Describe the functions of the International Monetary Fund (IMF).

Answer Details

The International Monetary Fund (IMF) is a specialised agency of the United Nations set up in 1944 (Bretton Woods) to promote international monetary cooperation and orderly exchange arrangements. Its main functions are:

• Correcting balance of payments disequilibrium. It grants short-term and medium-term loans to member countries facing temporary balance of payments deficits, so that they can meet their international obligations without resorting to harmful trade restrictions.
• Promoting exchange-rate stability. It works to keep member currencies' exchange rates orderly and to discourage competitive devaluations that disrupt trade.
• Promoting international monetary cooperation. It provides a forum where member countries consult and collaborate on international monetary problems.
• Expanding world trade. By helping members settle payments and by encouraging the removal of exchange restrictions, it promotes the balanced growth of international trade, which raises income and employment.
• Providing international liquidity. It acts as a pool (reservoir) of members' currencies and creates Special Drawing Rights (SDRs) to supplement world reserves.
• Giving technical assistance and advice. It offers members expert advice on fiscal, monetary and exchange policy and carries out surveillance of their economies.

Examination takeaway: anchor your answer on the IMF's central purpose (curing balance of payments problems and keeping exchange rates stable) and separate it clearly from the World Bank, which finances long-term development projects.