Lecture 5 - International Monetary System | International Economics- In Depth Basics and Analysis PDF Download

 Page 1


 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper : International Economics 
Lesson : International Monetary System 
Lesson Developer : Sarabjeet Kaur 
College/Department : Rajdhani College , University Of Delhi 
 
  
Page 2


 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper : International Economics 
Lesson : International Monetary System 
Lesson Developer : Sarabjeet Kaur 
College/Department : Rajdhani College , University Of Delhi 
 
  
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Table of the Contents 
Chapter: International Monetary System 
1. Learning Objectives 
2. International Monetary System 
a. Objectives of IMF  
b. Constitution, Membership and Capital of IMF 
c. SDR’s 
d. Lending Instruments 
e. India and IMF 
3. World Bank 
a. Objectives of World Bank 
b. IMF v/s World Bank 
c. World Bank and India 
4. GATT 
a. Principles of GATT 
b. GATT and WTO 
c. Agreements of WTO 
d. Demerits of WTO 
5. References 
Page 3


 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper : International Economics 
Lesson : International Monetary System 
Lesson Developer : Sarabjeet Kaur 
College/Department : Rajdhani College , University Of Delhi 
 
  
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Table of the Contents 
Chapter: International Monetary System 
1. Learning Objectives 
2. International Monetary System 
a. Objectives of IMF  
b. Constitution, Membership and Capital of IMF 
c. SDR’s 
d. Lending Instruments 
e. India and IMF 
3. World Bank 
a. Objectives of World Bank 
b. IMF v/s World Bank 
c. World Bank and India 
4. GATT 
a. Principles of GATT 
b. GATT and WTO 
c. Agreements of WTO 
d. Demerits of WTO 
5. References 
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Learning Objectives 
After reading this module, you will learn: 
1. What is IMF 
2. What is WTO 
3. Difference between IMF and WTO 
 
 
  
Page 4


 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper : International Economics 
Lesson : International Monetary System 
Lesson Developer : Sarabjeet Kaur 
College/Department : Rajdhani College , University Of Delhi 
 
  
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Table of the Contents 
Chapter: International Monetary System 
1. Learning Objectives 
2. International Monetary System 
a. Objectives of IMF  
b. Constitution, Membership and Capital of IMF 
c. SDR’s 
d. Lending Instruments 
e. India and IMF 
3. World Bank 
a. Objectives of World Bank 
b. IMF v/s World Bank 
c. World Bank and India 
4. GATT 
a. Principles of GATT 
b. GATT and WTO 
c. Agreements of WTO 
d. Demerits of WTO 
5. References 
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Learning Objectives 
After reading this module, you will learn: 
1. What is IMF 
2. What is WTO 
3. Difference between IMF and WTO 
 
 
  
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
International Monetary System 
 
During the Great Depression of 1930’s, there was a depression in the world. 
The falling in the gold standard resulted into increase trade barriers, 
devaluation of their currencies so that they can compete in export markets 
and decrease in the use of foreign currency by their citizens. As a result of 
this, world trade declined. There was also high rate of unemployment and 
plummeting standard of living in many countries. New monetary system was 
set up by the Bretton Woods Agreement in 1944. The setting up of the 
International Monetary Fund (IMF) and the World Bank were two stable 
legacies. 
 
 
The International Monetary Fund (IMF) is an international institution which 
deals with monetary aspects of the nations. On the recommendations of 
Bretton Woods Conference, the IMF was established on December 27,1945. 
The fund started its operations on March 1, 1947 with twenty nine member 
countries. At present there are 188 member countries. The main objective of 
IMF was of the reconstruction of the overseeing the international monetary 
system, to ensure exchange rate stability and encouraging members to 
eliminate exchange restrictions that hinder trade.  It also provide short term 
finance, under some macro-economic conditions, to help member countries 
to  deal with short term  balance of payments problems in such that it would 
Page 5


 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper : International Economics 
Lesson : International Monetary System 
Lesson Developer : Sarabjeet Kaur 
College/Department : Rajdhani College , University Of Delhi 
 
  
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Table of the Contents 
Chapter: International Monetary System 
1. Learning Objectives 
2. International Monetary System 
a. Objectives of IMF  
b. Constitution, Membership and Capital of IMF 
c. SDR’s 
d. Lending Instruments 
e. India and IMF 
3. World Bank 
a. Objectives of World Bank 
b. IMF v/s World Bank 
c. World Bank and India 
4. GATT 
a. Principles of GATT 
b. GATT and WTO 
c. Agreements of WTO 
d. Demerits of WTO 
5. References 
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
Learning Objectives 
After reading this module, you will learn: 
1. What is IMF 
2. What is WTO 
3. Difference between IMF and WTO 
 
 
  
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
International Monetary System 
 
During the Great Depression of 1930’s, there was a depression in the world. 
The falling in the gold standard resulted into increase trade barriers, 
devaluation of their currencies so that they can compete in export markets 
and decrease in the use of foreign currency by their citizens. As a result of 
this, world trade declined. There was also high rate of unemployment and 
plummeting standard of living in many countries. New monetary system was 
set up by the Bretton Woods Agreement in 1944. The setting up of the 
International Monetary Fund (IMF) and the World Bank were two stable 
legacies. 
 
 
The International Monetary Fund (IMF) is an international institution which 
deals with monetary aspects of the nations. On the recommendations of 
Bretton Woods Conference, the IMF was established on December 27,1945. 
The fund started its operations on March 1, 1947 with twenty nine member 
countries. At present there are 188 member countries. The main objective of 
IMF was of the reconstruction of the overseeing the international monetary 
system, to ensure exchange rate stability and encouraging members to 
eliminate exchange restrictions that hinder trade.  It also provide short term 
finance, under some macro-economic conditions, to help member countries 
to  deal with short term  balance of payments problems in such that it would 
 International Monetary System 
Institute of Life Long Learning, University of Delhi 
 
not be "destructive of national and international prosperity". France was the 
first country who borrows funds from IMF. 
 
Objectives of IMF: 
According to ‘Article of Agreement’ of the IMF, the main objectives of IMF 
are given by: 
1. “To promote international monetary cooperation through a permanent 
institution which provides the machinery for consultation and 
collaboration on international monetary problems. 
2. To facilitate the expansion and balanced growth of international trade, 
and to contribute thereby to the promotion and maintenance of high 
levels of employment and real income and to the development of the 
productive resources of all members as primary objectives of economic 
policy. 
3. To promote exchange stability, to maintain orderly exchange 
arrangements among members, and to avoid competitive exchange 
depreciation. 
4. To assist in the establishment of a multilateral system of payments in 
respect of current transactions between members and in the 
elimination of foreign exchange restrictions which hamper the growth 
of world trade. 
5. To give confidence to members by making the general resources of the 
Fund temporarily available to them under adequate safeguards, thus 
providing them with opportunity to correct maladjustments in their 
balance of payments without resorting to measures destructive of 
national or international prosperity. 
6. In accordance with the above, to shorten the duration and lessen the 
degree of disequilibrium in the international balances of payments of 
members”. Articles of Agreement: Article I—Purposes, International