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Which one of the following is not a function of International Monetary Fund?
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- It provides short term credit to its members
- It arranges for conversion of currencies
- It secures stability in the rates of foreign exchange
- It can create new money for stabilising exchange rate
Correct Option: D
New money is created by the central bank of a country. A central bank may introduce new money into the economy (termed ‘expansionary monetary policy’) by purchasing financial assets or lending money to financial institutions. Also, in a broader sense, it could be said that commercial banks introduce new money by multiplying base money created by the central bank through fractional reserve banking; this expands the amount of broad money (i.e. cash plus demand deposits) in the economy.
