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Bretton Woods

The breakdown of gold standards after second world war created a vacuum in
international trade . Then USA in 1943 proposed establishment of a international
stabilization fund (called as white plan after the name of its author) and UK suggested the
International clearing fund (Keynes plan after name of lord Keynes) . This resulted in a
joint statement of International Monetary Fund in order to establish cooperation on
economic , trade and balance of payment affairs.
At Bretton Woods conference at New Hampshire on July 1944 an agreement by 44
nations was signed under the leadership of USA including India.

• The representatives of 45 governments met in the Mount Washington Hotel in the
area of Bretton Woods, New Hampshire, United States
• This came in to being at March 1, 1947.
• 186 countries (as of June 29, 2009)
• Headquarters Washington, D.C., USA
• Managing Director Dominique Strauss-Kahn
• With the exception of Taiwan (expelled in 1980), North Korea, Cuba (left in
1964),Andorra, Monaco, Liechtenstein, Tuvalu and Nauru, all UN member states
participate directly in the IMF.

Proper definition of IMF

The IMF is an international organization that oversees the global financial system
by following the macro economic policies of its member countries, in particular
those with an impact on exchange rates and balance of payments. It also offers
financial and technical assistance to its members, making it an international lender
of last resort.
Objectives of IMF
• Creation of International Monetary Cooperation
• Promotion of balanced growth of international trade
• Stability in exchange rate
• Avoid competitive exchange devaluations
• Maintain high rate of employment in its member nations
• Multilateral payment arrangement: for current transactions as well as eliminate
the foreign exchange restrictions
• Correct the maladjustments in balance of payment: by providing shot term funds
to counties at time of disequilibrium of BOP without hammering the countries
prosperity. It even does not interfere in internal matters of nation.
• Abolition of Exchange Restriction: try to remove all kinds of restrictions on
exchange of its member countries currency.
• Helps in lending or selling its member countries currency to other countries.
• During emergency it provide aids to its member countries.
Functions of IMF
In order to meet these objectives IMF has certain functions:
• The fund is regarded as “guardian of good conduct” in areas of BOP
• It aims at reducing tariffs and other trade restrictions
• Provides technical advice on monatory and fiscal policy of its member
• Provides automatic adustments of exchange rates
• Provides short term financial assistance to members to come over BOP crises
• Conducts research and publishes its reports
• Conducts trainings for above function
• Helps countries to borrow other countries currency
• Act as a international consultancy machinery

• Board of Governors
– Each member country appoints one Governor and and Alternate Governor.
Finance minister or governor of central bank . Has voting rights but
alternate doesn’t have. Meets every year.
• Executive Board
– 21 Executive Directors which are representatives for the members.
Regulatory, supervisory & financial activities. Holds meetings three times
a week.
• Managing Director
– the chairman of the Executive Board elected by executive Board. Has no
voting rights but heads
Where the IMF gets its money
• Most comes from the quota subscriptions
– the money each member contributes when joining the IMF. Decides the
voting power of member country & drawing rights.
• General Arrangements to Borrow (1962)
– line of credit set up with several governments and banks throughout the
world. Removed upto december 1998.
• Quotas of each member is determined in terms of SDRs.
• Every member has to give 25% of its quota amount in terms of SDRs and 75% in
its own country
• Voting power is determined by amount of quota. Each have 250 votes and for
every extra vote one lakh SDRs has to be deposited.
• Maximum limit of financial assistance given to member is determined by its quota
• Initially total amount of quota of fund was 880 crores dollars .
Purposes of the IMF and The World Bank
• The International Monetary Fund (IMF) maintains international monetary
cooperation among its members

• The World Bank aids in the development and reconstruction of it members hence
called as IBRD( international bank of reconstruction and development)