International Monetary System

Brettonwood Conference (1944)

• 44 countries of United Nations met at
Brettonwood, New Hampshire US
• Aim was to create a new international
monetary system
• To avoid instability and protective policies of
Great Depression
 International Monetary System
Brettonwood Conference (1944)
• Called for the establishment of three
Organisations
1. IMF, to achieve exchange rate stability and
help countries to finance BoP deficits
2. IBRD, to assist post-war reconstruction and
development of member countries and to
provide long-term development assistance
3. ITO (International Trade Organization)
 World Trading System
General Agreement on Tariffs and Trade (GATT)

• Signed by 23 countries in 1947

• Membership rose to 123 in 1993
• The WTO replaced GATT as an international
organization, but the General Agreement still
exists as the WTO’s umbrella treaty for trade
in goods, updated as a result of the Uruguay
Round negotiations.
General Agreement on Tariffs and Trade
(GATT)
Basic Principles

• Nondiscrimination

• Elimination of Non tariff barriers

• Consultation to solve trade disputes

General Agreement on Tariffs and Trade (GATT)

• Reduction of tariff and other trade restrictions

were accomplished in phased manner

• Through different Rounds of multilateral trade

negotiations

• Eight multilateral trade negotiations so far

under auspices of GATT
General Agreement on Tariffs and Trade (GATT)
Rounds of Multilateral Trade Negotiations
i. Geneva (1947)
[Link] (1949)
[Link](1950-51)
[Link] (1956)
[Link] (1960-61)
[Link] (1964-67)
[Link] (1973-79)
[Link] (1986-94)
General Agreement on Tariffs and Trade (GATT)

Uruguay Round of Negotiations

➢Eighth Round
➢Took 8 years of complex negotiations
➢Considerable differences among members
➢Then director general of GATT Arthur Dunkel
came up with a package to solve – ‘Dunkel Draft’
General Agreement on Tariffs and Trade (GATT)

• Dunkel Draft was agreed and as a package

• Signing up of Final act in April 1994, paved

way of setting up of World Trade Organisation
(WTO)
 Multilateral & Plurilateral Trade
agreements
• Multilateral Trade agreement means the trade
agreement between three or more countries.
• Bilateral agreements are the agreements
between two couuntries.
• A plurilateral agreement implies that WTO
member countries would be given the choice
to agree to new rules on a voluntary basis.
World Trade Organisation (WTO)
• WTO) is the only global international organization
dealing with the rules of trade between nations
• Came into force on January 1, 1995 as a successor
of GATT

