistance and sustainable economic growth.
• Controlling global conditions and recognising financial risks among its member countries.
• Providing advice to the member countries for a faster economic development.
• Providing technical assistance and short term loans to avert any financial crisis faced by its member countries.