International Monetary Fund
The Bretton Woods System
• Create a set of rules that would maintain fixed
exchange rates in the face of short-term
fluctuations;
• Guarantee that changes in exchange rates
would occur only in the face of long-term,
persistent deficits or surpluses in the balance
of payments;
• Ensure that when such changes did occur,
they would not spark a series of competitive
devaluations.
International Monetary Fund
The International Monetary Fund (IMF)
The IMF was intended to play two major roles
in the Bretton Woods System:
• the Fund should discourage aggressive
exchange rate behavior by members and
help them manage their balance of payments
efficiently;
• the Fund was given resources to lend
international reserves to countries with
balance of payments difficulties.
International Monetary Fund
The Quota System
The IMF is financed by its members. Upon
joining the IMF, a nation has to subscribe to a
Quota, which is based on its relative economic
significance and the level of its international
business activities. The size of the member’s
quota determines the country’s voting power
and borrowing rights.
International Monetary Fund
The Quota System
• Voting Power
– 250 “basic votes” plus one vote for
each SDR100,000 of quota.
• Borrowing Rights
– Unconditional Borrowing Rights
– Conditional Borrowing Rights
International Monetary Fund
IMF Credit Facilities
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Stand-By Arrangements (SBA)
Extended Fund Facility (EFF)
Supplemental Reserve Facility (SRF)
Contingent Credit Lines (CCL)
Compensatory Financing Facility (CFF)
Poverty Reduction and Growth Facility
(PRGF)
International Monetary Fund
Functions of the IMF
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The Bretton Woods System was officially
abandoned in 1973. With the collapse of the
system, the IMF’s functions changed to
Policy Cooperation;
Share Expertise;
Financial Assistance; and
Help the World’s Poorest Countries
International Monetary Fund
Structural Adjustment Programs
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Cut Social Spending;
Shrink Government;
Increase Interest Rates;
Eliminate Tariffs;
Eliminate Regulations on Foreign Ownership
of Resources and Businesses;
• Cut Subsidies for Basic Goods; and
• Re-orient Economies from Subsistence to
Exports
International Monetary Fund
The Special Drawing Right (SDR)
The Special Drawing Right (SDR) is an
international reserve asset created by the
IMF to supplement existing reserves. It is
valued on the basis of a basket of five
currencies and can be used in a wide
variety of transactions and operations
among official holders.
International Monetary Fund
Valued Gateway Client:
Valued Gateway
SDR Valuation
Euro
Currency
Amount
(Rule O-1)
0.4260
Exchange
Rate as of
Sep 20, 04
1.213200
U.S.
Dollar
Equivalent
0.516823
Yen
21.0000
0.009104
0.191257
Pound
0.0984
1.783000
0.175447
U.S. $
0.5770
1.000000
0.577000
Currency
$ Value of SDR1
1.460527