EECS 1530 Lecture Notes - Lecture 18: Special Drawing Rights
21 Jun 2018
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EECS 1530 Lecture 18 Notes
Introduction
Funding Dilemma of the IMF
It attempts to anticipate financial problems in member countries and offers advice to
these countries on how they can reduce their exposure to potential crises.
The IMF also provides technical assistance to countries in order to help them implement
effective tax policies, exchange rate policies, banking systems, and legal systems.
Each member country of the IMF is assigned a quota that is based on a variety of factors
reflecting its economic status.
Members are required to pay this assigned quota.
The amount of funds that each member can borrow from the IMF depends on its
particular quota.
The financing by the IMF is measured in special drawing rights (SDRs), which are a unit
of account allocated to member countries to supplement currency reserves.
The SDR’s value fluctuates in accordance with the value of major currencies.
One of the key duties of the IMF is its compensatory financing facility (CFF), which aims
to reduce the impact of export instability on the economies of member countries.
Although this facility is available to all IMF members, it is used mainly by developing
countries.
A country experiencing financial problems resulting from reduced export earnings must
demonstrate that the reduction is temporary and beyond its control.
In addition, it must be willing to work with the IMF in resolving the problem.
The IMF typically specifies economic reforms that a country must satisfy in order to
receive IMF funding, which is meant to ensure that the country uses the funds properly.
However, some countries want funding without adhering to the economic reforms
required by the IMF.
For example, the IMF may require that a government reduce its budget deficit as a
condition for receiving funding.
Document Summary
It attempts to anticipate financial problems in member countries and offers advice to these countries on how they can reduce their exposure to potential crises. The imf typically specifies economic reforms that a country must satisfy in order to receive imf funding, which is meant to ensure that the country uses the funds properly. However, some countries want funding without adhering to the economic reforms required by the imf. For example, the imf may require that a government reduce its budget deficit as a condition for receiving funding. Some governments have failed to implement these required reforms. Anticipate financial problems in member countries and offers advice to these countries on how they can reduce their exposure to potential crises. The imf also provides technical assistance to countries in order to help them implement effective tax policies, exchange rate policies, banking systems, and legal systems.
