Functions of IMF | Definition, Objectives, Members, Structure, and Achievements

Functions of IMF and the World Bank

Explore the definition, objectives, functions of IMF, purpose, and role of IMF. Alongside, know the structure, members, and achievements of IMF.

This write-up aims to provide you with detailed information on the International Monetary Fund and the World Bank.

Also, explore the definition of World Bank alongside the aim, role and functions of the same.

We have put together the difference between the International Monetary Fund and the World Bank to develop a better understanding of the topic.

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What is the International Monetary Fund?

To promote global economic growth and financial stability, the International Monetary Fund is based in Washington, D.C.

The IMF was established in the year 1945 and is an organization of 189 countries. The IMF has its permanent headquarters at 700 19th street, N.W., Washington, DC 20431.

It is governed and accountable to the member countries that contribute to its near-global membership. It is an autonomous organization affiliated to U.N.O.

The IMF has a fundamental mission to ensure the stability of the International Monetary System.

The IMF was originally established with 30 member countries which later grew to 189 in 1986.

The headquarters of the IMF is located in the country having the highest capital quota of the Fund.

In the year 1944, the representatives of 44 nations met to figure out a plan for the economic order after World War II.

The aim was to prevent the repetition of destructive policies that could lead to other conflicts or issues.

Therefore, the International Monetary Fund was created. It has played a crucial role in maintaining economic and financial stability globally.

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What are the objectives of the IMF?

The Article of Agreement states the objectives of the International Monetary Fund as follows:-

  • To establish international monetary co-operation amongst its members. This is done through a permanent institution for collaboration and consultation in several issues.
  • To ensure foreign exchange rates stability and maintain orderly exchange arrangement among its members. Also, it works to rule out the unnecessary competitive exchange depreciation.
  • To relax or eliminate the exchange rate and fix them at a particular level to ensure the flow of international trade.
  • To create a multilateral trade and payment system in place of the bilateral trade agreements with regards to current transactions between members.
  • To promote international trade to achieve balanced growth. This ensures the promotion of high-income levels and employments among its member countries.
  • To help the backward countries attain balanced economic growth.
  • To promote capital investment from developed to backward economies to develop their economic resources.
  • To eliminate or reduce maladjustments or disequilibrium in the balance of payments among the member nations.

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What are the functions of the IMF?

The IMF performs a wide array of functions. We have listed below the major functions of IMF which are as follows:-

Attain stability in exchange rates

The IMF functions to maintain stability in exchange rates and discouraging fluctuations in the rates of exchange.

It is one of the primary functions of the IMF. It makes several arrangements to enforce and maintain the same.

Eradicate the disequilibrium in Balance of Payment

The fund works to help the member countries in eradicating or minimizing the balance of payment disequilibrium over a short period or long period by selling or lending foreign currencies to its members.

Determine the par values of the currencies

The IMF enforces the system of determining the par values currencies of the member countries.

The Article of Agreement states that the member countries have to declare the par values of its currency in terms of dollars or gold.

Maintain the credit facilities

The IMF maintains various borrowing and credit facilities to help the member countries in correcting disequilibrium in the balance of payments.

There are several credit facilities such as basic credit facility, compensatory financing facility, extended fund facility, and more. The fund can charge interest on the credits as well.

Maintain currency demand and supply

One important function of the IMF is to maintain the balance between demand and supply of currencies.

The fund, as required, can declare a currency as a scare one in case of high demand and can increase its supply by borrowing from the concerned country or purchasing the currency in exchange for gold.

Offer technical assistance

Another useful function of the IMF is to offer technical assistance to its member nations. The IMF offers technical assistance in two ways which are as follows:-

  • Granting the member countries with services of its specialists
  • Sending outside experts to the country

Maintaining liquidity of resources

The next important function of the IMF is to maintain the liquidity of its resources. The member countries can borrow from the IMF by surrendering their currencies in exchange.

Monitoring the monetary and fiscal policies

The IMF has a function of monitoring the fiscal and monetary policies of its member nations.

This is done to determine the impact of the policies on the economy and other nations as well. Also, it is used for various other analysis purposes as well.

Serve as the bank of Central Banks

The IMF is known as the bank of the Central banks of the member countries. It collects the resources of the Central banks similar to the country’s central bank.

Impart training

The IMF provides training to the representatives of the member nations and staff. The training which the IMF provides is to the senior officers of the finance departments and central banks of the countries.

Who are IMF members?

At present, the International Monetary Fund has 189 member countries that are working to foster global monetary cooperation, facilitate international trade, secure financial stability, sustain economic growth, reduce poverty and promote high employment.

The first date of entry into force of the initial member countries was December 27, 1945.

The countries with December 27, 1945, as the effective date of membership, are India, Belgium, Croatia, Canada, China, Egypt, Ethiopia, Greece, France, Iran, Netherlands, Luxembourg, United Kingdome, Philippines, and the United States to name a few.

The latest country to join the IMF is Nauru with its effective date of membership on April 12, 2016.

What is the structure of the IMF?

The current governance structure of the IMF has evolved along with the changes in the global economy.

This allows the organization to retain the central role within the architecture of international finance. The structure of the IMF is as follows:-

Board of Governors

The highest decision-making body of the IMF has one governor and an alternate governor for every member nation.

The member nation appoints the governor who is usually the finance minister or the head of the central bank of the respective nation.

The board has the right to admit new members, compulsory withdrawal of members, amendment of Articles of Agreement and By-laws, SDR allocations and approve the quota increases.

International Monetary and Financial Committee

The IMFC and Development Committee advises the Board of Governors.

The IMFC has 24 members who are drawn from the pool of 189 governors. Its structure is similar to the Executive Board and represents all the member countries of the fund.

