Functions oF the Fund
From the brief account of the international Monetary Fund given above, it can hc seen that the Find performs five major functions:
i) It serves as If any liquidating an adverse balance of payments will come to its aid. It docs not, however, undcuikc to supply all lite foreign exchange that a country may need. All countries are supposed to have their separate monetary and foreign exchange reserves to meet their normal requirements, The Fund is not intended tu supplant them but to provide only a second line of defence in case of emergency. The borrowing country has to pay interest its quota intact. Should a country borrow unnecessarily. the rate of interest rises s the amount of loan increases. Lower rates arc charged if a loan is taken for a short period. If the amount of the loan and its duration arc such as to raise the rate of interest to 5 per cent, the lund can then raise the rate to any level by way of penalty, for this is regarded a~ an abuse of the privilege of membership. Thus, clear that the credit operations of the Fund arc not only conducted on sound business principles but they also ensure that the object of the fund to provide hort-krill loan only, is not defeated.
(i) It brings together representatives of the principal countries of the world and affords an excellent opportunity for reconciling their conflicting claims. This constructive approach and the measure of international co-operation have had not
only a stabilising influence 011 world economy but they have also cd to the expansion and balanced development of world trade and world production. The Fund has thus contributed to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of the member countries. For this purpose, the Fund is engaged in constant study and research relating 10 the important and urgent economic problems of the world.
(ii) It provides a reservoir of the currencies of the member countries ami enables members to borrow one another’s currency.
(iii) It promotes orderly adjustment of exchange rate to promote exchange stability.