Railway
The system for maintaining orderly exchange rates between world currencies was set up under the:
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Answer: Option C — International Monetary Fund (IMF)
Detailed Solution
The IMF was created to oversee the international monetary system, including the system of exchange rates between the currencies of member countries.
The Bretton Woods exchange rate system (1944-1971):
- Under the system agreed at Bretton Woods in 1944, member countries fixed ("pegged") the value of their currencies to the US dollar, within a narrow band.
- The US dollar, in turn, was convertible into gold at a fixed rate of 35 dollars per ounce.
- The IMF supervised this "par value" system and lent money to countries facing temporary balance-of-payments problems, so that they would not need to devalue their currencies suddenly.
- Countries could change the par value of their currency only to correct a "fundamental disequilibrium", after consulting the IMF.
End of the fixed system:
- In August 1971, US President Richard Nixon suspended the convertibility of the dollar into gold (the "Nixon Shock").
- The Smithsonian Agreement (December 1971) tried to save the fixed system, but by 1973 major currencies had begun to "float".
- The Jamaica Accords (1976) amended the IMF's Articles of Agreement (effective 1978) to allow countries to choose their own exchange rate arrangements.
The IMF's role today:
- It carries out "surveillance" of the economic and exchange rate policies of its 191 member countries (Article IV consultations).
- It lends to countries in crisis, often with conditions on economic reforms.
It manages the "Special Drawing Rights" (SDR), an international reserve asset created in 1969. The SDR's value is based on a basket of five currencies: the US dollar, euro, Chinese renminbi, Japanese yen and British pound.
India and the IMF:
India borrowed from the IMF during the balance-of-payments crisis of 1991, when it had to pledge gold reserves. This led to the economic reforms of 1991.
India's rupee follows a "managed float" exchange rate system.
The rupee was devalued in 1949, 1966 and 1991.
Why not the other options?
- ✗The World Bank provides loans for long-term development projects.
- ✗The WTO (1995) regulates international trade, not exchange rates.
- ✗The Bank for International Settlements (BIS, 1930, Basel) is the "bank for central banks".
Quick tip
Remember: IMF = oversees exchange rates (Bretton Woods par value system, dollar at 35 dollars an ounce of gold; ended by Nixon Shock 1971; SDR 1969); India's IMF loan = 1991 crisis; BIS = Basel (1930).
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International Economic Organisations — Preparation
This question tests your understanding of International Economic Organisations, a key topic in the General Knowledge section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
This topic covers international economic and financial organisations: the IMF, the World Bank group, the WTO, the Asian Development Bank, the New Development Bank, the AIIB, OPEC, the OECD and groupings such as the G20, along with their headquarters, founding and functions. Questions usually ask where an organisation is headquartered, when it was set up, and what it does. For example, the IMF and World Bank were created at the Bretton Woods Conference in 1944, the WTO replaced GATT in 1995, and the New Development Bank, set up by the BRICS countries, is headquartered in Shanghai. Practise the international economic organisations questions below, written in the style of the general awareness sections of exams such as SSC, banking, railways, CUET GAT, MAH CET and CLAT. Each question comes with a detailed explanation that adds related facts, so every question helps you revise more than one point.