International Monetary Fund (IMF)

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 IMF (International Monetary Fund)

  • IMF Financial Management, ensure stability of International Monetary System.
  • Key Activity - Lending, Surveillance & Capacity Building to Promote Policies & Strategy.
  • IMF give loan to country, that have deficit in Balance of Payment.
  • Concessional Lending
    • Trust Resources (Concessional loan & Debt Relief) to Low Income Countries.
  • Quota is General Review in Every 5 Years. Quota is Ad Hoc Adjustment, Realignment in Quota Share, it Reduce or Increase the SDR value of Country.
  • >6% quota share developed to dynamic emerging Market & Developing Country.
  • India is 8th largest Member in IMF.
Quota
  • Quota% in IMF by Country, to determine
  • Voting Power.
  • Maximum Financial Commitment. (Subscription Fees given by country to IMF)
  • Access to IMF loans.
  • Allocation of SDR.
  • Quota is determined by GDP (50%), Economic Openings (30%), Economic Variability [Stability] (15%), Foreign Reserves (5%).
  • Total Quota, SDR 477 Billion, Highest Quota (USA 82,994.2 Million) & Lowest Quota Tuvalu (SDR 25 Million).
Maximum Financial Commitment
  • Quota Subscription country to Pay 75% Member currency & 25% in SDR or Wildly accepted currency (Dollar, Yen, Pound, Euro, Yuan).
Voting Power
  • First give equal votes to all country (Basic vote to all).
  • Quota Vote/ Additional Vote – 1 vote per 100,000 SDR. (Ex: If India has 5,00,000 SDR. India Voting power is = Basic Vote + 5 Votes).
Access to IMF loans
  • Borrowing Limit - Stand by Arrangement (Normal Access) – Sometimes exceed in exception case.
    • 145% - Annually
    • 435% - Cumulatively
SDR – Special Drawing Rights (Unit of Account in IMF)
  • SDR value is determined by Value of 5 currency basket (US Doller (41.73%), Euro (30.93%), Chinese Yuan (10.92%), Japanese Yen (8.33%), British Pound (8.09%)) into one. Given different weightage to currency.
  • SDR allocation to member country based on Quota.
  • SDR having by IMF, Member Counter & Prescribed Holders.
  • SDR is a liquid assert, can exchange by any currency.
  • SDR Value calculated Daily & Interest rate is calculated Weekly basis.
  • 1974 - Initially 16 Currency used, later 1981 - Reduced to 5 Currency, 1999 – Replacement of deutrache and French frenc by Euro & 2015 – Chinese Renminbi (Yean) is added (effect on 2016).
  • Voluntary Trading Arrangement
    • Ex: India is allocated 100 SDR & Holding is 100 SDR, USA is allocated 600 SDR & Holding is 600 SDR.
    • If India need Dollars, so India exchange its 5 SDR to US and get Dollars, Now India is allocated 100 SDR & Holding is becoming 95 SDR, USA is allocated 650 SDR & Holding is becoming 655 SDR.
    • Holding more than allocation get interest, holding less than allocation pay interest to IMF.
Reserve Tranche
  • Creditors country give freely usable currency (Dollar, Yen, Pound, Euro) to IMF. IMF lending (Line of Credit) to debtor country.
  • Debtor country exchange of Assert in local currency in IMF.
  • If Creditor Country need Liquidity, anytime claim on IMF (Reserve tranche Position).

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