CHANGING THE OPERATION POLICY OF THE IMF MAY NEED TO CONSIDER
Posted on September 20th, 2021

BY EDWARD THEOPHILUS

The purpose of establishing the International Monetary Fund was a good policy design because there had been conflicts in the international financial management relating to exchange rate determination and gaining trade advantages.  Economically, powerful countries attempted to take power by determining the exchange rate for their currency units. This situation was encountered during the 1930s. Currently, the IMF operating system makes disadvantages. Many developing countries haven’t had trading power in the international trading system and the IMF’s focus is on patching foreign exchange reserves and foreign value of currency units. The best policy action of the IMF is supporting financing activities for the balance of payment adjustment. It is a structural problem without a proper solution. The IMF operations during the several decades did not specifically aim how to make justice for developing countries and the priority of issues of the international financial system was to negotiate specific problems for the developed world.

Many countries have predicaments to settle the overall balance of the payment resulting from massive payments for imports of goods and services. The depreciation of currency values of developing countries is because of the massive outgoing of foreign exchange reserves and many other reasons that direct the IMF’s attention to problems. The COVID-19 crisis has also brought into press the same issues to developing countries because a considerable volume of foreign reserves of these countries used to import jabs and other goods and services while the lockdown of economies restricted the earning of foreign exchange. The exchange rate determination and the securing of foreign reserves have become vicious economic issues in developing countries. I saw a suggestion of Dr. Samarasiri, the management of macroeconomic variables provincial level. Would it be helpful to exchange rate-related and international trade matters that cannot be assumed because the idea is more complicated? 

The exchange rate of a domestic currency unit is a macroeconomic factor that has many links to a variety of considerations in an economy. The main reason to establish the International Monetary Fund was the operational instability of the international financial system, especially the competition between major countries in Europe and America that led to creating the over-emphasised competitive situation that was pushing for revaluing and devaluing the foreign value of currency units. The operational structure of the IMF has addressed this issue. Accordingly, no member countries could revalue or devalue more than 10%  of the existing value of the currency unit without the permission of the IMF. It was a very good policy decision of the IMF, this situation has been negatively affected on many developing countries since the mid-1950s, and the policymakers of the IMF have not been attempted to broaden a successful and acceptable policy process to answer for the problem.   

The crisis had in the international finance system was not only a foreign exchange reserves-related issue like present Sri Lanka facing, and the countries had conflicts in Europe and America to get trade advantages. For foreign exchange reserve building purposes, the competition was influenced by the reciprocal of policy actions, combined with the shortage of reserves. The value determination of reserves negatively affected the rate of exchange.

Under the operation regulation of the IMF, it has a plan to provide financing facilities to improve individual reserves of countries with conditions that are supportive of developed countries. However, the problem is the IMF policy intermingled with the reactions of other major countries such as India, China, Russia. This is a complex matter that developing countries approach without the support of an international authority.

Since the late eighteenth century, many countries had been acted in destabilizing the international financial system. Major countries, especially France and European countries, used the techniques of devaluation and revaluation without international controls.      

Sri Lanka had a Currency Board System during the 1930s when the international financial system was in a crisis and the monetary unit of Sri Lanka was linked to the British Sterling pound and the exchange rate of the currency unit was determined by the British Pound. The economic policymakers of the country were the British authority, and the policymakers were not concerned about the matter, as they were in a dependent finance system. Sri Lanka’s economy was like a canola seed near the universe. China entered the IMF in the 1970s and the operations of China and India made a considerable impact on the IMF operations, but major issue of developing countries has not been considered and China also attempted to disturb the smooth operation of the International Financial System. When deeply considering the issues, the developing countries are being disadvantaged and the issue should be negotiated by the IMF with the developing countries. 

The International Monetary Fund was established after considering two proposals from the UK and the USA. (Proposals were published as White’s plan and Keynesian Plan). If it is considered the original proposal, such as creating a common currency unit (BANCOR) for all countries in the world, it would have appropriated all countries in the world a common currency unit, and all countries would have gained justice to maintain the exchange rate. Like Euro was created for European countries in the year 2000, if BANCOR operated in the world it would have benefited all poor countries and the international trade creates justice for all countries.

The policy action to improve the exchange rate in developing countries is earning more foreign exchange from international trade. However, many developing countries have no plans to market products and services at the international level, the major reason associated with the quality of products and services of developing countries. The policy requirement for building foreign exchange reserves has been ignored by the countries by mixing economic policies with politics. Developing countries need to implement economic policies without political influences, and they should submit proposals to the IMF to reform its operational policies to get out of current problems.

One Response to “CHANGING THE OPERATION POLICY OF THE IMF MAY NEED TO CONSIDER”

  1. Mr. Bernard Wijeyasingha Says:

    The problem with the IMF, and for that matter the World Bank and the Asia Development Bank, is that the developing world has remained in that “developing” stage since that world broke free from the colonial Empires beginning in 1947. That’s a long time to remain in that state. The power was kept among the developed nations. The Bretton Wood meeting in 1945 (?) is a good example of power sharing between the UK and the US where the former ensured that the dollar becomes the premier currency that replaces the pound. Since then the US has done little to help improve the developing world

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