Abstract

The Changing Role of the International Monetary Fund

Recent years have seen fundamental changes in the international monetary system. Consequently, there has been a substantial evolution in the role of International Monetary Fund. This paper reviews these changes in the Fund’s mission as they relate to the exchange rate system and the provision of international liquidity. Under the second Amendment to the Articles of Agreement, Fund member countries have the right to adopt exchange arrangements of their own choice, while at the same time the Fund’s responsibilities of supervision over exchange rates are broadened. The paper traces the development of the Fund’s role under the Bretton Woods par value system via the guidelines to floating to the new Article IV and the agreed upon principles and procedures of surveillance over exchange rate practices. With respect to international liquidity, the Fund’s role was initially restricted to the provision of conditional borrowing rights. Since then several arrangements were adopted that considerably broadened the Fund’s role in the area of international liquidity. The Fund has created a whole range of special credit facilities designed to meet the diverse needs of member countries and the creation of the SDR marked a major advance as it resulted in the provision of unconditional liquidity to the system. Finally, it is argued that the issues of effective balance of payments adjustment and the provision and control of international liquidity are intimately linked. It is here that the Fund’s expanded powers of surveillance will play an increasingly important role in the future.