This paper examines the effect transactions with the IMF have on the monetary situation within a country when the foreign exchange purchased from the IMF is used to meet a balance of payments deficit. In some countries, the national currency counterpart is kept on deposit to the credit of the IMF at the central bank. In other countries, the government substitutes a noninterest-bearing note for the national currency counterpart of a transaction with the IMF. It is with the effects of the latter practice that this paper is primarily concerned. The effect of a balance of payments deficit on the money supply will be offset if credit is expanded to finance a government deficit, investment by business, or spending by consumers. The ultimate effect on the money supply will depend upon how the government deals with the national currency turned over to it by the Exchange Equalization Account. Considerable caution is required in concluding that a balance of payments deficit is likely to be moderate and temporary.
This paper reviews key findings of the IMF’s Annual Report for the fiscal year ended June 1947. The report highlights that in the two years since the end of the Second World War, considerable progress has been made toward rebuilding the economies of the devastated and disrupted countries, although the work is far from complete. A number of countries in Europe have succeeded in approaching or even exceeding the pre-war levels of industrial production, but in others, output still lags far behind.