The International Monetary Fund, or IMF, promotes international financial stability and monetary cooperation. It also facilitates international trade, promotes employment and sustainable economic growth, and helps to reduce global poverty.

1. Presented by:
Anju Dony
Anton Boban

2. Direct exchange of goods and services for other goods
and services
 Most primitive form of reciprocal exchange
 Barter involves only two people; each has something
the other wants
Difficulties in barter system:
 Lack of double co-incidence of wants.
 Lack of common measures of values.
 Difficulties in storing values.
 Indivisibility of certain goods.

3. Commodity money is money whose value comes from a
commodity of which it is made.
Commodity money consists of objects that have value in
themselves as well as value in their use as money
 Valued Commodity as means of exchange
 Early examples – Shells, Food Grains, Cow etc
 Evolved into Metallic Money – Durable, Fungible and
Portable

4.  Egypt used gold bars in 400 BC
 Concept of Standard Coinage was introduced
 Govt. assertion that value of money lay in the
emblem

5.  A “double standard” in the sense that both gold
 and silver were used as money.
 Some countries were on the gold standard, some
 on the silver standard, some on both.
 Both gold and silver were used as international
 means of payment and the exchange rates
among currencies were determined by either
their gold or silver contents.
 Gresham’s Law implied that it would be the least
valuable metal that would tend to circulate

6.  1870-1914
 Features:
1. Central bank of a nation bought and sold
gold at a fixed price
2. Citizens could freely export and import
gold
3. Central bank did not interfere with
capital flow
4. Facilitated growth of world trade and
global prosperity

7.  Why did the Classical Gold Standard
collapse?
◦ Rise of warfare state
◦ Major consequence of WWI: nationalization of
IMS
◦ States safeguarded their gold supplies

9.  There were two great objectives to
accomplish with the Bretton Woods System:
 1) to free more than half the world's
population from the British, French, Dutch,
Belgian, and Portuguese Empires, and
 2) to unleash global economic reconstruction
and development, that is, to "reconstruct"
shattered Europe's and Japan's economies
and to "develop" the former colonial sector,
eliminating enforced underdevelopment (this
is where the World Bank's name came from).

10.  How the dilemma was solved during
the BWS
◦ If a country is suffering temporary BOP
disequilibria, IMF would provide
medium-term loan to the country
◦ If a country is suffering fundamental BOP
disequilibria, the system would permit a
country to change its exchange rate
◦ A balance of payments disequilibrium is
a situation where the value of a country's
imports are greater than its exports,

12.  The key to the system?
◦ Other nations pegged their currencies to
the dollar
◦ The US pledged to keep the dollar
convertible into gold at $35 per ounce
◦ Dollar was the principal medium of
exchange, store of value, and unit of
account

13.  But why did the system collapse?
 Triffin dilemma
◦ soundness of BWS depended on liquidity
and international confidence created by
the US economy
◦ Every state wants dollar to rectify their
BOP problem
◦ But the US can’t print dollars indefinitely
 inflationary pressure devalue the
worth of dollar
◦ People will lose confidence in dollar and
in the system

14.  maintain certain amount of reserves in the
form of gold and foreign exchange.
 support the issue of currency and to maintain
its value
 Liability balanced by asset

15.  Currency Principle.
◦ that paper money is better than the metallic money
but there should be 100% backing of gold reserves.
 banking principle
◦ with limited amount of gold and foreign currency
reserves, the Central bank resorts to issue of more
currency.
◦ issue keeping in view the need of the business in
the country

16.  Fixed Fiduciary System:
 Notes issue backed by mix of Govt.
Securities & metallic reserves
 value stability but also provides economic
stability,
 regulating internal prices and exchange rate
 unsuitable for modern economy
 Lock-up of gold
 Britain, Germany, Norway

17.  Proportional Reserve System:
 reserve proportion of gold/silver is usually
from 30% to 40%.
 Introduced in Germany in 1876
 Elasticity, safety
 excessive supply of money
 decrease the purchasing power of the
currency
 India Pakistan European countries

