International Monetary Fund
Context:
- There have been continuous demands for reforms in multilateral institutions like IMF and WB by developing countries like India to make them more representative of emerging world order.
About IMF:
- The IMF was initially taken birth in 1945 as part of the Bretton Woods agreement.
- It was made to encourage the financial cooperation internationally by developing a system of convertible currencies at fixed exchange rates.
- It tries to promote global economic growth and financial stability, reduces poverty and encourages international trade.
- IMF claims itself as the global lender of last resort to national governments, and also a leading supporter of exchange-rate
- IMF funds come from majorly two sources which are Quotas and Loans.
- The pooled funds from member nations are known as quotas generate most of the IMF funds.
- The economic and financial importance of the countries in the World decide the size of the member’s quotas.
- The quotas are generally increased periodically as a means of boosting the IMF’s resources in the nature of special drawing rights.
- IMF publishes a report known as WORLD ECONOMIC OUTLOOK.
- The report analyses the world economy in the near to medium term.
About SDR:
- The Special drawing rights is an international reserve asset which is created by the IMF.
- The main purpose of SDR is to supplement the member countries official reserves.
- SDR was created by IMF in 1969 as a supplementary international reserve asset when the currencies were tied to the price of gold.
- The IMF when created it defined it as an equivalent to a fractional amount of gold which was equivalent to one US dollar.
- The IMF redefined the SDR as equivalent to the value of a basket of world currencies when fixed exchange rated ended in 1973.
- It generally serves as the unit of account of the IMF and other international organizations.
- It is to be noted that the SDR is not a currency.
- It is classified as the potential claim on the freely usable currencies of IMF members.
- Therefore, SDRs can provide a country with liquidity whenever needed.
- SDR consists of basket of currencies which are: the US dollar, Euro, Chinese Yuan, Japanese Yen, and the British Pound.
Who can hold SDRs?
- It is important to note that private entities and individuals are not entitled to hold SDRs.
- Only IMF members and the IMF itself is authorized to hold SDRs.
- The IMF has the final authority to approve whether other holders, such as central banks and multilateral development banks can hold SDRs or not.
