8/6/2019 1930 Depression IMF

1/12

Changing scenario of the Financial

system

8/6/2019 1930 Depression IMF

2/12

1930 Depression IMF

Conceived in July 1944 during UN

Monetary and financial conference45 countries agreed at Bretton Wods

Formal structure came into existanceon27th Dec. 1945

29 members signed the Article ofAgreement

Began Operations on 1st March, 1947

8/6/2019 1930 Depression IMF

3/12

Objectives

Overview the exchange rate system

Increasing intl monetary cooperation

Promoting International trade Promoting Exchange rate stability

Eliminate exchange rate restrictions

8/6/2019 1930 Depression IMF

4/12

Functions

Lending to countries having trouble in

international payments

To provide concessional loans to low incomenations to develop economies and reduce

poverty

To assist low- and middle-income countries in

managing their economies,

8/6/2019 1930 Depression IMF

5/12

provide practical guidance and training on

how to upgrade institutions, and design

appropriate macroeconomic, financial, and

structural policies.

8/6/2019 1930 Depression IMF

6/12

Monitoring Par value system

orBretton Woods system

Currency pegged to US$

US$ pegged to GOLD

1945

-19

71

8/6/2019 1930 Depression IMF

7/12

Decline of Bretton Woods system

Over valuation of US$

U.S. President Richard Nixon announced the

"temporary" suspension in August 1971 By March 1973, major currencies started

floating freely

8/6/2019 1930 Depression IMF

8/12

IMF members were allowed to -

Float currency freely

Peg to another currency or basket of

currencies Adopting currency of another country

Participating in another currency bloc

Forming part of a monetary union

8/6/2019 1930 Depression IMF

9/12

Quota

Capital membership subscription

Reflects the size of the economy

Larger the size larger the quota

Determines the voting rights

Determines the borrowing limit

25% in SDR & rest in own currency Can be reviewed after every five years

8/6/2019 1930 Depression IMF

10/12

Special Drawing Rights (SDRs) are internationalforeign exchange reserve assets. Allocated to

nations by the International Monetary fund(IMF), SDR represents a claim to foreigncurrencies for which it may be exchanged in timesof need.

Acts as a medium of exchange for foreigncurrencies from other countries and IMF acts as

an intermediary for the exchange, also has gotthe authority to force the strong nations for theexchange with the poorer nations.

8/6/2019 1930 Depression IMF

11/12

Value of SDR

1 SDR = 0.888671 gms of gold

Till the Bretton Woods system was in force

After 1970,

Basket of currenciesToday consists of JPY, USD, GBP, EURO with

weighted averages and is revalued after every fiveyears.

IMF daily determines the value of SDR based onthe exchange rates of the constituent currencies.

18/02/2011$ 1.47638 = 1 SDR

8/6/2019 1930 Depression IMF

12/12

Triffin dilemma resulted in formation of

SDR

SDR lost its value after the fall of BrettonWoods system