• WTO has 164 members

• International organisation and a permanent body

• WTO is an organisation while GATT is a treaty and

legal arrangement
 World Trade Organisation (WTO)
• Head Quarters: Geneva
• Director General: Roberto Azevêdo (6th)
 World Trade Organisation (WTO)
Functions
Its main function is to ensure that international
trade flows as smoothly, predictably and freely as
possible. Specific functions are
• Facilitate implementation, administration and
operation of multilateral and plurilateral trade
agreements
• Provide a forum for multilateral trade
negotiations among members.
• Administer rules and procedures governing
settlement of disputes
 World Trade Organisation (WTO)
Functions
• Administer trade policy review mechanism
• Cooperate with IMF and IBRD and the
affiliated agencies involved in global
economic policy making.
• Technical assistance to developing countries.
• Continuous Trade liberalization negotiations
among member countries.
 World Trade Organisation (WTO)
Organisation
• Highest decision-making body is the
ministerial conference
• It usually meet once in two years
• Any matters under multilateral trade
agreements can be discussed in ministerial
conference
• So far 12 ministerial conferences were held
(MC12 — Geneva, 12-16 June 2022.)
 World Trade Organisation (WTO)
WTO Ministerial Conferences
I. Singapore (1996)
II. Geneva (1998)
[Link] (1999)
[Link] (2001)
V. Cancun (2003)
[Link] (2005)
[Link] (2009)
[Link] (2011)
[Link] (2013)
X. X Neirobi (2015)
XI. Buenos Aires (2017)
[Link] (2022)
 GATT Vs WTO
GATT WTO
• GATT is a set of rules and • WTO is a Global International
agreement. Organisation
• GATT was a temporary • WTO is a permanent trade
agreement (Till establishment organisation
of ITO) • WTO rules are applied to
• GATT rules were applied to goods, services and IPRs.
merchandise goods only • Most of the agreements are
• Multilateral and Plurilateral Multilateral
agreements • Fast Dispute settlement
• Slow Dispute settlement system
system • WTO replaced GATT.
• GATT is the predecessor of
WTO
 WTO Agreements
❑Revised GATT - 1994
❑Agreement on Agriculture
❑Multi Fibre Arrangement
❑TRIMs
❑TRIPs
❑GATS
❑Trade Facilitation
 WTO Agreements
• GATT – Revised GATT is now the WTO’s principal
rule-book for trade in goods.
• Agreement on Agriculture:
• The WTO Agriculture Agreement provides a
framework for the long-term reform of
agricultural trade and related domestic policies
• The main objective is to free agricultural trade
• Provisions in 3 broad areas
– Market access: Tariffication (Abolish non tariff
barriers) & Tariff Reduction in a phased manner
– Reduction of Domestic support
– Reduction of export subsidies.
Multi Fibre Agreement:
• An international trade agreement on textile and
clothing that was active from 1974 till 2004. The
agreement imposed quotas on the amount that
developing countries could export in the form of
yarn, fabric and clothing to developed countries.
• Under the MFA, the United States and the
European Union restricted imports from
developing countries in an effort to protect their
own domestic industries.
• Under the agreement, each developed country
was assigned a quota or quantities of a specific
item which could be exported to the U.S. and EU.
• It expired on 1 January 2005.
 Agreement on TRIMs
(Trade Related Investment Measures )
• TRIMS are concerned with the liberalization of foreign investment
regulation.
• Objective of TRIM is to ensure fair treatment to foreign investment in
all member countries
• Governments has to impose these measures to either encourage or
compel investment to achieve certain national priorities.
• Member countries also commit themselves to the reduction of all
quantitative restrictions on imported goods, including tariffs and
non-tariff barriers (GATT,1994,Article IX).
• The TRIMS agreement provides a few concessions to safeguard local
industries such as the requirement of local content aimed at ensuring
that local industries benefit from providing inputs into the
production process of foreign companies.
 Trade Related Intellectual Property
Rights (TRIPs)
• The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) is an
international agreement administered by the
World Trade Organization (WTO).
• It sets down minimum standards for many forms
of intellectual property (IP) regulation as applied
to WTO Members.
• The TRIPS agreement introduced intellectual
property law into the international trading system
INTELLECTUAL PROPERTY RIGHTS(IPR)
• A person who creates a new work (a
technological innovation, a poem, a design, a
brand name etc) by using his knowledge and skill
needs protection of his work from copied or
stolen in any other form.
• To safeguard the interest of the creator,
protection is to be given to him in the form of IPR
• Any property, idea or work created by using mind
or intellect is called Intellectual Property.
 IPR
• Right given for the reproduction of those
properties which are the creations of mind or
intellect is called IPR.
• It protect the interest of the owners of these
properties
• It is the reward given to the inventor for
disclosing his invention
• Examples are Patent, copy right, trade mark,
industrial designs etc.
Patent:
• It is a legal monopoly granted to the owner of an invention for a limited
time
• Eg. Patent given for a product or product making formula
• Patent given for the design of an electronic item
Copyrights:
• It is the exclusive right granted to the author of a book/work to produce or
reproduce it.
• Example: copy right granted to a text book
• Copy write granted to a novel or poem
• Copyright granted to a film
Trademark:
• It is a registered brand(brand name, symbol or logo) which gives the
holder the exclusive right to use.
• Trade mark given to the name of a product or company
• Slogan of the company
Industrial Design
• It is the design or functionality of an article/product ([Link] of a cell
phone)
 Patent Laws in India
• The basic patent law in India is Indian Patents
Act 1970 which give emphasis on process
patent.
• It was amended in 1972, 1995, 1999, & 2005.
• With the amendment of Patents(amendment)
Act 2005, the amending process of Indian
Patent Act to bring conformity to the TRIPS
agreement of WTO (Product patent) is
