Consider the following information regarding the International Monetary Fund (IMF) and identify the INCORRECT statements.

Question

Consider the following information regarding the International Monetary Fund (IMF) and identify the INCORRECT statements.

I. Every member country has an equal voting power regardless of its financial contribution.

II. The IMF created Special Drawing Rights (SDR) as an international reserve asset in 1969.

III. Private entities and individuals can also hold Special Drawing Rights (SDR).

1. A. I only
2. B. II only
3. C. I and III only (Correct answer)
4. D. II and III only

Correct Answer

Option C — I and III only

Detailed Solution & Explanation

The correct answer is I and III only.

Key Points

• The question asks for the INCORRECT statements.
  • Statement I is INCORRECT. IMF members do not have equal voting power. Voting is based on a quota system reflecting each member's relative position in the world economy, so the United States holds the largest share at about 16.5% — enough to veto major decisions, which require an 85% majority.
  • Statement II is CORRECT. The IMF created Special Drawing Rights (SDR) in 1969 as a supplementary international reserve asset.
  • Statement III is INCORRECT. SDRs can be held only by IMF member countries, the IMF itself, and certain designated official entities known as prescribed holders (such as the BIS and regional development banks). Private entities and individuals cannot hold SDRs.
• The incorrect statements are therefore I and III.

Additional Information

• The International Monetary Fund:
  • Established at the Bretton Woods Conference (July 1944) and began operations in 1945; headquartered in Washington, D.C.
  • Has 191 member countries; India is a founding member.
  • Its purpose is to ensure the stability of the international monetary system, provide balance-of-payments support, and offer technical assistance and surveillance.
• The SDR basket currently comprises five currencies: the US dollar, euro, Chinese renminbi, Japanese yen and pound sterling. The renminbi was added in 2016. Weights are reviewed every five years.
• Key IMF publications: the *World Economic Outlook*, the *Global Financial Stability Report* and the *Fiscal Monitor*.
• Distinguish the IMF from the World Bank: the IMF addresses short-term balance-of-payments and monetary stability, while the World Bank funds long-term development projects.