World monetary system and the role of IMF Term Paper

World monetary system and the role of IMF - Term Paper Example Also, there are resentments about the IMF’s interferences in the internal economic policies of the countries in matters related to opening up of industries to globalization, privatization of public sector companies, fiscal discipline, abolition of subsidies for narrowing down the budget deficits and reform processes. This paper seeks to review the role of IMF in world monetary system and the relevance of their policies under current developments in international economy. Since world monetary system is linked to world economy, the analysis covers its impact on world economy and the adequacy of the system to deal with the emerging challenges in relation to its objectives. Introduction â€Å"The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.† (IMF) In the backdrop of increasing globalization drive in various countries, technological developments, advent of internet and mobile telephony, the international trade has undergone significant changes over years.... The adequacy of the international monetary system in dealing with these ground level changes has to be revisited with a view to realign scope of functioning of the IMF in tune with developments in world economy. Review of literature IMF extends credit facilities to the countries with a view to ensure stability and balanced economic growth among the world countries. The gold-standard system adopted at Bretton Woods Conference in 1914 with the aim of encouraging economic discipline through sound economic policies has failed. Devaluation of currencies after World War - I by many countries to make their exports competitive in the world markets and trade restrictions to protect their domestic economies have severely affected global economic growth. In order to prevent collapse of global economic system and provide monetary order, proposal for setting up of International Monetary Fund and a World Bank for Reconstruction and Development were mooted in the Bretton Woods in 1944. The US with huge gold reserves and with infrastructure not damaged by war had to play a crucial role in the IMF with the primary aim of providing credit to the countries with deficit in Balance of payments. However, the credit facilities were subject to conditions with regard to revamping of the economic policies of the countries to ensure stability and avoid any crisis in the future. The system of fixed exchange rates at par value of the currencies fixed in terms of dollar or gold worked well for some time, but defending the par values became increasingly difficult for countries. Currently, floating exchange rates governed by demand and supply are predominantly in force. IMF has played a pivotal role in