completed
 General Agreement on Trade in
Services (GATS)
• The General Agreement on Trade in Services (GATS) is
the first set of multilateral rules covering international
trade in services.
• Its objective is to create a system of rules relating to
international trade in services
• GATS has three main parts:
• (1) the main text with general principles and
obligations applicable to all service sectors.
• (2) annexes with rules for specific sectors; and
• (3) Member countries' specific commitments to
provide access to their markets.
• GATS considers education as a tradable
service. GATS covers 12 service sectors
(Business Communication; Construction and
Engineering; Distribution; Education;
Environment; Financial; Health; Tourism and
Travel; Recreation, Cultural and Sporting;
Transport; "Other".)
• GATS has two broad categories of rules.
• The first category are general rules which
apply, for the most part, to trade in all
services.
– MFN Treatment
– Transperancy etc,
• The second category are rules applicable to
national commitments in specific service
sectors.
– Market access
– National treatment
Trade Facilitation Agreement:
• The TFA aims to fast track any movement
of goods and services among countries
by cutting down bureaucratic obligations.
• Trade facilitation agreement negotiations
of WTO concluded in 2013 (Bali
conference) and it is entered into force
on 2017 (when two third of WTO
members ratified it)
 Trade facilitation
• WTO defined Trade facilitation as
• The simplification and harmonisation
of international trade procedures
(export and import processes)
• The agreement focuses on
facilitation efforts to reduce the cost
and time needed to export and
import goods.
 Focus areas of TFA
• Simplification of international trade procedures
• Speed up customs procedure
• Reduce cost and time associated with export and
import
• Effective co-operation between customs and
clearance authorities of countries
• Provisions for technical assistance.
• Provide efficiency and transparency in trade
• Reduce bureaucracy and corruption
 Trade facilitation issues to India
• TFA limit food subsidy given by govt to 10%
• Government has to reduce or remove
minimum support price given for agricultural
products.
• Unfavourable to developing and developed
countries etc
 Environmental agreements
• WTO has no specific agreement dealing with
the environment
• But WTO agreements confirms government’s
right to protect the environment .
 Principles of WTO
1. Most-favoured-nation (MFN):MFN means
that countries must give equal and consistent
treatment to all foreign trading partners.
WTO describes this as 'favour one, favour all'.
2. National Treatment: Treating foreigners and
locals equally - Imported and locally-
produced goods should be treated equally. It
is applicable to GATT, GATS and TRIPS. Also
applicable to services.
 Principles of WTO
3. Freer trade: gradually, through negotiation :
Lowering Trade barriers – Tarriffication and tariff
reduction.
4. Predictability – Binding and Transparency:
When countries agree to open their market for
goods and services, they bind their agreement.
The WTO members are required to publish their
trade regulations
Countries should follow transparency in
international trade regulations)
 Principles of WTO
5. Safety valves. In specific circumstances, WTO's agreements permit
members to take measures for restricting trade. It is for the
protection of
– Environment
– Public health,
– Animal health and
– Plant health
6. Promoting fair competition – promot competition between
domestic and foreign firms for the benefit of consumers, host and
home counties.
7. Encouraging development and economic reforms.
• WTO encourage economic development of member countries
• It encourages economic reforms conforming to the agreements of
WTO.
 Functions of WTO
• Administering WTO trade agreeements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for
developing countries
• Co-operation with other international
organisations.
 WTO and India
• India is the founder member
• Signed as WTO member Dec 30 1994
• Made a number of commitments
Tariffs : reduced about 67%. Phased reduction were carried
out
QRs : Removed QRs on 714 items (EXIM Policy 2002)
TRIPs : amended Indian Patent Act 1970 in accordance with
the TRIPS agreement of WTO. incorporated exclusive
marketing rights. Introduced Product patent
 WTO and India
• TRIMs: liberalised foreign investment in
almost all industries. Automatic approval of
100% FDI in many industries.
• GATS: foreign investors allowed to enter in 33
service activities. Further relaxation will be
allowed on the basis of national interest
• Custom Valuation Rules: amended CVR to
confirm with the provision of article VII of
GATT 1994
 Impact of WTO on India
Favourable Impact:
• Increase in export earning: growth in both
merchandise and service export
• Higher agricultural export
• Increased the export of textiles and clothing
(after phasing out MFA)
• Inflow of Foreign Direct Investment (FDI) – as per
the TRIMs agreement
• Competitiveness to Indian Industries
 Impact of WTO on India
Unfavourable Impact:
[Link] on TRIPs :
• It is in favour of MNCs, and affected small
sectors of India.
• Process patent replaced by product patent.
• Patenting of plant varieties may transfer all
gains in the hands of MNCs who will be in a
position to develop almost all new varieties
 Impact of WTO on India
Unfavourable Impact:
2. Agreement on TRIMS: Agreement on TRIMs
provide for treatment of foreign investment
on par with domestic investment. This
Agreement too weights in favours of
developed countries.
3. Loss of Tariff
4. Agreement on agriculture is in favour of
developed countries.
TRADING BLOKS
 What is a trade block
(Economic Integration)?
A group of countries that try to
get the benefits of free trade by
forming a free trade area or a
custom union with other
countries with similar interests.
Economic Integration (Trade Blocs)
➢ A group of counties come together and agree to
cooperate in international trade by various
means.
➢Countries place differential treatment to their
trading partners
➢Countries join together to create a larger
economic unit
➢Special relationship among members within the
group
9/11/2022
Levels of Economic Integration

