Objectives of IMF
To achieve these objectives, the following conditions would have to be fulfilled: -
i. Countries should not impose restrictions in their trade with each other. This should encourage the growth of world trade and lead to full convertibility of currencies.
ii. Countries should adopt the peg system of exchange rates, in which each country quotes the exchange rate of its currency in gold and thus the exchange rates between currencies can be determined. The quoted exchanged rate is allowed to fluctuate to within 1% up and down, and the country can devalue or revalue its currency by up to 10%. This was meant to stabilize exchange rates between currencies.
iii. Each member state of the I.M.F should contribute to a fund to enable the I.M.F to give short-term assistance to countries having balance of payments problems. The quota contribution of the member state depends on the size of its G.D.P and its share of world trade. The member state contributed 25% of its quota in gold or convertible currency and the remaining 75% in its own currency.
iv. A member state in balance of payments problems can borrow from the I.M.F on a short-term basis. 25% of the country's quota contribution is automatically available to it as stand-by credits. Beyond this the country can borrow on terms dictated by the I. M. F. the country borrows by purchasing gold or convertible currency using it own currency. The country's borrowing facility expires when the I.M.F. holds the country's currency twice the value of its quota contribution. In paying back to the I.M.F. the country will repurchase back its currency using gold or convertible currency until the I.M.F holds 75% of the country's quota contribution in the country's currency.
v. The I.M.F. reserves the right to dictate to the country borrowing from it how to govern its economy.