18.  Minimum reserve system
 Minimum reserve limit for gold/foreign
currency & by Govt. securities
 Eg. India 200 crores is the minimum reserve
limit
 Elastic
 change the fixed minimum reserve at
anytime.
 excessive note issue bring inflation
 decrease in the value of currency

19.  Maximum fiduciary system
 Maximum amount of currency will be issued
without the backing of gold and foreign currency.
This system gives maximum powers to Central
bank.
◦ Eg. France till 1928
 note-issuing authority enjoys complete freedom
 unproductive form can be reduced to a minimum.
 upper limit is fixed at a very low level the system
of note- issue suffers from inherent inelasticity
 Inflation:

20. The World Bank is also called the International Bank for
Reconstruction and Development (IBRD)
There are two ways to borrow from the World Bank:
1. under the IBRD scheme, money is raised through bond sales in the
international capital market
 2. through the International Development Agency

23.  International Monetary Fund (IMF)
◦ In July 1944, 44 representing countries met in
Bretton Woods, New Hampshire to set up a system
of fixed exchange rates.
 All currencies had fixed exchange rates against the U.S.
dollar and an unvarying dollar price of gold ($35 an
ounce).
◦ It intended to provide lending to countries with
current account deficits.
◦ It called for currency convertibility.

25.  Promote international monetary cooperation,
 facilitate international trade,
 foster sustainable economic growth,
 make resources available to members
experiencing balance of payments difficulties
 The countries that joined the IMF between
1945 and 1971 agreed to keep their
exchange rates secured at rates that could be
adjusted only to correct a "fundamental
disequilibrium" in the balance of payments,
and only with the IMF's agreement.[

26.  Membership: 189 countries
 Headquarters: Washington, D.C.
 Staff: Approximately 2,600 from 147 countries
 Total quotas: US$327 billion (as of 3/13/15)
 Executive Board: 24 Directors each representing
a single country or a group of countries
 Additional pledged or committed resources: US$
885 billion
 Committed amounts under current lending
arrangements (as of 3/13/15): US$163 billion, of
which US$137 billion have not been drawn
 Biggest borrowers (amounts outstanding as of
3/13/15): Portugal, Greece, Ireland, Ukraine
 Biggest precautionary loans (amount agreed as of
3/13/15): Mexico, Poland, Colombia, Morocco

28.  Surveillance Gathering data and assessing economic
policies of countries.
 Monitoring economic and financial developments and
policies, in member countries and at the global level,
giving policy advance to its members based on its
more than fifty years of experience.
 Technical Assistance Strengthening human skills and
institutional capacity of countries.
 Providing the governments and central banks of its
member countries with technical assistance and
training in its areas of expertise.
 Financial Assistance Lending to countries to support
reforms
 Lending to member countries with balance of payments
problems, supporting adjustment and reform policies
aimed at correcting the underlying problems.

29. Multi-lateral (Macro-
economic)
◦ Annual evaluation
process for all member
nations based on their
financial expert
assessments of
economic and financial
developments.
◦ Reason: To assess
vulnerabilities, threats,
trends and
developments in the
whole international
economy.
Bi-Lateral (Micro-
economic)
◦ Economist visit member
states individually to gather
information from the
nation’s central bank and
officials, and conduct
meetings pertaining to that
nation’s economy.
◦ The Economist then submit
formal reports to the
Executive Board of the IMF.
◦ The Executive Board makes
recommendations to the
central bank officers and file
a transparent Public
Information Notice of the
data.

30. The Lending Process
1. Any member of the IMF may request funding.
2. Agree to abide by the transparency standards, codes
and policies of the facility.
3. Agree to a balance of payment resolution.
4. Submit a repayment strategy including the policy
change recommendations in a Letter of Intent to the
Executive Board of the IMF for approval.