Free Trade Area

Customs Union
Common Market
Economic Union
9/11/2022
 (i) Free Trade Area
▪ The most common integration scheme
▪ No Internal Tariffs (or low rate of tariff)
▪ All members agrees to abolish all trade restrictions
among themselves to carry out international trade
▪ Trade barriers and restrictions with regards to the
trade with non member countries
▪ External Tariffs and barriers decided independently
by each countries.

Examples
U.S-Israel,
European Free Trade Area (EFTA)
9/11/2022
 (ii) Customs Union
▪ Second level of economic integration
▪ No Internal Tariffs (or low rate of tariff)
▪ No trade restrictions among members.
▪ Common External Tariffs & restritions
▪ Group adopts common external commercial policy
agreed jointly towards nonmembers
▪ Group acts as one body

Examples
France-Monaco
Italy-San Marino.
9/11/2022
 (iii) Common Market
▪ Third level of economic integration
▪ No Internal Tariffs (or low rate of tariff)
▪ No trade restrictions among members
▪ Common external tariffs
▪ Group adopts common external commercial policy
agreed jointly towards non-members
▪ Free movement of labour and capital among memebrs
▪ Superior to customs union

Example
Southern Cone Common Market
(MERCOSUR) - Argentina, Brazil,
Paraguay, Uruguay, Bolivia,
and Chile.
9/11/2022
 (iv) Economic Union
▪ Most comprehensive (superior)of all 4 forms
▪ All features of common market
▪ No Internal Tariffs or low rate.
▪ Common External Tariffs.
▪ Free flow of labor and capital.
▪ Integration and co-ordination of economic policies
▪ Uniformity in monetary policy and fiscal policy among
member countries.
▪ Common currency
▪ When EU adopts Common currency it becomes monetary
union

