Measures to Solve the Problem of International Liquidity

The following points highlight the top twelve measures to solve the problem of international liquidity.

Measure # 1. Robert Triffen’s Plan:

Prof. Robert Triffen organised this plan in 1958 to remove the problem of international liquidity.

Under this plan, the member countries are either required to deposit their currencies in the Central Bank or to transfer their foreign exchange reserves from the Bank.

This plan suffers from a drawback that none of the countries was ready to surrender its foreign exchange reserves to the proposed World Bank.

Measure # 2.Bernstein’s Plan:

The Executive Director of IMF, Prof. Bernstein presented this scheme in 1961 under which the IMF should subscribe the debentures from richest countries like USA, UK, France, West Germany, Canada and Japan and it should be utilised to solve the problem of balance of payment. This theory was known as IMF Borrowing Scheme. But as a whole, this plan was not able to solve the problem of world liquidity.

Measure # 3. Gold Tranche Policy:

This policy came in force in, 1952 with the help of IMF under which the people can draw the funds at their own account to the extent of the gold tranche position with the Fund. This is called Unconditional Liquidity. At the same, there is another Credit-Tranche which is called as Conditional Liquidity. For the type of loan, the member will have to fulfill certain conditions imposed by the Fund.

Measure # 4.Raising the Official Price of Gold:

This proposal was presented by Charles De Gaulle. He suggested that raising official price of gold is necessary to solve the problem of international liquidity. The volume of liquidity would increase with the raising official price of gold. The official price of gold was increased from 35 US Dollar to 42.2 US Dollar in 1973. This would increase the value of gold stock of member countries to some extent. But this policy benefited to only three countries like France, South Africa and USSR which were largest stock holders of gold. This method could not solve the problem of world liquidity.

Measure # 5.Standby Credit Scheme:

The Fund has organised a standby agreement in order to promote drawing facilities in 1952. Under this scheme, the members are permitted to draw the limit, they need foreign exchange from the Fund within a specified period without further application of the Fund.

Measure # 6.GAB Scheme:

In 1964, IMF has started a new scheme named as the ‘General Arrangements to Borrow’ (GAB) to provide liquidity to its member countries. The Fund has borrowed upto SDR 6 billion the currencies from major countries under this scheme. This would increase the GAB of the Fund from 6 billion dollars to 19 billion dollars.

Measure # 7. Special Oil Facility:

There was another scheme, named ‘Special Oil Facility’ presented by IMF in 1974 to finance loans to the non-oil developing countries to meet their deficit of oil imports from the OPEC countries from 3 years to 7 years. This facility proved to be helpful for the improvement of non-oil developing countries but unfortunately it came to an end in 1976 against the protest from developing countries.

Measure # 8. Subsidy Account:

The IMF established a subsidy account to assist the most seriously affected members to meet the cost of using resources made available through the oil facility. The subsidy account provides SDR facilities to the member countries of 101 million dollars in 1978.

Measure # 9. Compensatory Financing of Export Fluctuations Scheme:

This scheme was devised by IMF in 1963. Under this scheme, IMF offers borrowing facilities to its member countries to meet their deficits in the balance of payment arising from the fluctuations in export earnings beyond their control. Such borrowing facilities are useful to meet with the problem of world liquidity.

Measure # 10. Supplementary Financing Facility:

The Interim Committee (1977) provided facilities to promote the international liquidity and financial resources of member countries. – However, Supplementary Facility is like a standby arrangement for the period of one year to meet the imbalance of payment of the member countries.

Measure # 11. Trust Fund:

In 1976, a Trust Fund was organised to provide special assistance on concessional terms to solve the problem of balance of payment to developing countries. It has provided total loans disbursement to developing countries of 2991 million SDRs. India received 524 million SDRs with a loan disbursement from the Trust Fund. This fund was, later on, closed in 1981.

Measure # 12. IMF Aid Plan for Poor Nations:

In 1980, IMF proposed a plan for poor countries to give them financial aid at half per cent interest rates. This plan has provided 1.25 million Dollar subsidy plan to poor countries to cut interest cost or loans.