International Monetary Fund IMF
International Monetary Fund (IMF)
an international monetary organization, operating as a specialized agency of the United Nations. The IMF was formed in 1944 by the United Nations Monetary and Financial Conference, held in Bretton Woods, N. H., which was attended by representatives of 44 countries. It began operation in March 1947, and in that year there were 49 member countries. Its capital was $7.7 billion. In mid-1973 the IMF had 125 member countries, and its capital had reached $28.8 billion. The Soviet Union does not participate in the fund’s activity. The board of directors of the IMF is located in Washington, and the fund has a branch in Paris.
The IMF was founded (according to its charter) to promote international monetary cooperation, regulate currency-account relationships among different countries, maintain an equilibrium in the balances of payments of IMF member countries, and regulate the rates of exchange of the currencies of the members. In fact the IMF operates under US control; the USA has occupied the leading position in the organization and uses it to strengthen the position of the dollar as the key currency of the capitalist world.
The capital of the IMF is formed from the contributions (quotas) of its member countries. The size of the quotas depends on the country’s economic significance in world trade. In September 1972 the quotas of the principal capitalist countries were $6.7 billion for the USA, $2.8 billion for Great Britain, $1.6 billion for the Federal Republic of Germany (FRG), $1.5 billion for France, $1.2 billion for Japan, and $1.1 billion for Canada. The quota is paid in gold (25 percent) and in the national currency of the country (75 percent).
The highest body is the board of governors. Each member of the IMF has 250 votes on the board plus one vote for each $100,000 of the country’s quota. This system guarantees a decisive majority of the votes to the developed capitalist countries. In 1972, ten countries (the USA, Great Britain, the FRG, France, Japan, Canada, Italy, Belgium, the Netherlands, and Sweden) had 56.4 percent of the votes. The executive body of the bank is the board of executive directors, which is headed by a chairman who is at the same time the managing director of the IMF.
From the time it was formed, the fund has been charged with establishing firm currency parities. The member countries of IMF agreed to set the parities of their currencies in gold or US dollars and not alter them more than 10 percent without the consent of the fund and also not to deviate more than ± 1 percent (since December 1971, ±2.25 percent) in carrying out transactions.
To alleviate the currency crisis and prevent outbreaks of trouble the IMF gives member countries short-term credits (up to one year) and medium-term credits (three to five years) at an average annual interest of 2-3.5 percent. The credits are given in the form of drawing arrangements: purchases by members from the fund of the currencies of other member countries for an equivalent amount in the purchaser’s currency.
The central problem facing the IMF has been and continues to be the task of ensuring international liquidity: that is, the ability of countries to make payments for foreign trade and other international transactions unhampered and to convert a favorable balance of payments freely into the currencies used to settle international accounts.
The monetary and financial system whose foundations were worked out at the Bretton Woods conference uses gold and the dollar, the key currency of the capitalist world, as international liquid capital. In December 1971 the system was based on $38 to one troy ounce of gold (31.0035 g), up from $35 per ounce; in February 1973 the rate was changed to $44.22 per ounce.
The existing gold standard system is plainly not able to keep up with fast-growing world trade and cannot ensure normal conditions for the international exchange of commodities. Gold mining is falling behind the needs of payment circulation. The crisis of the US dollar, which was caused by the chronic balance of payments deficit and the considerable military expenditures of the US government, led to the devaluation of the dollar in December 1971 (by 7.89 percent) and February 1973 (by 10 percent) and to a profound disturbance of the entire system of international accounts.
To increase the level of international liquidity, the “special drawing rights” system was worked out at the IMF session in Rio de Janeiro in 1967 and was introduced on Jan. 1, 1970. This is a system for granting mutual credits in standard monetary units of payment, SDR’s, which are equivalent in gold content to the US dollar. Credits in SDR’s are given to IMF member countries that are running a deficit in their balance of payments and lack adequate gold and currency reserves. New credit capital is issued to countries in the same proportion as their quota in the fund capital. Between January 1970 and January 1972, member countries received 9.4 billion units. In September 1972, at the 27th session of the IMF board of governors, a special committee was established: the Committee on Reform of the International Monetary System and Related Issues.
V. N. NAZAROVA