Chapter

Chapter 3: Activities of the Fund

Author(s):
International Monetary Fund
Published Date:
September 1970
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THE period under review was one of the most eventful both for the Fund and for the future of the international monetary system, marked as it was by an important extension of the Fund’s responsibilities in the field of international liquidity. The Amendment to the Articles of Agreement, which established the Special Drawing Account and made other changes in the Articles, became effective on July 28, 1969. With the amendment of the By-Laws and Rules and Regulations and the approval by the Board of Governors of the Managing Director’s proposal for the first allocation of special drawing rights (SDR’s) in September and October, the stage was set for the activation of the new Account at the beginning of 1970.

At the same time, the Fund’s General Account transactions and its other activities were again substantial. During the fiscal year ended April 30, 1970, members’ purchases of currencies from the Fund and repurchases both reached new high levels, and stand-by arrangements were approved for a larger total amount than ever before. Important decisions by the Executive Directors bearing on Fund transactions included one in December 1969 relating to South Africa’s sales of gold to the Fund and another in June 1969 in connection with the study of the problem of the stabilization of prices of primary products; the latter was described in last year’s Annual Report,1 and both decisions are reproduced in Appendix I below.

Two major industrial countries, France and Germany, established new par values for their currencies in August and October 1969, respectively. At the end of May 1970 the Canadian authorities notified the Fund that Canada would, for the time being, not maintain the exchange rate of the Canadian dollar within the existing margins. All of these developments had a bearing on the examination of the mechanism of exchange rate adjustment, which has preoccupied the Executive Directors during much of the period.

Following a report by the Executive Directors in December 1969, the Board of Governors adopted a Resolution authorizing a substantial increase in members’ quotas, aimed at adjusting the size of the Fund to the growth of the world economy. Four countries joined the Fund during 1969/70 and one in May 1970, bringing total membership to 116.

Other Fund activities were also maintained at high levels, as described in Supplementary Note A. The number of Article VIII and Article XIV consultations with member countries continued to increase; training activities, as well as technical assistance in the fiscal, banking, and statistical fields, continued to expand; and cooperation with the World Bank and other international organizations was extended and strengthened.

In February 1970 the Fund published a three-volume history, providing a comprehensive account of the Fund’s origins and formation and of the development of its policies and activities over the first 20 years.

The Special Drawing Account

The Amendment to the Articles of Agreement entered into force on July 28, 1969, when it had been accepted by the requisite three fifths of the Fund’s members, having four fifths of the total voting power. The required level of participation in the Special Drawing Account was achieved on August 6, 1969 when instruments of participation had been deposited by members having at least 75 percent of the total of quotas in the Fund.

The Managing Director’s proposal to allocate special drawing rights for the first basic period, adopted as Resolution No. 24-12 by the Board of Governors of the Fund on October 3, 1969, provided for the creation of approximately SDR 9.5 billion2 over the three years 1970-72.3 By December 31, 1969, 105 members with total quotas of $20,872 million (97.8 percent of total Fund quotas) had deposited instruments of participation. The first allocation of special drawing rights was made on January 1, 1970 to 104 participants4 at a rate equal to 16.8 percent of their quotas. The total allocation amounted to SDR 3,414 million (Table 7). Allocations of special drawing rights to individual participants in the Account were determined, as provided in the Articles, by the relative size of their Fund quotas; the amounts ranged from SDR 867 million for the United States down to SDR 504,000 for countries with the smallest quotas.

