The IMF was established in 1945. Under its aegis an exchange rate system was evolved and followed for 25 years up to 1971, its aims were:
I. To promote international monetary cooperation through a permanent institution which provided the machinery for construction on international monetary problems,
ii. To facilitate the expansion and balanced growth of institutional trades and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of productive resources of all members as a primary objectives of economic policy,
iii. To establish an international monetary system with stable exchange rates and to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation;
iv. To assist in the establishment of a multi national system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions between the members and in the elimination of foreign exchange restrictions which may hamper the growth of world trade?
v. To give confidence to members by making the funds resource$ available to them with the opportunity to correct adjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
vi. In accordance with the above, to shorten the duration and lesson the degree of disequilibria in the international balance of payments of members. The major objectives behind setting up the IMF were restoring Multinational trade and establishing a state of exchange rate. The funds resources primarily consist of “Quotas” subscribed by the member countries. A member country of the IMF has a “quota” in the IMF’s capital. The quota represents the voting power of the member country and in the decision making process of the fund. Initially half the quota contribution was in the. Currency of the member countries and the other half was in gold or dollars. At present member is generally required to pay about 25% of its quota in SDR, (Special Drawing Rights) or in currencies of other members selected by the IMF, with the concurrence, the reminder is in the member’s own currency. The initial quotas of the original members of the IMF were related to, but not strictly determined by the Bretton Woods formula, which included such basic variables as average import and export flows, gold holdings and dollar balances and national income. This formula served as the basis for determining initial quotas for new members until the early 1960s.
In April 1963, a number of other quota formulae were introduced_ which, taken together, were used in determining initial quotas of new members and increases in the quotas of new members. These formulae employ economic data relating to GDP, current account transactions, the variability of the current receipts and official reserves i.e. the quotas were based on the country’s Gross Domestic Product (GDP) and its share of world trade. The quotas were reviewed once in 5 years.
The quotas also given the access of the member concerned to borrowings under the different facilities extended by the fund to its members. The eleventh quota review, authorizing a 45%
increase in the fund quotas from SDR 146 bn to SDR 212 bn was completed in January 1998. The quota increase became effective w.e.f. 22.1.1999.