n the late-1960s, however, resulted in a major revision of the currency exchange regime at the Smithsonian Conference in 1971. At this meeting, new par values were established, which had the effect of devaluing the United States dollar by 10.0 percent, and increasing the fluctuation range for foreign exchange to + 2.5 percent.
The crude oil price and supply shocks of the mid-1970s and other economic difficulties experienced by many of the developed countries soon made it apparent that the new regime would be unworkable. Consequently, the Second Amendment of the Articles of Agreement was accepted by member nations of the IMF and became effective in 1978. The Second Amendment, which is the protocol under which the IMF functions in the early- to mid-1990s, effectively ended the organization's role in currency exchange rate control.
With implementation of the Second Amendment, member nations were free to adopt exchange rate arrangements of their own choice. The result has generally been a situation characterized by a market determination of exchange rates for most currencies. The Second Amendment also abolished the official price of gold (the United States dollar was no longer tied to a specified gold price), and the requirement for the mandatory settlement in gold of accounts between member nations was terminated. The deemphasis of gold as a payment and reserve medium was accompanied by an increased role for IMF special drawing rights (SDRs) for these purposes. The SDR is an international reserve asset created by the IMF, which is allocated to member countries in proportion to their position in the organization's total assets (Chandavarkar, 1993, p. 80).
Each country's position in the IMF is determined by its quota for financing the fund. Quotas are agreed upon internationally. The quota must be paid to the IMF by each nation as follows: 25.0 percent in gold, and 75.0 percent in the nation's own currency. Both f...