Table 7.Allocations of Special Drawing Rights Received by Participants, January 1, 1970
ParticipantSDR
Afghanistan4,872,000
Algeria12,600,000
Argentina58,800,000
Australia84,000,000
Austria29,400,000
Belgium70,896,000
Bolivia4,872,000
Botswana504,000
Brazil58,800,000
Burma8,064,000
Burundi2,520,000
Cambodia3,192,000
Cameroon3,057,600
Canada124,320,000
Central African Republic1,596,000
Ceylon13,104,000
Chad1,680,000
Chile21,000,000
Colombia21,000,000
Congo, Democratic Republic of15,120,000
Congo, People’s Republic of the1,680,000
Costa Rica4,200,000
Cyprus3,360,000
Dahomey1,680,000
Denmark27,384,000
Dominican Republic5,376,000
Ecuador4,200,000
El Salvador4,200,000
Equatorial Guinea1,008,000
Finland21,000,000
France165,480,000
Gabon1,596,000
Gambia, The840,000
Germany201,600,000
Ghana11,592,000
Greece16,800,000
Guatemala4,200,000
Guinea3,192,000
Guyana2,520,000
Haiti2,520,000
Honduras3,192,000
Iceland2,520,000
India126,000,000
Indonesia34,776,000
Iran21,000,000
Ireland13,440,000
Israel15,120,000
Italy105,000,000
Ivory Coast3,192,000
Jamaica6,384,000
Japan121,800,000
Jordan2,688,000
Kenya5,376,000
Korea8,400,000
Laos1,680,000
Lesotho504,000
Liberia3,360,000
Luxembourg3,192,000
Malagasy Republic3,192,000
Malawi1,890,000
Malaysia21,000,000
Mali2,856,000
Malta1,680,000
Mauritania1,680,000
Mauritius2,688,000
Mexico45,360,000
Morocco15,120,000
Netherlands87,360,000
New Zealand26,376,000
Nicaragua3,192,000
Niger1,680,000
Nigeria16,800,000
Norway25,200,000
Pakistan31,584,000
Panama4,704,000
Paraguay2,520,000
Peru14,280,000
Philippines18,480,000
Rwanda2,520,000
Senegal4,200,000
Sierra Leone2,520,000
Somalia2,520,000
South Africa33,600,000
Southern Yemen3,696,000
Spain42,000,000
Sudan9,576,000
Swaziland1,008,000
Sweden37,800,000
Syrian Arab Republic6,384,000
Tanzania5,376,000
Togo1,890,000
Trinidad and Tobago7,392,000
Tunisia5,880,000
Turkey18,144,000
Uganda5,376,000
United Arab Republic25,200,000
United Kingdom409,920,000
United States866,880,000
Upper Volta1,680,000
Uruguay9,240,000
Venezuela42,000,000
Viet-Nam6,552,000
Yugoslavia25,200,000
Zambia8,400,000

Transactions and Operations

Before operations of the Special Drawing Account began on January 1, 1970, the Executive Directors adopted several decisions to enable two important types of transactions to take place. Two of these decisions 5 related to transactions under Article XXV, Section 2(a), in which participants use special drawing rights to obtain currency convertible in fact from other participants that are designated by the Fund. A third decision authorized participants to use special drawing rights in the payment of charges to and in repurchases from the General Account (other than repurchases under Article V, Section 1(b), which are provided for separately in the Articles).6

In addition to these uses, participants may use special drawing rights under Article XXV, Section 2(b) (i), which permits a participant, in agreement with another participant, to use its special drawing rights to obtain an equivalent amount of its own currency held by the other.

During the period January to June 1970, 46 participants used a total of SDR 549 million. As shown in Table 8, SDR 287 million was used by 26 participants in transactions involving other participants, SDR 206 million was used by 22 participants to make repurchases from the Fund’s General Account, and SDR 56 million was used by 25 participants to pay charges due to the General Account.

Table 8.Use and Acquisition of Special Drawing Rights, January 1-June 30, 1970(In thousands of special drawing rights)
Operations Between Participants and
Transactions Between Participantsthe General Account
ParticipantsAcquiredUsedRepurchasesCharges
Afghanistan1,500
Algeria1,500
Australia4,000
Austria8,760
Belgium23,000
Bolivia48
Brazil2,900
Burma7,951103
Burundi18780
Cambodia1,596
Canada16,800
Ceylon6,0007,00023
Chad14
Chile1,000
Colombia20,900
Congo, Dem. Rep. of500
Costa Rica1,000
Dominican Republic2,8502,475
Ecuador3,60025094
Finland1,000
Germany42,951
Greece16,800
Guatemala3,000
Guinea2,00021
Guyana1,000
Haiti3001,30060
India35,00012,592
Indonesia31,0003,157476
Iran20,000
Ireland3,000
Israel15,120
Italy19,00050,000
Japan18,676
Korea2,00050
Laos1,176
Lesotho500
Liberia1,35096
Malaysia2,300
Mali1,8609502
Mauritius37
Mexico2,000
Morocco14,200215
Netherlands22,984
Nicaragua122
Norway2,000
Pakistan19,400178
Panama1,39651
Philippines18,480
Rwanda1,40090
Senegal3,000
Sierra Leone2,00030
Somalia10
South Africa5,500
Sudan6,3003,100
Swaziland1,000
Syrian Arab Republic6,384
Tunisia5,694186
Turkey18.000
United Arab Republic25,000
United Kingdom20,00065,00039,903
United States101,14020,000
Uruguay5,00088
Venezuela5,500
Yugoslavia17,7501,294
Zambia500
287,011287,011205,91555,866
General Account Position on June 30, 1970244,4281

