India gets more voting rights in IMF reforms

• The International Monetary Fund (IMF) has announced implementation of its long-pending quota reforms, which will give more voting rights to emerging economies such as India and China in the functioning of the organisation.

Reforms and Effects

• India’s quota in IMF would rise to 2.7 per cent, from the existing 2.44 per cent.
• The voting share of India in IMF would increase to 2.6 per cent from 2.34 per cent.
• For the first time, four emerging market countries — BRIC will be among the 10 largest members of the IMF
• Other top 10 members include the US, Japan, and the four largest European countries (France, Germany, Italy, and the UK)
• For the first time, the IMF’s Executive Board will consist entirely of elected Executive Directors, ending the category of appointed Executive Directors. Currently the members with the five largest quotas appoint an Executive Director, a position that will cease to exist.
• The combined quotas — or the capital countries contribute — doubles to about $659 billion from about $329 billion. The significant resource enhancement will fortify the IMF’s ability to respond to crises more effectively.

What is IMF?

• The International Monetary Fund (IMF) is an international organization of “188 countries working tofoster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”
• Formed in 1944 at the Bretton Woods Conference, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system.
• Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments difficulties can borrow money. As of 2010, the fund had SDR476.8 billion, about US$755.7 billion at then-current exchange rates.
• Through the fund, and other activities such as statistics-keeping and analysis, surveillance of its members’ economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries.
• The organization’s objectives stated in the Articles of Agreement are: to promote international monetary cooperation, international trade, high employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty.

SDR?

• The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
• Its value is currently based on a basket of four major currencies, and the basket will be expanded to include the Chinese Renminbi (RMB) as the fifth currency, effective October 1, 2016.
• SDRs can be exchanged for freely usable currencies.
• The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.
• Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.
• In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.