International Monetary Fund (IMF) | IAS Target IAS Target

International Monetary Fund (IMF)

The International Monetary Fund (IMF), also known as the Fund, is an international organization formed in 1944 at the Bretton Woods Conference. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. India is the founding member of the IMF.
The Bretton Woods conference resulted in the creation of four important organizations:
  • World Bank
  • IMF (International monetary fund)
  • GATT (General Agreement on Trade and Tarrif) – later becomes WTO in 1995
  • Fixed Exchange Rate system (Discarded in 1970s)

Official language Chinese, English, French, Russian, Spanish, Arabic
Headquartered Washington, D.C. (USA)
Member countries 189 countries
  • Global financial stability report
  • World Economic outlook

IMF Quota & Voting Rights

Quotas were assigned to member countries reflecting their relative economic power & credit deposit to IMF. A subscription was to be paid 25% in gold or currency convertible into gold (effectively the dollar, which was the only currency then, still directly gold convertible for central banks) and 75% in the member’s own currency Members were provided voting rights in proportion to their quota, hence member countries with higher quota have a higher say at IMF.

Quota Formula:

50 percent It is a weighted average of GDP
30 percent Openness of Economy
15 percent Economic variability
5 percent International reserves

GDP of member country is measured through a blend of GDP

  • Based on market exchange rates (weight of 60 percent)
  • Based on PPP exchange rates (40 percent)


  • Board of Governors:
    • It consists of one governor and one alternate governor for each member country.
    • Each member country appoints its two governors.
    • It is responsible for appointing executive directors to the Executive Board.
    • Approving quota increases, Special Drawing Right allocations, Admittance of new members, compulsory withdrawal of a member, Amendments to the Articles of Agreement and Bylaws.
    • Board of Governors is advised by two ministerial committees:
      • The International Monetary and Financial Committee (IMFC)
      • The Development Committee.
    Boards of Governors of the IMF and the World Bank Group normally meet once a year, during the IMF–World Bank Annual Meetings, to discuss the work of their respective institutions.

  • Ministerial Committees:
    The Board of Governors is advised by two ministerial committees:
    International Monetary and Financial Committee (IMFC) IMFC has 24 members, drawn from the pool of 189 governors, and represents all member countries. Countries with large economies have their own Executive Director, but most countries are grouped in constituencies representing four or more countries. The IMF is led by a managing director, who is head of the staff and serves as Chairman of the Executive Board. It discusses the management of the international monetary and financial system. It also discusses proposals by the Executive Board to amend the Articles of Agreement and other matters related to the global economy.
    Development Committee It is a joint committee (25 members from the Board of Governors of IMF & World Bank), tasked with advising the Boards of Governors of the IMF and the World Bank on matters related to economic development in emerging market and developing countries. It serves as a forum for building intergovernmental consensus on critical development issues.

  • Executive Board:
    It is 24-member Executive Board elected by the Board of Governors. It conducts the daily business of the IMF and exercises the powers delegated to it by the Board of Governors & powers conferred on it by the Articles of Agreement. It discusses all aspects of the Fund’s work, from the IMF staff's annual health checks of member countries' economies to policy issues relevant to the global economy. The Board normally makes decisions based on consensus, but sometimes formal votes are taken. Votes of each member equal the sum of its basic votes (equally distributed among all members) and quota-based votes. A member’s quota determines its voting power. United States has by far the largest share of votes (approx. 16.5 percent) amongst IMF members


  • Facilitate international trade,
  • Reduce poverty around the world
  • Central role in the management of balance of payments difficulties and international financial crises.
  • Secure financial stability,
  • Working to foster global monetary cooperation,
  • Promote high employment and sustainable economic growth,
  • IMF works to improve the economies of its member countries
  • To promote international monetary co-operation, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty

Structural adjustment (famous as Washington Consensus)

  • Devaluation of currencies,
  • Trade liberalisation, or lifting import and export restrictions,
  • Cutting expenditures, also known as austerity.
  • Privatization, or divestiture of all or part of state-owned enterprises,
  • Enhancing the rights of foreign investor vis-a-vis national laws,
  • Focusing economic output on direct export and resource extraction,
  • Balancing budgets and not overspending,
  • Removing price controls and state subsidies,
  • Improving governance and fighting corruption.
  • Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),

Special Drawing Rights

  • Special drawing rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF)
  • SDR is not a currency, instead represents a claim to currency held by IMF member countries for which they may be exchanged.
  • The value of an SDR is defined by a weighted currency basket of four major currencies:
    • The US dollar,
    • The euro,
    • The British pound,
    • The Chinese Yuan and
    • The Japanese yen
  • Central bank of member countries held SDR with IMF, which can be used by them to access funds from IMF in case of financial crises in their domestic market

Reverse Tansche

  • A certain proportion of a member country’s quota is specified as its reserve tranche.
  • The member country can easily access its reserve tranche funds at its discretion, and is not under an immediate obligation to repay those funds to the IMF.
  • Member nation reserve tranches are typically 25% of the member’s quota.

IMF reform in quota

  • The IMF Executive board decides the Quota of each member based on various parameters including GDP & tariff barriers.
  • Higher quota gives higher voting rights and borrowing permissions, but formula is designed in such way:
    US quota 18%
    G7 collectively own quota >40%
    India 2.6%
    Russia 2.5%
    China 6%
    India’s voting rights increased to 2.6 per cent from the current 2.3 per cent, and China’s, to six per cent from 3.8.
  • More than six percent of the quota shares will shift to emerging and developing countries from the U.S. and European countries
  • The reforms bring India and Brazil into the list of the top 10 members of the IMF, along with the Germany, U.S, Japan, the United Kingdom France, Italy, China and Russia.
  • BRICS, G20 and emerging market economies are against this scheme, especially after Subprime crisis and declined economic strength of USA & G7

Later Board decided to increase the quota of developing countries, but at the cost of the quota of poor countries.


70% votes required to implement this reform, not 70 nations, and the nations who collectively own 70% quota- USA, Germany, Japan etc. Hence quota reform is pending.


  • IMF funds come from two major sources: quotas and loans and depending on the World Bank for its resources
  • Quotas, which are pooled funds of member nations, generate most IMF funds. The size of a member's quota depends on its economic and financial importance in the world. Nations with larger economic importance have larger quotas. The quotas are increased periodically as a means of boosting the IMF's resources.

International Monetary and Finance Committee (IMFC):

  • Although the IMFC has no formal decision-making powers, in practice, it has become a key instrument for providing strategic direction to the work and policies of the Fund.
  • There is no formal voting at the IMFC, which operates by consensus.
  • The IMFC has 24 members, drawn from the pool of 187 governors.
  • Its structure mirrors that of the Executive Board and its 24 constituencies. As such, the IMFC represents all the member countries of the Fund.
  • The Committee discusses matters of common concern affecting the global economy.