IMF Objectives Functions

The fundamental objective of the IMF was the avoidance of competitive devolution and exchange controls that had characterized the era of 1930. It was set up to administer a “code of fair practice” in the field of foreign exchange and to make short-term loans to member nations experiencing temporary deficits in their balances of payments to enable them to meet these payments without resorting to devaluation or exchange control, while at the same time following internal policies to maintain domestic income and employment at high levels. Thus basically there are three general objective of the IMF (1) the elimination or reduction of existing exchange controls, (2) the establishment and maintenance of currency convertibility with stable exchange rates, and (3) the widest extension of multilateral trade and payments.

In essence, the Fund is an attempt to achieve the external or international advantages of a gold standard system without subjective nations to its internal disadvantage and at the same time maintain the internal advantages of paper standards while bypassing its external disadvantages. 

More precisely the objectives of the fund are stated in Article 1 of the Fund agreements as follows:

1. To promote international monetary cooperation through a permanent institution this provides machinery for consultation and collaboration on international monetary problems.

2. To facilitate the expansion of 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 the primary objective 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 lend confidence to members by making the fund’s resources 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 property.

6. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.

Evidently, Article 1 forms the cornerstone of the Fund Agreement because all decisions are to be guided by the purposes stated in this Article.

Functions

From the objective outlined above, it is easy to see that:

1. The fund functions as a short-term credit institution.

2. It provides machinery for the orderly adjustment of exchange rates.

3. It is a reservoir of the currencies of all the member countries, for which a borrower nation can borrow the currency of other nations.

4. It is a sort of lending institution in foreign exchange. However, it grants loans for financing current transactions only and not capital transactions.

5. It also provides machinery for altering sometimes the par value of the currency of a member country. Thereby it tries to provide for an orderly adjustment of exchange rates, which will improve the long-term balance of payments position of member countries. 

6. It also provides machinery for international consultations.

In fine, the Fund contributes to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all member nations.

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