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Unit 26. The International Monetary Fund (IMF). I. Background of IMF.
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I. Background of IMF In 1944, officials from 44 countries came together for a historic meeting at Bretton Woods of US. They wanted to make provisions for economic problems they expected to follow the end of World War II. These efforts resulted in the formation of IMF, which officially established on December 27, 1945. The fund has grown rapidly, and has 183 countries by the end of 2000. China resumed her membership of IMF in April 1980.
The International Monetary Fund (IMF) 700 19th St. NW, Washington, DC 20431 Growth in IMF Membership, 1945 - 2003(number of countries)
The IMF is established to promote international monetary cooperation and exchange stability, to avoid competitive exchange depreciation and to provide temporary financial assistance to countries to help ease balance of payments deficits. (35$) other currencies US dollars one ounce of gold fixed fixed Since the abandonment of the Bretton woods system in early 1970s, the IMF has agreed to allow each other members to choose its own method of determining an exchange rate for its own currency. The only requirements are the member country ho longer bases the value of its currency on gold and informs other members about how it determines the currency’s value.
A. Quota (基金份额) The size of the quota is set by the IMF. It is based on the economic importance of a country by such indicators as population, international trade volume, and GNP. The member states need to pay their subscriptions to the IMF, also called membership fee, which is the contribution that the member states must make to the IMF’s funds. It’s expressed in SDRs and equal in value to each member’s quota. 75% of the subscription is payable in the member state’s own currency and 25% is payable in gold, foreign exchanges and SDRs. Voting power and eligibility to draw on the fund are linked to the size of the quota. The quota is important because it determines the maximum amount that the member can draw out in time of difficulty. Quotas are reviewed every 5 years and adjusted accordingly.
B. General Arrangement to Borrow The IMF can borrow from its member countries up to the equivalent of $ 6 billion to help some country in financial difficulty. C. Trust Fund In 1976, the IMF decided to sell one-sixth of its gold at the market rate and use the profit obtained as Trust Fund. The purpose was to provide prime loans to the low-income countries.
A loan, called a drawing, thus consists of a member’s purchase of foreign currencies of SDRs with its own currency. A repayment represents a member’s repurchase of its own currency with gold, or a currency acceptable to the fund, or SDRs.
Types of Loans & Repayments • Normal Credit Tranches-This is the most basic kind of loan provided by the IMF to solve the temporary difficulty with the member’s balance of payments. The maximum amount of such a credit is 125% of the member’s quota subscriptions and the term is 3 to 5 years. • Special Facilities-To help the member countries solve some special problems, the fund provides some special facilities, such as CFF(补偿性和偶然性收支困难贷款), BSFF(缓冲库存贷款), and SFF(补充贷款), etc., which are targeted at a special monetary problem. • Members undertake repayments to the fund within a maximum of 3 to 5 years, which in certain cases can be extended up to 10 years.
The SDRs are special drawing rights to borrow or draw from the IMF extended by the IMF to its member countries as an addition to the general drawing rights they already hold. SDRs do not represent actual money, but simply a form of credit. They do not have to be paid to the IMF and thus form a permanent addition to the reserves of each member country. SDRs are allocated to member countries in proportion to their subscription to the IMF. At first, the value of the SDR was expressed in terms of gold. Since 1974, the SDR’s value has been based on a basket of currencies whose composition is reviewed every 5 years. e.g. On December 16, 2000, 1 SDR = 1.34986 USD.