Example : European Union - Full monetary union by 1999

9/11/2022
 Advantages of Integration
• The resources of the member countries are pooled.
It increases efficiency of productivity.
• Rapid technological innovations
• Free trade
• Elimination or reduction of tariffs helps to reduce
import duties and thereby to reduce prices
• Increases the size of market
• Large scale production and economies of scale
• Variety of products at low prices
• Enhances the purchasing power and living standard
of the people
 European Union
• The European Union (EU) is an economic and political
union of 27 member states that are located primarily in
Europe
• The EU traces its origins from the European Coal and
Steel Community (ECSC) and the European Economic
Community (EEC), formed by the Inner Six countries
(West Germany, France, Italy, Belgium, Netherlands and Luxembourg) in
1951 and 1958 respectively
• The EU has developed as a common market through a
standardised system of laws that apply in all member
states.
• Later it was converted into Economic union
 European Union
• Economic, monetary, fiscal and political union.
• Single European Act (A true common market for
goods, people and money by 1992)
• Maastricht Treaty 1994 (Economic and monetary
union with a commitment to political union)
• Other treaties are Treaty of Amsterdam (1997) &
treaty of Nice (2001)
• 27 member countries
• Capital - Brussals
9/11/2022
9/11/2022
 Organisation of EU
• European Council is the main administrative body of
EU.
• Each member country is represented by a minister in
this council
• A committee of permanent representatives act as the
secretariat of the council (called Corper) responsible
for making important decisions. It consist of:
➢ Court of justice –to adjudicate disputes
➢ Court of Auditors – Auditing budget & expenditure
➢ European Commission –Executive body-Decisions
➢ European Parliament – Final decision is approved
➢ Advisory committees – To advice European commission
 Functioning/Activities of the EU
• Free trade among member countries
• Free movement of labour and capital among members
• Co-ordination of economic policies
• Common commercial policy with non-member
countries
• Common Agricultural policy (Green rate)
• Common Fisheries policy
• European monetary union with common currency
called the Euro
• Common transport policy
• Establishment of European Social fund, European
Investment Bank etc.
 The Euro - European Union Currency
• A new currency, the Euro is introduced on 1st January
1999 in 11 participating member countries (Now 19)
• Complete or full launching of Euro is on 1st Jan 2002
• Mastrich treaty contains ‘opt-out’ clause which exempt
some countries from adopting Euro.
• With the launch of the euro monetary policy became
the responsibility of the independent European Central
Bank (ECB), which was created for that purpose
• At present, the euro is the currency of the 330 million
people who live in the 19 euro area countries
• second most important international currency after
dollar
 Which countries have adopted the euro ?

• Belgium, Germany, Ireland, Spain,

France, Italy, Luxembourg, the
Netherlands, Austria, Portugal and
Finland, Greece, Slovenia, Cyprus, Malta,
Slovakia, Estonia, Latvia & Lithuania (19
countries)
• The currency is also used in a further five
European countries
Regional Economic Integration

• NATFA
• ASEAN
• APEC
• SAARC
• LAFTA
• OAU
• GCC
 North American Free Trade Agreement (NAFTA)
• The NAFTA is an agreement signed by Canada, Mexico,
and the United States, creating a trilateral trade bloc in
North America.
• Originally it was a US-Canada Free Trade Agreement.
Later Mexico joined
• Commenced from January 1994
• Benefits similar to the E.U. in terms of one Large market
• Stop firms from looking for cheap labor in outside
markets.
• Encourage foreign investment in this market.
• Increase competitiveness in outside markets
• Covers trade, financial services and dispute settlement

9/11/2022
North American Free Trade Agreement (NAFTA)
Objectives
• Free trade area between members
• Fair competition and facilitation of cross border
movement of goods and services in member
countries
• Increase investment opportunities
• Protection of intellectual property rights
• To reduce the prices of products & services
• To assist Mexico in eraning foreign exchange,
providing employment to people and to reduce
migration to USA
• NAFTA has two supplements: the North American
Agreement on Environmental Cooperation (NAAEC)
and the North American Agreement on Labour
Cooperation (NAALC).
• The agreement opened the door for open trade,
ending tariffs on various goods and services, and
implementing equality between Canada, USA, and
Mexico
• Before free trade agreements were implemented, U.S.
goods exported to Canada and Mexico were taxed at a
high rate. These tariffs discouraged the sale of much
U.S. merchandise, including cars, car parts, computers,
and food, in its neighbor countries. As a result of the
agreement, these duties were reduced over time,
eventually being eliminated in 2008.
 Measures adopted
• Opening up of Govt procurement marketin each
member country
• Residents of NAFTA countries can invest in any
other member country freely.
• Protection of IPR in each member countries
• Harmonisation of product standards
• Free flow of employees from one country to
another
• Pollution control measures.
 Top Ten 2000 U.S. Trading
Partners ($ billions)
Country U.S. Exports U.S. Imports Total Surplus/
Deficit
Canada $176.4 $229.2 $405.6 -$52.8
2-2 Mexico 111.7 135.9 247.6 -24.2
Japan 65.3 146.5 211.8 -81.3
China 16.3 100.0 116.3 -83.8
Germany 29.3 558.7 88.0 -29.5
United Kingdom 41.5 43.5 85.0 -1.9
South Korea 27.9 40.3 68.2 -12.4
Taiwan 24.4 40.5 64.9 -16.1
France 21.0 29.0 50.0 -8.0
Singapore 17.4 19.6 37.0 -2.2

