The International Monetary Fund (lMF) - Is the organization that was established by the Bretton Woods Agreement of 1944 which came into operation in March 1947.
The fund was built as a framework for international cooperation in the monetary field with the removal of foreign exchange restrictions, designed to stabilize exchange rates and facilitate a multilateral (multilaterism) payments system between member countries.
Forty one years after it was established, the IMF boasted 181 member states. Under it's 'Articles of Agreement', members were obligated to observe an exchange rate, fluctuations in which should be confined to 1% around its par value. This value was quoted based on the US dollar's value which was, in turn, linked to the price of gold.
In December of 1971 the IMF's leading 'Group of Ten' nations, met to agree upon a new 'central values' of currencies designed to achieve a dollar devaluation of 10% with a margin of ±2.25%.
IMF Members finance their central fund through quotas that are dependent upon their individual economic strength. Quotas were raised in 1994 and totaled SDR (special drawing rights) $145.3 Billion USD. This fund is designed to tide member states over through times of temporary 'balance of payments' difficulties and thus help stabilize exchange rates.
Borrowing ability and voting rights are determined by this quota. Any IMF member dealing with a temporary balance of payments deficit issue may obtain foreign exchange from the central fund in exchange for its national currency, which it is obligated to buy back within a period not to exceed five years. Any Member left owing the fund after this grace period has expired is required by their agreement with the IMF to consult on planned steps to improve their balance of payments in order to repay the fund.
During the early 1960s it became evident that there was a strong case for increasing the fund's balance. Soon after, the 'General Arrangements to Borrow' was signed by ten member states in 1962. They were: the United States, the UK, West Germany, France, Belgium, the Netherlands, Italy, Sweden, Canada and Japan. These members are called the 'Group of Ten' or the 'Paris Club'. Following this, a $6.7 Billion credit was made available to the IMF, should it be required.
This initial increase has since been renewed regularly and in 1993 the limit was increased to SDR $18.5 Billion. Member states experiencing trade financing difficulties may also be eligible for 'standby credit' from which they may draw as required. The Fund may not, however, make use of any of the funding available in this standby plan without prior consent of the lending countries involved.
At the IMF meeting in Rio de Janeiro (September, 1967), the creation of an 'International Unit of Account' was agreed to in principle. It was ratified by an all member vote in July, 1969.
This 'Unit of Account' framework allowed for annual increases in available credit to be potentially distributed to Fund members through a method of SDRs (special drawing rights).
These credits may be distributed to IMF countries as a proportion of their quotas and could be included in the state's official reserves; the first, $3.5 Billion, was distributed in this way on I January 1970. Total SDRs are now about $21.4 Billion. There is a limit on the acceptability for payment in SDRs, in that no country need hold more than twice its SDR quota. In 1976 an agreement reached in Jamaica led to a major revision of the fund's articles.
Most importantly, there was no longer a requirement for member countries to subscribe 25% of their quotas in gold, and gold was no longer the unit of account of the SDR. The IMF also gave itself the right to sell any of its gold holdings.
Additionally, the original articles required a commitment to fixed par values, this stipulation was now abolished.