31. Facilities are loan programs set-up by the IMF to address specific needs of member
nations. It should also be noted that IMF funding is disbursed in phases so that
adjustments may be made to mitigate risk.
Facility Purpose Type Duration Repay Surcharge
Stand By Arrangements
(Most lucrative loan.)
BoP Short-term 1 – 2 yrs 2 - 4 yrs Avg 4%
Extended Fund Facility
(Recommended Reforms)
BoP Long-Term 3 yrs 5 – 7 yrs
Supplemental Reserve Facility
(Developing Nations)
Economic
Recovery
Short-term
Large-scale
financing
1 yr 1 – 1.5 yrs Avg 4%
Compensatory Financing Facility
(Global Commodity Price Issues)
Drop in
Export
Earnings
Short-term 1 – 2 yrs 2 - 4 yrs
Emergency Assistance Loans
(Disasters & Post-War)
(Subsidies may be available)
Disaster
Recovery
Long-term
(Base Rate)
3 - 5 yrs

32.  The goal is to educate to empower financial leaders in an effort to sustain and grow
a strong international economy.
 1/5th of IMF Budget goes to Technical Assistance
 Missions can be dispatched from Headquarters to train central bank executives and
officials.
 Online courses are provided for members to train.
 Seminars & Workshops
 Seven Regional Training Institutes located worldwide.
 Asian Development Bank, African Regional Bank and others provide multi-lateral
funding.

33.  Most comes from the quota subscriptions
◦ the money each member contributes when joining
the IMF
 General Arrangements to Borrow (1962)
◦ line of credit set up with several governments and
banks throughout the world

34.  Quota subscriptions generate most of the
IMF's financial resources.
 Each member country of the IMF is assigned a
quota, based broadly on its relative size in
the world economy.
 A member's quota determines its maximum
financial commitment to the IMF and its
voting power, and has a bearing on its access
to IMF financing.

35.  A member's quota subscription determines
the maximum amount of financial resources
the member is obliged to provide to the
IMF.
 A member must pay its subscription in full
upon joining the IMF: up to 25 percent must
be paid in the IMF's own currency, called
Special Drawing Rights (SDRs) or widely
accepted currencies (such as the dollar, the
euro, the yen, or pound sterling), while the
rest is paid in the member's own currency.
 Voting power. The quota largely determines
a member's voting power in IMF decisions.
Each IMF member has 250 basic votes plus
one additional vote for each SDR 100,000 of
quota.

36.  A new country is assigned an initial quota in the same
range as the quotas of existing members
 The quota formula is a weighted average of GDP
(weight of 50 percent), openness (30 percent),
economic variability (15 percent), and international
reserves (5 percent )
 GDP is measured as a blend of GDP based on a
market exchange rates (weight of 60 percent) and on
PPP exchange rates (40 percent).
 Quotas are denominated in Special Drawing Rights
(SDRs)
.

37.  The largest member of the IMF is the United
States with a current quota of SDR 82.99
billion (about US$116 billion)
 The smallest member is Tuvalu, with a quota
of SDR 2.5 million (about US$3.5 million).

39.  Special drawing rights were created by the IMF in
1969 and were intended to be an asset held
in foreign exchange reserves.
 They were Issued to supplement a shortfall of
preferred foreign exchange reserve assets, namely
Gold and the US dollar.
 They were allocated to participating members in
portion to their Fund quotas.
 The value of a SDR is defined by a weighted currency
basket of four major currencies: the US dollar, the
Euro, the British pound, and the Japanese yen.
 As of March 2016, 204.1 billion SDRs (equivalent to about
$285 billion) had been created and allocated to members.

40.  Initially its value was fixed
1 SDR = 1 US dollar
 The value of the SDR is determined by the value of
several currencies important to the world’s trading
and financial systems.
 The basket of currencies used to value the SDR is
‘weighted’, meaning that the more important
currencies have a larger impact on its value.
 They can only be exchanged for Euros, Japanese
yen, pounds sterling, or US dollars.

41.  A country's IMF quota, the maximum amount of
financial resources that it is obligated to
contribute to the fund, determines its allotment
of SDRs.
 It cannot be used for trading purposes.
 Only central governments can hold SDR and no
private firm can have its ownership rights.
 The Fund facilitates transactions between
members seeking to sell or buy SDRs and these
counterparties to the voluntary agreements that
effectively make a market in SDRs.

42. 

43.  Conditions of Loans
IMF make the loan conditional on certain
policies
◦ Reducing government borrowing – Higher taxes and
lower spending
◦ Higher interest rates to stabilise the currency.
◦ Structural adjustment. Privatisation, deregulation,
reducing corruption and bureaucracy.