Irwin/McGraw-Hill Copyright©2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Association of Southeast Asian Nations
(ASEAN)
• ASEAN is a geo-political and economic organization of
ten countries located in Southeast Asia, which was
formed on 8 August 1967 by Indonesia, Malaysia, the
Philippines, Singapore and Thailand.
• Since then, membership has expanded to include
Brunei, Burma (Myanmar), Cambodia, Laos, and
Vietnam.
• Its aims include accelerating economic growth, social
progress, cultural development among its members,
protection of regional peace and stability, and
opportunities for member countries to discuss
differences peacefully
 Association of Southeast Asian Nations
(ASEAN)
• Indonesia
• Malaysia
• The Philippines
• Singapore
• Thailand
• Myanmar & Laos
• Brunei
• Cambodia
• Thailand
• Vietnam

9/11/2022
03/09/98
 ASEAN
▪ Primary Multinational group in Asia.
▪ Fastest growing economies in the region.
▪ Economic integration and cooperation.
▪ Reduced Tariff and non-tariff barriers,
guaranteed member access to markets, and
harmonized investment incentives.
▪ All non-tariff barriers removed immediately,
import tariffs reduced to 0-5% in 2003, 0% by
2010.
9/11/2022
 ASEAN
Objectives
• Economic cooperation
• Social and cultural co-operation
• Peace and stability in the region
ASEAN Regional Forum
• 22 countries
• India became member in august 2009 and
started operation in June 2010
• [Link]
es/singcatthemes/[Link]
 ASEAN SUMMIT
• The ASEAN Summit is an annual meeting held
by the member of the Association of
Southeast Asian Nations
• The First ASEAN summit was held in February
1976 in Bali, Indonesia.
• The 39nd ASEAN summit was held in 2021 in
Brunei.
 The South Asian Association for Regional
Cooperation (SAARC)
• The South Asian Association for Regional
Cooperation (SAARC) is an organisation of 8 South
Asian nations, which was established on 8th
December 1985
Objectives
1. Promotion of economic welfare
2. Improve quality of life in the region
3. Accelerate rate of economic growth
4. Promotion of collective self reliance
 SAARC
• It is established for the promotion of economic
and social progress, cultural development within
the South Asia region and also for friendship and
cooperation with other developing countries.
• It is dedicated to economic, technological, social,
and cultural development emphasising collective
self-reliance.
• Its seven founding members are Sri Lanka,
Bhutan, India, Maldives, Nepal, Pakistan, and
Bangladesh.
• Afghanistan joined the organisation in 2007.
 SAARC
Members
1. Bangladesh
2. Bhutan
3. India
4. Maldives
5. Nepal
6. Pakistan
7. Sri Lanka
8. Afghanistan
 SAARC
• Eighth SAARC summit (New Delhi 1995)
endorsed SAPTA – (South Asian Preferential
Trading Arrangement)
• SAPTA is for promotion of intra-regional
trade and economic cooperation amoung
SAARC nations through extension of tariff
and other concessions
• The 19th Summit was held in Pakistan in 2016
 Objectives of SAARC
• to promote the welfare of the people of South Asia and to
improve their quality of life;
• to accelerate economic growth, social progress and cultural
development in the region
• to promote and strengthen selective self-reliance among
the countries of South Asia;
• to contribute to mutual trust, understanding and
appreciation of one another's problems;
• to promote active collaboration and mutual assistance in
the economic, social, cultural, technical and scientific fields;
• to strengthen cooperation with other developing countries;
• to strengthen cooperation among themselves
• to cooperate with international and regional organisations
with similar aims and purposes.
• to maintain peace in the region
International Monetary Fund (IMF)
• Product of Brettonwood conference
• Established in 1944
• Began operations in Washington DC in March
1, 1947
• Started with 44 members, now has 190
members
• Website : [Link]
• Head Quarters : Washington DC
• Present Managing Director : Christina Lagarde
Objectives of IMF
• To promote international monetary co-
operation
• To facilitate expansion and balanced
growth of international trade
• To promote exchange stability and
maintain orderly exchange agreements
• Provide borrowing facilities for countries in
temporary BoP difficulties
Functions of IMF
• Surveillance (Oversee the
international monetary system and
monitor the economic and financial
policies of member countries)
• Financial Assistance – to solve the
issue of Balance of Payment.
• Technical Assistance and training – to
member countries to design and
implement financial policies
 IMF and International Liquidity
