International Liquidity

Over the years the IMF under the framework of its international monetary system has tried its level best in evolving a smooth process of international monetary management by fostering sound traditions of international monetary cooperation.

Nonetheless, in view of the rapidly changing circumstance dynamism of growth worldwide inflation/stagflation, and emerging new problems in global economic relations – it is urgently required to trace ways and means of improving the functioning of the world monetary system under the present set up of the IMF.

During last 15-16 years, under the compulsion of changed circumstances, the IMF’s Bretton Woods norm of the fixed exchange rate system has been disregarded by its members resorting to the floating exchange rates which have mad ether present international monetary system more complex and cumbersome.

According to Mr. Camdessues, Managing Director of the IMF an international monetary system should serve the following objectives:

(i) To facilitate the balanced growth of world trade;

(ii) To promotes the efficient allocation of liable resources.

(iii) To encourage world saving under conditions of low and relatively stable inflation and to foster economic progress and improvement in social conditions worldwide, by encouraging full utilization of the productive resources of all countries.

It has been increasingly recognized that the present arrangements of the international monetary system has grossly failed in realizing these objectives. There is, thus, a need to evolve “some form of collective management of the monetary system that corresponds better than the current arrangements to the present level of international financial interdependence”. 

There are no precise contours of a better managed system, at present. The functioning of the adjustment mechanism in the IMF system needs an improvement by evolving a system of adjustable exchange rates with a reasonable stability that would satisfy not only the aspirations of both developed and developing countries but world also be institiable to the surplus as well as deficit countries.

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