INTERNATIONAL MONETARY FUND
The International Monetary Fund (IMF) is a specialized agency of the UNITED NATIONS that seeks to promote international monetary cooperation and to stimulate international trade. The IMF, which in 2003 had 184 nation-members, has worked to stabilize world currencies and to develop programs of economic adjustment for nations that require economic reform.
The IMF was created in 1944 at the United
Nations Monetary and Financial Conference,
held at Bretton Woods, New Hampshire. It first
began operation in 1947, from its headquarters
in Washington, D.C., with a fund of $9 billion in
currency, of which the United States contributed
almost a third. The creation of the IMF was seen
as a way to prevent retaliatory currency devalu-
ations and trade restrictions, which were seen as
a major cause of the worldwide depression prior
to WORLD WAR II.
Membership is open to countries willing to
abide by terms established by the board of gov-
ernors, which is composed of a representative
from each member nation. General terms
include obligations to avoid manipulating
exchange rates, abstain from discriminatory
currency practices, and refrain from imposing
restrictions on the making of payments and cur-
rency transfers necessary to foreign trade.
The voting power of the governors is allo-
cated according to the size of the quota of each
member. The term quota refers to the IMF unit
of account, which is based on each member’s
relative position in the world economy. This
position is measured by the size of the country’s
economy, foreign trade, and relative importance
in the international monetary system. Once a
quota is set by the IMF, the country must
deposit with the organization, as a subscription,
an amount equal to the size of the quota. Up to
three-fourths of a subscription may consist of
the currency of the subscribing nation. Each
subscription forms part of the reserve available
to countries suffering from balance-of-payment
problems.
When a member has a balance-of-payment
problem, it may apply to the IMF for needed
foreign currency from the reserve derived from
its quota. The member may use this foreign
exchange for up to five years to help solve its
problems, and then return the currency to the
IMF pool of resources. The IMF offers below-
market rates of interest for using these funds.
The member country whose currency is used
receives most of the interest. A small amount
goes to the IMF for operating expenses.
In its early years the IMF directed its major