44.  For example, in the Asian crisis of 1997, many
countries such as Indonesia, Malaysia and
Thailand were required by IMF to pursue tight
monetary policy (higher interest rates) and tight
fiscal policy to reduce the budget deficit and
strengthen exchange rates. However, these
policies caused a minor slowdown to turn into a
serious recession with mass unemployment.
 In 2001, Argentina was forced into a similar
policy of fiscal restraint. This led to a decline in
investment in public services which arguably
damaged the economy.

45.  Exchange rate reforms.
IMF failed to understand the dynamics of the
country that they were dealing with – insisting on
blanket reforms.
Example
When the IMF intervened in Kenya in the
1990s, they made the Central bank remove
controls over flows of capital. The consensus was
that this decision made it easier for corrupt
politicians to transfer money out of the economy
(known as the Goldenberg scandal.)

46.  The IMF serves wealthy countries and Wall Street
◦ Unlike a democratic system in which each member country
would have an equal vote, rich countries dominate
decision-making in the IMF because voting power is
determined by the amount of money that each country pays
into the IMF's quota system. It's a system of one dollar, one
vote.
◦ The disproportionate amount of power held by wealthy
countries means that the interests of bankers, investors
and corporations from industrialized countries are put
above the needs of the world's poor majority.
Example
The IMF forced Haiti to open its market to imported, highly
subsidized US rice at the same time it prohibited Haiti from
subsidizing its own farmers. A US corporation called Early
Rice now sells nearly 50 percent of the rice consumed in
Haiti.

47.  IMF policies promote corporate welfare
To increase exports, countries are encouraged to
give tax breaks and subsidies to export
industries. Public assets such as forestland and
government utilities (phone, water and electricity
companies) are sold off to foreign investors at
rock bottom prices.
Example
In Guyana, an Asian owned timber company
called Barama received a logging concession that
was 1.5 times the total amount of land all the
indigenous communities were granted. Barama
also received a five-year tax holiday.

48.  IMF Policies hurt the environment
IMF loans and bailout packages are paving the
way for natural resource exploitation on a
staggering scale. The IMF does not consider the
environmental impacts of lending policies, and
environmental ministries and groups are not
included in policy making. The focus on export
growth to earn hard currency to pay back loans
has led to an unsustainable liquidation of natural
resources.
Example
the Ivory Coast's increased reliance on cocoa
exports has led to a loss of two-thirds of the
country's forests

49.  Neo Liberal Criticisms There is also criticism of neo-liberal
policies such as privatization. Arguably these free market
policies were not always suitable for the situation of the
country.
Example
Privatization can create lead to the creation of private
monopolies who exploit consumers.
 Lack of transparency and involvement
The IMF have been criticized for imposing policy with little
or no consultation with affected countries.
 Supporting military dictatorships
The IMF have been criticized for supporting military
dictatorships in Brazil and Argentina, such as Castello
Branco in 1960s received IMF funds denied to other
countries.

50.  IMF a SIGN OF ADVANTAGE AND DISADVANTAGE FOR
COUNTRIES
IMF loans available for reconstruction and emergencies
 Forces poor countries to adopt bad policies and takes its
‘pound of flesh’ back while the countries sink further into
poverty.
 IMF loans are usually short term and given when countries are
already in distress and thus ill-equipped to afford belt-
tightening or major reforms.
 Example -Pakistan is among the most frequent users of IMF
loans, having borrowed IMF money 12 times since 1980.
However, 10 of these programmes were abandoned midway
due to Pakistan’s failure to fully adopt the IMF’s policy
recommendations.

51.  problems with Pakistan’s implementation
◦ inadequate political will and mismanagement.
 problems with the IMF’s programme
◦ undue US interference, inadequate political analysis
capacities within the IMF, inappropriate sequencing
and over-ambitious agendas given the short loan
durations.