This total not only reflects SDR’s received in respect of repurchases and charges but also receipts on account of assessments and interest, disbursements resulting from sales to participants under Article XXVI, and the transfer of SDR’s in payment of remuneration. (Seepages 38, 144, and 152.)

This total not only reflects SDR’s received in respect of repurchases and charges but also receipts on account of assessments and interest, disbursements resulting from sales to participants under Article XXVI, and the transfer of SDR’s in payment of remuneration. (Seepages 38, 144, and 152.)

In the period, 24 participants informed the Fund that they desired to use special drawing rights to obtain currency to be provided by other participants designated by the Fund. There were also three transactions by mutual agreement (without designation) in which participants used special drawing rights to obtain balances of their own currency from other participants. The United Kingdom transferred SDR 20 million to Germany to obtain an equivalent amount of sterling, and the United States transferred SDR 10 million each to Belgium and the Netherlands to obtain U. S. dollars.

All such transactions between participants are subject to the “requirement of need” as stated in Article XXV, Section 3(a), of the Fund Agreement. This states that a participant will be expected to use special drawing rights in such transactions “only to meet balance of payments needs or in the light of developments in its official holdings of gold, foreign exchange, and special drawing rights, and its reserve position in the Fund, and not for the sole purpose of changing the composition of the foregoing as between special drawing rights and the total of gold, foreign exchange, and reserve position in the Fund.”

Designation

Article XXV, Section 5, provides that the Fund shall ensure that participants can use their special drawing rights under Section 2(a) of this Article by designating other participants to provide currency for specified amounts of special drawing rights. A participant shall be subject to designation if its balance of payments and gross reserve position is sufficiently strong, but this does not preclude the possibility that a participant with a strong reserve position will be designated even though it has a moderate balance of payments deficit. The designation system provided for in the Articles envisages that participants may be designated for such amounts as will promote, over time, equality in their ratios of excess holdings of special drawing rights to their holdings of gold and foreign exchange. The excess holdings are those above the net cumulative allocations.7

During December 1969 the Fund established a first designation plan, consisting of a list of participants and the maximum amounts of special drawing rights for which each could be designated to provide currency convertible in fact without further decision. A second designation plan was established in March for the second calendar quarter, and a third plan early in July 1970. Further designation plans will be decided by the Executive Directors at quarterly intervals, subject to any interim amendment found necessary.

The first plan included 23 participants, and the maximum amounts for which they could be designated totaled SDR 350 million. While this amount was expected to cover the use of special drawing rights in designated transactions for the quarter, there was no basis for reliable estimation, and actual use with designation came to SDR 133 million. No participant was designated for more than 42 percent of the maximum amount to which it was subject under the plan; for the majority of participants in the plan, actual designation came to less than 0.5 percent of their holdings of gold and foreign exchange at the beginning of the plan. The second quarterly designation plan involved 22 participants for a total of SDR 342.5 million. Actual use during the second quarter of 1970 totaled SDR 114 million. Participants designated during the first six months of 1970 included both developing and industrial countries (Table 8). The third plan involved 26 participants for a total of SDR 201 million.

Currencies and Conversions

A participant designated by the Fund is obliged to provide “currency convertible in fact” in exchange for special drawing rights. Article XXXII (b)(1) and (2) defines the term currency convertible in fact, and the Fund decides whether a currency is convertible in fact in accordance with this Article. The initiative for seeking such a decision—which has significance only for operations involving designation—lies solely with the participant that issues the currency. Whether or not the Fund decides that a currency is convertible in fact does not in any way affect the status of a currency’s convertibility under Article VIII.

