Context:
The executive board of the International Monetary Fund (IMF) approved a proposal to make a 50 per cent increase in the quota allocated to members in proportion to their current quotas.
- Now, the proposal will be considered and voted on by the Board of Governors, after which it will be made effective.
About IMF Quota:
- Quotas are the building blocks of the IMF’s financial and governance structure.
- Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account.
- Use of Quotas is to determine –
- Resource contribution of a member
- Voting power in IMF decisions.
- Members get one vote per SDR100,000 of quota plus basic votes, which are the same for all members.
- Amount of loans a member can obtain from the IMF.
- General allocation of SDRs
- What will be the impacts of the rise in Quotas?
- Help safeguard global financial stability by enhancing the IMF’s permanent resources
- Reducing reliance on borrowed resources.
- Currently, the Fund relies on bilateral borrowing arrangements and pledges to a crisis lending fund called the New Arrangements to Borrow for nearly 60% of its lending resources
Any changes in quotas require approval by 85 per cent of the total voting power, and a member’s own quota cannot be changed without its consent.
India and IMF Quota:
- Presently, India holds 2.75% of SDR quota, and 2.63% of votes in the IMF.
- 8th largest quota-holding country in the IMF.
About Special Drawing Right (SDR):
- It is an international reserve asset created by the IMF.
- Objective – To supplement its member countries’ official reserves.
- Created in 1969.
- It is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
- It serves as the unit of account of the IMF and some other international organizations.
- Determination of currency value of the SDR – Summing the values in US dollars, based on market exchange rates, of a SDR basket of currencies.
- SDR basket of currencies – US dollar, Euro, Japanese yen, pound sterling and the Chinese Yuan (Renminbi) (included in 2016).
About International Monetary Fund:
- Genesis: Founded at the Bretton Woods Conference in 1944.
- Countries must first join the IMF to be eligible to join the World Bank Group.
- Headquarters – Washington DC
- India is a member.
- 3 critical missions –
- Furthering international monetary cooperation
- Encouraging the expansion of trade and economic growth
- Discouraging policies that would harm prosperity.
- Connections: It cooperates closely with other groups, including G20, and supports the G20’s efforts to sustain international economic cooperation through its mutual assessment process.
- Key reports: World Economic Outlook and Global Financial Stability Report.
Source: The Hindu
Previous Year Question
Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR?
[UPSC Civil Services Exam – 2016 Prelims]
(a) Rouble
(b) Rand
(c) Indian Rupee
(d) Renminbi
Answer: (d)
