The IMF is the pillar of the edifice of the international monetary system. The world is changing very fast with dynamism to embrace the 21st century. Over 50 years old institution like the IMF need reformation to meet the emerging challenges and takle the new problems in the modern global finance system.
Time has riped to undertake certain reformatory measures immediately in the interest of the new economic order of the world economy and its progress, beside wiping out the tarnished image of the IMF in its working as a financial institution.
Power relationship within the IMF structure of the monetary system need a change. The SDRs scheme is a substitution for gold. SDRs should be made more significant in the international monetary system. SDRs should play the role of the main denominator in determining parties of different currencies and the exchange rate instead of the US dollar. Nowadays, there is de facto dollar standard in the global monetary system.
Instead of dollar, the SDRs should become the principal reserve asset, then only one can hope for the minimisation of the American dominance into the global monetary system.
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The IMF should become more strong, fair and neutral. This requires restructuring of its power relationships. With adoption of the SDR standard and its equitable distribution with due consideration for the liquidity need of developing countries, the power relationships can hopefully be rationalised.
The problem of currency speculation also deserves an immediate attention of the IMF. Ways should be formed to alleviate currency trading under speculation motive; When speculation leads to currency crises, it endangers the world trade, growth and welfare of the global economy. The IMF should intervene and cooperate with the Central Bank of a country whose currency tends to be a target of speculative attack.
Even if a country’s currency appears to be weak, speculation is not to be justified as a method for de facto devaluation or to teach a lesson and forcing it to correct its BOP situation. Heavy speculation, on the contrary, will ruin the country’s economy and worsen its BOP further.
IMF should act like a fire-fighter when the fire is burning and should come to the country’s rescue and strengthen its Central Bank’s reserve position when it finds it difficult to intervene.
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Presently, the IMF comes to the rescue only after the fire is over and the house is already damaged and that too when the country begs under the acceptance of the IMF package of conditions for the reforms. Why should the IMF prescribe a uniform package of reforms which it deems to be the best without considering the differentials in different nations economic fundamental and financial needs? While giving a credit the IMF should only see whether, the country will be able to repay it or not through its track record.
Further, if currency speculation is checked immediately with IMF intervention when it is targeted on a country, it would be less costlier (in terms of assistance) then to assist the country to recover after the damage as often currency crisis forced by heavy speculation attack generates economic crisis as is evidenced by the recent Malaysian experience.
The IMF should also realise that in reality today liberalised market-oriented global economy is based on floating rate system and not on the fixed exchange rate ideology. As such, its policies and strategy of assistance to stabilise the exchange rate and economies of the countries should be revised appropriately as per the emerging need; The bureaucratic approach of the IMF must change with positive thinking and pragmatic consideration.
Further, IMF should be decentralised m its working. There should be a few more regional centres in major parts of the world such as South Asia, East Asia, Africa, Europe, Middle East, etc., and deal with the problems locally. These regional centers may be established with the assistance and local personnel – experts from the countries in each region.