I.M.:F AN IMPROVEMENT ON GOLD STANDARD
There is n I doubt ‘hat the I.M.F a vast improvement on the gold standard. To maintain a gold standard was a very costly affair and it was also unnecessary. What matters is that a currency system retained the confidence of the people and should Provide stability of its internal and external value. There should be no crisis of confidence, under gold standard, the currency system depended on the volume of gold output or t he acquisition of gold. A The I.M.F. has all the merits of gold standard its demerits. It ensures exchange stability without a country having to undergo thc expense of maintaining a costly currency system. The exchange p;ities
are fixed in terms of gold but it is unnecessary to keep large gold reserves for currency purposes. The :.M.F. provides multilateral ism because it encourages multilateral transactions. Under tile gold standard, a country having a net deficit In the balance of payments had to export gold to meet this deficit. But under the J.M.F., this function of gold is performed by the I.M.F quota. Under the gold standard. there were no trade restrictions. The I.M.F. also seeks 10 restore multilateral trade on the basis of freely convertible currencies and reasonably stable exchanges.
Under the gold standard, excess of imports were met by the export of gold which resulted in contraction of credit. This was a serious defect of the gold standard. Under the I.M.F, a country is enabled to meet an advc r c balance by the hclp of the Fund without unfavourable effects on lis credit structure which deflationary policy must produce, Another serious defect of the gold standard (which IS avoided by the I.M.F.) was that exchange stahi lily was made the first objective of thc monetary policy and it was maintained by deflation of credit in thc country losing gold. The country receiving wav expected to expand credit. This method or maintaining ing equilibrium in balance of payments WOIked successfully only w long us- wages and other cmts were flexible. But now these cost have become and more rigid due to trade union pi cs sources, In these circumstances. deflation paralyses economic activity. The I.M.F. avoids there rigidities. There is provision for change of rates- of exchange. if circumstances warrant. Conclusion. In shill t. thc I.M.F. combines the advantages or gold standard with tho c (If free exchange and novels its di .advantage by preventing competitive exchange depreciation. prohibiting exchange restrictions in a normal situation. by facilitating convertibility of currencies and hy provided convict ucnt and adequate currency reserve lor the use of the member countries.
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