The Bretton Woods System

1
The Bretton Woods System

• Create a set of rules that would maintain fixed
  exchange rates in the face of short-term
  fluctuations
• Guarantee that changes in exchange rates would
  occur only in the face of long-term, persistent
  deficits or surpluses in the balance of payments
• Ensure that when such changes did occur, they
  would not spark a series of competitive
  devaluations.

2
The International Monetary Fund (IMF)

• The IMF was intended to play two major roles in
  the Bretton Woods System
• the Fund should discourage aggressive exchange
  rate behavior by members and help them manage
  their balance of payments efficiently
• the Fund was given resources to lend
  international reserves to countries with balance
  of payments difficulties.

3
The Quota System

• The IMF is financed by its members. Upon
  joining the IMF, a nation has to subscribe to a
  Quota, which is based on its relative economic
  significance and the level of its international
  business activities. The size of the members
  quota determines the countrys voting power and
  borrowing rights.

4
The Quota System

• Voting Power
• 250 basic votes plus one vote for each
  SDR100,000 of quota.
• Borrowing Rights
• Unconditional Borrowing Rights
• Conditional Borrowing Rights

5
IMF Credit Facilities

• Stand-By Arrangements (SBA)
• Extended Fund Facility (EFF)
• Supplemental Reserve Facility (SRF)
• Contingent Credit Lines (CCL)
• Compensatory Financing Facility (CFF)
• Poverty Reduction and Growth Facility (PRGF)

6
Functions of the IMF

• The Bretton Woods System was officially
  abandoned in 1973. With the collapse of the
  system, the IMFs functions changed to
• Policy Cooperation
• Share Expertise
• Financial Assistance and
• Help the Worlds Poorest Countries

7
Structural Adjustment Programs

• Cut Social Spending
• Shrink Government
• Increase Interest Rates
• Eliminate Tariffs
• Eliminate Regulations on Foreign Ownership of
  Resources and Businesses
• Cut Subsidies for Basic Goods and
• Re-orient Economies from Subsistence to Exports

8
The Special Drawing Right (SDR)

• The Special Drawing Right (SDR) is an
  international reserve asset created by the IMF to
  supplement existing reserves. It is valued on
  the basis of a basket of five currencies and can
  be used in a wide variety of transactions and
  operations among official holders.

9
SDR Valuation
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