IMF Quota system

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Introduction:

The International Monetary Fund (IMF) is an organization of 189 member countries, each of which has representation on the IMF's executive board in proportion to its financial importance, so that the most powerful countries in the global economy have the most voting power.

Objective

Foster global monetary cooperation

Secure financial stability

Facilitate international trade

Promote high employment and sustainable economic growth

And reduce poverty around the world

Countries were not eligible for membership in the International Bank for Reconstruction and Development (IBRD) unless they were members of the IMF.

IMF as per bretton Woods agreement to encourage international financial cooperation introduced a system of convertible currencies at flexible rates, and replaced Gold with US Dollar for official reserve.

After the Bretton Woods system (system of fixed exchange rates) collapsed in the 1971, the IMF has promoted the system of floating exchange rates. Countries are free to choose their exchange arrangement, meaning that market forces determine the value of currencies relative to one another. This system continues to be in place today.

IMF was one of the key organizations of the international economic system; its design allowed the system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism.

Functions

Provides Financial Assistance: To provide financial assistance to member countries with balance of payments problems, the IMF lends money to replenish(restore) international reserves, stabilize currencies and strengthen conditions for economic growth. Countries must embark (embark) on structural adjustment policies monitored by the IMF.

IMF Surveillance: It oversees the international monetary system and monitors the economic and financial policies of its 189 member countries. As part of this process, which takes place both at the global level and in individual countries, the IMF highlights possible risks to stability and advises on needed policy adjustments.

Capacity Development: It provides technical assistance and training to central banks, finance ministries, tax authorities, and other economic institutions. This helps countries raise public revenues, modernize banking systems, develop strong legal frameworks, improve governance, and enhance the reporting of macroeconomic and financial data. It also helps countries to make progress towards the Sustainable Development Goals (SDGs).

Due to discontent with IMF, BRICS countries established a new organization called BRICS bank to reduce the dominance of IMF or World Bank and to consolidate their position in the world as BRICS countries accounts for 1/5th of WORLD GDP and 2/5th of world population.

It is almost impossible to make any reform in the current quota system as more than 85% of total votes are required to make it happen. The 85% votes does not cover 85% countries but countries which have 85% of voting power and only USA has voting share of around 17% which makes it impossible to reform quota without consent of developed countries.