THE INTERNATIONAL MONETARY SYSTEM 77
However, it has been observed that a country that holds higher reserves usually prospers less
than it logically should.
When a country is opened up to international trade and investments, it may face
frequent ups and downs in its balance of payments. In other words, a country may
be susceptible to a foreign exchange crunch as it becomes more open. The IMF has
instituted several schemes to guard against such an eventuality. The scheme of cre-
ation and allotment of SDRs to member countries has helped many countries in solv-
ing the problem of international liquidity. The other initiatives under which the IMF
can help countries increase their international liquidity are the compensatory finan-
cial facility ...