There are two categories of currencies convertible in fact. One consists of the so-called (b)(1) or interconvertible currencies of certain participants in the Special Drawing Account. Such currency obtained in a transaction involving special drawing rights is convertible into any other interconvertible currency that the transferor of the special drawing rights wants. The Fund has decided, after a statement by the respective countries, that the French franc, the pound sterling, and the U. S. dollar are convertible in fact in this sense. The other, or (b)(2), category comprises currencies of participants in the Account, of which the issuer has stated that it will convert particular balances obtained in a transaction involving SDR’s into at least one interconvertible currency. Balances of Belgian francs, deutsche mark, Italian lire, Mexican pesos, and Netherlands guilders have been established as currency convertible in fact of this second category. All of the foregoing currencies are convertible into U. S. dollars. While any currency convertible in fact may be provided by a designated participant, a participant using special drawing rights may only request an interconvertible currency.

For each of the currencies, arrangements for the prompt conversion were agreed with the participants concerned, and procedures were also agreed for determining the representative rates applicable to transactions in special drawing rights and associated currency conversions. The applicable exchange rate is derived from market rates and is established as of the date of dispatch of the Fund’s instructions, which normally is two days before the value date of the transaction or currency conversion.

In the period January to June 1970, the participants that used special drawing rights in designated transactions generally requested U. S. dollars. Most designated participants elected to provide U. S. dollars in such transactions, but relatively small amounts of French francs, Belgian francs, and sterling were also provided on occasion. There were two conversions from U. S. dollars into French francs and one from sterling into U. S. dollars. In all transactions involving designation the procedures operated smoothly, and currency was provided to the participants that used special drawing rights within two or three working days after the Fund had received a communication indicating an intended use.

Quotas—Fifth General Review

At the Annual Meeting in September-October 1969, the Board of Governors adopted a Resolution providing “that the Executive Directors proceed promptly with the consideration of the adjustment of the quotas of members of the Fund and submit an appropriate proposal to the Board of Governors not later than December 31, 1969.”8

Proposals for Quota Increases

On December 24, 1969 the Executive Directors approved a proposed Resolution for submission to the Board of Governors, entitled “Increases in Quotas of Members—Fifth General Review.” This proposed Resolution made provision for increases in quotas of Fund members totaling about $7.6 billion, thereby increasing the potential size of the Fund to approximately $28.9 billion. The Executive Directors also approved a report on the increase in quotas of members, which was submitted to the Governors with the proposed Resolution. The Board of Governors adopted the Resolution (No. 25-3) on February 9, 1970 by more than the required majority of 85 percent of the total voting power of the Fund. The texts of the Resolution and report are reproduced in Appendix I.

If all members consent to the maximum quotas offered to them, the resources of the Fund will increase by about 35.5 percent. This compares with an increase in the size of the Fund of about 33 percent on the occasion of the Fourth Quinquennial Review in 1965 and an increase of about 54 percent on the occasion of the adjustment of quotas in 1959.

The periodic general review of quotas provides an occasion for adjusting the size of the Fund to the growth of the world economy. It also offers an opportunity to adjust individual quotas in relation to one another to take account of relative changes in economic and financial positions of members.

The comparatively large growth in the world economy since the last review of quotas in 1965 is reflected in the economic variables used in quota calculations. In these calculations allowance is made for members’ exports, imports, and invisible trade (and the variability of members’ exports and invisible earnings), as well as for the level of members’ external reserves and national income.

While the individual quota adjustments proposed in the Resolution were determined by considerations similar to those that have been applied by the Fund in the past, the Executive Directors stated in their Report to the Board of Governors that these considerations were to be reviewed for the purpose of future adjustments.

The statistical calculations are only a part of the process of adjusting quotas. Further important considerations include various developments affecting the need for conditional liquidity, the availability of unconditional liquidity, and the maintenance of a balanced distribution of quotas within the whole membership of the Fund.