52.  Ecuador Gets $364 Million IMF Loan to Tackle Earthquake
Reconstruction
 On April 16, Ecuador was hit by a powerful 7.8 magnitude
earthquake, the worst since 1979.
 The disaster is expected to deepen the country’s recession
and recovery efforts will be hobbled by the lack of fiscal
buffers.
 Ecuador faces huge economic toll after worst earthquake in
decades

53.  Reconstruction to cost $3.3 billion, growth to
contract significantly in 2016
 IMF ready to continue supporting Ecuador
manage economic challenges
 The country already received the money
under the IMF’s Rapid Financing Instrument,
which is intended to help the authorities face
an urgent balance of payments need due to
the severity of the earthquake.
 The reconstruction will likely span 2 to 3
years.

54.  Sri Lanka had been running high budget deficits for
several years and had borrowed to finance these deficits
internationally on short terms which left the country
exposed to a sudden reversal of this borrowing.
 When the global financial crisis hit, there was a sudden
stop in financing from international markets and the
central bank intervened to prevent the exchange rate from
depreciating. This, in turn, put pressure on Sri Lanka’s
international currency reserves, which still remain at very
low levels.
 Protection for poor, assisting the most vulnerable are key
goals

55.  India joined the IMF on December 27, 1945, as one of the IMF's
original members.
 India’s current quota in the IMF is SDR (Special Drawing Rights)
5,821.5 million, making it the 13th largest quota holding country
at IMF and giving it shareholdings of 2.44%.
 India (together with its constituency countries Viz. Bangladesh,
Bhutan and Sri Lanka) is ranked 17th in the list of 24
constituencies at the Executive Board.
 India subscribes to the IMF's Special Data Dissemination
Standard. Countries belonging to this group make a commitment
to observe the standard and to provide information about their
data and data dissemination practices.

57.  Financial Assistance
 While India has not been a frequent user of IMF
resources, IMF credit has been instrumental in
helping India respond to emerging balance of
payments problems on two occasions.
 In 1981-82, India borrowed SDR 3.9 billion
under an Extended Fund Facility, the largest
arrangement in IMF history at the time.
 In 1991-93, India borrowed a total of SDR 2.2
billion under two stand by arrangements, and in
1991 it borrowed SDR 1.4 billion under the
Compensatory Financing Facility.

58.  Technical Assistance
◦In recent years, the Fund has provided India with
technical assistance in a number of areas, including
the development of the government securities
market, foreign exchange market reform, public
expenditure management, tax and customs
administration
◦Since 1981 the IMF Institute has provided training to
Indian officials in national accounts, tax
administration, balance of payments compilation,
monetary policy, and other areas.

59.  International regulation by IMF in the field of
money has certainly contributed towards
expansion of international trade and thus
prosperity. India has, to that extent, benefitted
from these fruitful results.
 Aid from World Bank and Other International
Financial Agencies.
◦ India wanted large foreign capital for her various
river projects, land reclamation schemes and for the
development communications. Since private foreign
capital was not forthcoming, the only practicable
method of obtaining the necessary capital was to
borrow from the International Bank for
Reconstruction and Development (i.e. World Bank).

60.  By 1985, India had started having balance of
payments problems. By the end of 1990, it was in a
serious economic crisis. The government was close to
default, its central bank had refused new credit
and foreign exchange reserves had been reduced to such a
point that India could barely finance three weeks’ worth of
imports which led the Indian government to airlift national
gold reserves as a pledge to the International Monetary
Fund (IMF) in exchange for a loan to cover balance of
payment debts.[1]
 The economic crisis was primarily due to the large and
growing fiscal imbalances over the 1980s. During the mid-
eighties, India started having balance of payments
problems. Precipitated by the Gulf War, India’s oil import
bill swelled, exports slumped, credit dried up, and
investors took their money out.

61.  Government of India's immediate response was
to secure an emergency loan of $2.2 billion from
the International Monetary Fund by pledging 67
tons of India's gold reserves as collateral.
The Reserve Bank of India had to airlift 47 tons of
gold to the Bank of England and 20 tons of gold
to the Union Bank of Switzerland to raise $600
million
 Result
 A program of economic policy reform 1991 has
since been put in place which has yielded very
satisfactory results so far.

62. THANK YOU