• The term 'International Liquidity' means all the
financial resources and facilities that are available to
the monetary authorities of individual countries for
financing the deficits in their international balance of
payments
• It is the aggregate stock of internationally acceptable
assets.
• The primary component of international liquidity is
international reserves which are made up of gold
holdings and foreign exchange assets.
• The subsidiary resources of international liquidity are
provided by IMF in the form of SDR.
Borrowing from IMF
• Each country assigned a quota which is
denominated in Special Drawing Rights.
• Quota is based on economic importance
and volume of international trade
• Size of quota determines voting power and
ability to borrow
• US assigned largest quota followed by
Japan, Germany, UK and France (India’s
position = 11th )
Borrowing from IMF
• Previously, country pay 25% of quota in gold
and 75% in own currency (Gold Tranche and
Credit Tranche)
• Paying 25% of quota in gold was
discontinued in 1978 and replaced by SDR
• Country can borrow 25% of its quota
automatically- no restrictions
• Further borrowing high rates of interest
• Repayment in 3 to 5 years
Special Drawing Right (SDRs)
• The Special Drawing Right (SDR) is an
interest-bearing international reserve
asset created by the IMF in 1969 to
supplement other reserve assets (Gold
and foreign exchange) of member
countries.
• An asset that appear only on the books
of IMF as an accounting entry
• Also known as paper gold
Special Drawing Right (SDRs)
• SDR is allocated on the basis of quota.
• An SDR allocation is ‘cost free’. The SDR
Department pays interest on SDR holdings
to each member and levies charges on SDR
allocations of each member at the same
rate (the SDR interest rate).
• Thus, an SDR allocation is ‘cost-free’ for all
members because charges and interest net
out to zero if the countries do not use their
SDR allocations.
Special Drawing Right (SDRs)
• The Special Drawing Right (SDR)
allocation is not a loan from the IMF.
• SDRs can be held and used by member
countries, the IMF, and certain
designated official entities. It cannot be
used in private commercial dealings.
• It is not backed by gold
• Created “out of thin air”
Special Drawing Right (SDRs)
• The value of the SDR is set daily by the IMF
on the basis of fixed currency amounts of
the currencies included in the SDR basket
and the daily market exchange rates
between the currencies
• The SDR is based on a basket of
international currencies comprising the U.S.
dollar, Japanese yen, euro, pound sterling
and Chinese Renminbi.
 World Bank Group
• The World Bank Group (WBG) is a family of five international
organizations that provide loans and other financial
services to the developing countries.
• Its five organizations are the
– International Bank for Reconstruction and Development (IBRD) –
Provides loans, grants and credits.
– International Development Association (IDA) – Provide low or no
interest loans to poor countries
– International Finance Corporation (IFC) – Provide private sector
financing in developing countries.
– Multilateral Investment Guarantee Agency (MIGA) – Promote
foreign investment in developing countries.
– International Centre for Settlement of Investment Disputes (ICSID)
– Dispute settlement body
The first two are sometimes collectively referred to as the World
Bank.
 IBRD
• The International Bank for Reconstruction and
Development is an international financial institution,
established in 1944.
• IBRD is a global development cooperative owned by 189
member countries.
• Its headquarters is located in Washington, D.C., United
States.
• It is the lending arm of World Bank Group.
• IBRD provides financial products and policy advice to help
countries reduce poverty and extend the benefits of
sustainable growth to all of their people.
• It provide loans, guarantees, risk management products,
and advisory services to middle-income and creditworthy
low-income countries
 Objectives/Functions of IBRD
• Assist in the reconstruction and development of member
countries.
• Provide long term loans for the reconstruction of war
damaged economies.
• Provide long term capital to member countries for
development
• Provide guarantee for private loans granted to small and
large units and other projects of member countries.
• Provide technical services to the member countries
• Provide policy advise to reduce poverty and to achieve
sustainable growth.
• Provide economic and monetary advise to member
countries for specific projects.
• Promote private foreign investment.