At the international monetary fund (IMF), what functions are done by the Quota System:
1. It determines amount of financial resources each member is required to committ to IMF
2. It determines how much a country can borrow from IMF
3. It determines a country’s voting power at the IMF
Select the correct option from the codes given below:
When a country joins the IMF, it is assigned a quota based on its relative weight in the global economy. Quota involves several economic criteria such as- Member’s GDP, Its openness to trade, its volume of Current Account Transactions and its level of official revenues. Quota has three functions:
1.It determines amount of financial resources each member is required to committ to IMF
2.It determines how much a country can borrow from IMF
3.It determines a country’s voting power at the IMF
The Quota system is reviewed from time to time.
A member’s quota in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of Special Drawing Rights (SDRs).
A member state cannot unilaterally increase its quota—increases must be approved by the Executive Board of IMF and are linked to formulas that include many variables such as the size of a country in the world economy. For example, in 2001, China was prevented from increasing its quota as high as it wished, ensuring it remained at the level of the smallest G7 economy (Canada). However, in September 2005 the IMF’s member countries agreed to the first round of ad-hoc quota increases for four countries, including China.
This question is a part of GKToday's Integrated IAS General Studies Module