The committee is a joint committee with a function to advise the Boards of Governors of the IMF and World Bank.

The advisory is for matters concerning the economic development of the developing and emerging economies.

Executive Board

The Executive Board has 24 Directors. Each of them represents a single country or a group of countries.

The board conducts the daily business of the IMF. It exercises the powers which the Board of Governors delegates alongside the power which the Article of Agreement confers.

Managing Director

The Executive directors appoint the managing director. The managing director is responsible for conducting the ordinary business of the fund.

The term of a managing director of 5 years and cannot serve concurrently as the governor or executive director of the IMF.

S/he chairs the meeting of the executive directors. S/he only has the right vote in case of a tie.

Staff

The International Monetary Fund has a staff of approximately 2700 from 150 countries.

What are the achievements of the IMF?

We have listed below a few of the major achievements of the International Monetary Fund which are as follows:-

  • The Fund has established a monetary fund by achieving the sizeable stock of national currencies of various countries.
  • Excellently maintained monetary discipline and cooperation among the member countries.
  • Prevent currency devaluation as no country could devaluate its currency without the permission of the IMF.
  • Remarkable promotion of stability in exchange rates
  • The Fund does not interfere in the internal economic policies of the member countries in any way.
  • The Fund maintains a special interest in the problems and concerns of developing and emerging economies.
  • It has achieved all the merits of the gold standard and managed the paper standards efficiently.
  • The Fund has successfully facilitated in the establishment of multilateral trade and payment along with facilitating for the expansion of balanced growth of trade internationally.

What is the difference between the IMF and the World Bank?

Basis of ComparisonThe International Monetary FundThe World Bank
MeaningIt is an international organization that maintains the global monetary system.It is a global organization established to advise and finance the emerging and developing nations to make them economically developed.
Focus  
SizeThe IMF has approximately 2300 staff members.The World Bank has approximately 7000 staff members.
Organizational StructureThe IMF is a single organization having four credit lines as follows: Board of DirectorsInternational Monetary and Financial CommitteeExecutive BoardManaging DirectorThe World bank consists of five organisations. The two major institutions are as follows: The International Bank for Reconstruction and Development (IBRD)The International Development Association (IDA)
MembersThe IMF has 189 member countries.The IBRD has 188 member countries and IDA has 172 member countries.
OperationsThe IMF offers technical and advisory assistance to its members for developing the nations.The World Bank operates to facilitate lending to its member nations.
ObjectivesTo deal with matters that relate to macroeconomics and financial sectorTo decrease or eradicate poverty levels and to promote economic development

What is the World Bank?

The World Bank is an international organization that functions to provide financing, advising, and research for the economic development of the developing nations.

It is a multilateral institution that lends money to government agencies and governments for development projects for the economies.

The World Bank Group consists of five organisations which are as follows:-

  • The International Development Association
  • The International Bank for Reconstruction and Development
  • The Multilateral Investment Guarantee Agency
  • The International Finance Corporation
  • The International Centre for Settlement of Investment Disputes

The World Bank was founded in the year 1944 as the International Bank for Reconstruction and Development it was soon called the World Bank.

It originally lent loans to help the devastated countries rebuild after World War II.

After the founding of the International Development Association, the World Bank started lending to private companies and financial institutions in the developing economies.

Later in 1960, upon the founding of the International Development Association, poverty eradication became a primary goal of the World Bank.

What is the aim of the World Bank?

The World Bank aims to offer low-interest loans, grants and interest-free credit to nations to improve their infrastructure, education and health.

Alongside this, it grants funds to nations to modernize and develop the agriculture, financial sectors, and natural resource management.

The purpose stated by the World Bank is to “bridge the economic divide between poor and rich countries”.

At present, the World Bank has two set goals for the world to achieve. The goals are to be achieved by 2030 which are as follows:-

  • Put an end to extreme poverty across the world. This focuses on decreasing the share of people who are living on less than $1.90 per day. The percentage share is to be reduced to no more than 3%.
  • To foster the income growth of the bottom 40% of every country. This paves the way to promote shared prosperity.

What is the role of the World Bank?

The World Bank serves as a vital source of financial and technical assistance to the developing economies across the globe.

Alongside this, it is a unique partnership that works toward reducing poverty and enable development.

To developing countries, the World Bank offers low-interest loans, grants and zero to low-interest credits.

These funds, grants, and loans are to support and enable a wide range of sectors which include but are not limited to health, infrastructure, education, agriculture, environmental and natural resources management, and more.

Alongside, the World Bank offers research and analysis, policy advice and technical assistance to the developing countries.

The World Bank has a crucial role in strengthening the financial position of the economies.

What are the functions of the World Bank?

The primary function of the World Bank is to provide loans, credits and grants for the financial and economic development of its member countries.

We have listed down the major functions which the World Bank performs as follows:-

  • The World Bank assists the member countries in the construction and development of their territories. It does this by facilitating the investment of the capital for productive purposes. The World Bank can grant loans to the countries only up to 20% of its share in paid-up capital.
  • The bank functions to promote private investment to the members on its guarantee. Also, it works to foster the long-run balanced growth of international trade and balance of payment equilibrium.
  • It ensures that the urgent, useful and productive projects get lean made or guaranteed by it. However, the bank determines the amount and number of loans, interest rates and terms and conditions.
  • It finances the projects from its capital and funds raised by participating with other members.
  • The World Bank provides advice and expertise alongside an emphasis on technical assistance and infrastructure assistance.

The International Monetary Fund and the World Bank are the two most important and prime organizations regarding financial stability, policies, and matters across the world. The near-global presence makes them the apex institution/organization.

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