The International Monetary Fund [A] In 1994, officials from forty-four nations gathered together for a historic at Bretton Woods in the United States. They wanted to make provisions for the economic problems they expected to follow the end of the World War II. These efforts resulted in the formation of the International Monetary Fund, which was officially established on December 27, 1945, with 30 members. Membership in the IMF is open to every sovereign ( 主权 ) state that is willing and able to fulfill its obligation. The Fund has grown rapidly, and has 183 countries by the end of 2000. China resumed her membership of IMP in April 1980. Objective of the IMF [B] The IMF is established to promote international monetary cooperation and exchange stability, to avoid competitive exchange depreciation ( 贬值 ) and to provide temporary financial assistance to counties to help ease balance of deficits ( 赤字 ). Under the Bretton Woods System, all members joining the Fund had to define the exchange rate of their currencies in terms of gold, while one ounce of gold was equal to exactly 35 US dollars. [C] Since the abandonment of the Bretton Woods System, the Fund has agreed to allow each member to choose its own method of determining an exchange rate for its currency. The only requirements are that the member country no longer bases the value of its currency on gold and informs other members about how it is determining the currency’s value. At any time, the Fund keeps on supervising ( 监督 ) exchange rate of the member states by asking for necessary data from the members and by collecting materials required to discuss and evaluate the prevailing exchange rate polices globally. Finance Resources of the Fund [D] In order to attain these objectives, however, very large financial reserves are needed. There are three financial resources for the Fund, namely, the quota ( 配额 ), subscriptions, the borrowing money and the trust fund. The quota is the heart of the International Monetary Fund. The size of the quota is set by the Fund authorities. It is based on the economic importance of a country by such indicators as population, international trade, and GNP. The quota of P.R. China on January 28, 2001, for example, is 4,867.2 million of SDRs ( 特别提款权 ). The member states need to pay subscriptions, to the IMF, also called membership fee, which is the contribution that the member states must make to the IMF’s funds, just like the share capital paid by a stockholder to join in a stock company. It is expressed in SDRs and equal in value to the member’s quota. 75% of the subscription is payable in the member state’s own currency and 25% is payable in SDRs or in one of the designed ( 指定 ) reserve currencies. Voting power and qualification to draw on the Fund are linked to the size of the quota. Quota is important because it determinates the maximum amount that the member can draw out in times of difficulty. Quotas are reviewed every five years and adjusted accordingly. [E] Beginning with 1956, IMF activities increased sharply, mainly because of large drawings by the United Kingdom to cope with various cries of the British monetary system. Since then steps have been taken to strengthen the Fund’s resources. Besides four general quota increases, the Fund has also sold gold to its principal members to increase its holdings of their currencies. In 1962, the Fund entered into “general arrangement to borrow”. In these, the leading nations agreed to lend it up to the equivalent of $6 billion. By borrowing money from member governments or their monetary authorities, the Fund assists special programs that benefit its members. In 1976, IMF decided to sell one-sixth of its gold at the market rate during four years and use the profit obtained as Trust Fund. The purpose was to provide prime loans to the low-income countries. Loan and Repayments [F] As an international regulatory and financing institution, the Fund is entitled to exercise supervision over the policies of its member countries’ own currency with gold, or a currency acceptable to the Fund or SPRs. [G] First, normal credit. This is the most basic kind of loan provided by the IMF to solve the temporary difficulty with the member’s balance of payments. The maximum amount of such a credit is 125% of the member’s quota subscriptions and the term is three to five years. The Fund uses its financial resources to assist its members to resolve their balance-of-payments problems in a manner that is consistent with a stable international or national prosperity. The Fund conducts operations only with the ministry of finance, central bank, and similar financial institutions of its members. Whenever it makes a loan it provides foreign currencies or SDRs with its own currency. [H] Second, special facilities. To help the member countries solve some special problems, the Fund provides them some special facilities, such as the Oil Facility, the Trust Fund Facility, and the Structural Adjustment Facility. Each of the special facilities is targeted at a specific monetary problem. [I] Third, Repayments. Members undertake repayments to the Fund within a maximum of three to five years, which in certain cases can be extended up to ten years. Earlier repurchases are often made either voluntarily or according to a requirement that a member makes a repurchase if its gold and foreign exchange reserves increase sufficiently. Special Drawing Rights (SDRs) [J] The SDRs are special rights to borrow or draw from the IMF extended by the IMF to its member countries as an addition to the general drawing rights they already hold. SDRs do not represent actually money, but simply a form of credit. SDRs may be exchanged between member countries or between those countries an IMF. At first the value of the SDRs was expressed in terms of gold. Since 1974, the SDR’s value has been based on a basket of currencies whose allocation is reviewed every five years.