It is indicative of the exceptional developments during the past five years that, although nearly all members were offered an increase in quotas of at least 25 percent, about 75 members were offered increases in excess of 30 percent. On the occasion of the Fourth Quinquennial Review, 16 members were offered increases in quotas in excess of 25 percent.9

Gold Payments and Their Alleviation

Before an increase in a member’s quota can become effective, the member is required to pay an additional subscription equal to the increase in its quota, of which 25 percent must be paid in gold and the remainder in its currency. In the past the Board of Governors has approved a number of different arrangements for mitigating the impact on members’ reserves of gold payments to the Fund arising from increases in quotas. To alleviate the primary impact on their reserves, members have been permitted to increase their quotas by installments and also to make special unconditional drawings. In order to alleviate the secondary impact for those members that had sold gold to other members for their gold subscriptions, the Fund has sold gold to the members so affected and also made provision (in the Fourth Quinquennial Review) for gold to be placed on general deposit with the United States and United Kingdom up to a total amount not exceeding the equivalent of $350 million.10

During the Fifth General Review the question again arose whether the burden of gold payments to the Fund should be alleviated. In order to reduce the impact of such payments on members’ reserves, the Governors made provision for three main forms of gold mitigation.11 First, members could consent to an increase in quotas by installments. Second, the Board of Governors decided to exercise the discretion given in Article III, Section 4(a), to reduce the portion of the increase in quota subscriptions payable in gold. In accordance with that Article a member is permitted to pay in gold only that proportion of 25 percent of the increase in quota that the member’s monetary reserves bear to the increased quota to which the member has consented, and to pay the balance of the increase in quota in the member’s currency. However, it was also decided that any member paying less than 25 percent of its quota increase in gold must undertake to repurchase the additional currency subscription beyond 75 percent of the increase in quota, unless the Fund’s holdings of that currency have otherwise been reduced, in five equal annual installments commencing one year after the date on which the quota increase becomes effective.

These two measures of primary mitigation, taken in conjunction with an allocation of special drawing rights in January 1970, should materially ease the strain of direct losses of external reserves that would otherwise arise from payment of gold subscriptions.

The third form of gold mitigation decided by the Governors was that the Fund sell gold up to the equivalent of $700 million to those members that sold gold to other members to enable the latter to pay the gold portion of their quota increases. In so doing, the Fund would be continuing a practice undertaken at the time of the Fourth Quinquennial Review.

Consent to Quota Increases

An annex to the Board of Governors’ Resolution contains a list of the proposed maximum quotas to which individual members may consent; a member may, however, consent to a smaller increase than the amount shown. Members may consent on or before November 15, 1971 to increases in their quotas up to the maximum offered; the period of consent may, however, be extended by the Executive Directors. Each increase will take effect when the member has consented to the increase and has paid the increase in subscription, provided, however, that no increase can take place before October 30, 1970. It may be expected that most increases in quotas will become effective between October 30 and December 31, 1970.

Gold Policy

On December 30, 1969 the Executive Directors took important actions related to the purchase of gold from members. They decided that the Fund will purchase gold from South Africa in accordance with the terms of a letter from the Minister of Finance of South Africa to the Managing Director of the Fund. The text of this letter, along with a letter from the Acting Secretary of the Treasury of the United States and the Fund decision, is reproduced in Appendix I. This decision, including an understanding that members generally did not intend to initiate official gold purchases directly from South Africa, was adopted as a policy of the Fund and without attempting to interpret the obligations of the Fund or of members. It provides that South Africa may sell gold to the Fund (1) up to an amount to meet current foreign exchange needs when the market price of gold falls to $35 an ounce or below and (2), regardless of the market price, up to the extent that South Africa has a need for foreign exchange over a semiannual period that exceeds the amount that South Africa is able to satisfy by the sale of all of its current new gold production in the private market or by sales to the Fund under (1) above. In addition, South Africa may sell gold to the Fund up to $35 million quarterly beginning January 1, 1970 from the stock of gold it held on March 17, 1968, less sales made to monetary authorities (including Fund-related transactions) in the intervening period and less such future sales to monetary authorities as it may make to finance deficits or as a result of Fund-related transactions. Sales of gold to the Fund by South Africa under the terms described here are subject to a handling charge of ¼ of 1 percent.

It is also envisaged that South Africa may sell gold to the Fund up to the amount that South Africa has been designated to acquire special drawing rights in order to provide currency convertible in fact to the user of special drawing rights, and in normal transactions with the Fund, e.g., the repurchase of its currency from the Fund. These transactions will not be subject to the charge of ¼ of 1 percent. It is further understood that South African rand drawn by other members under normal Fund procedures may be converted into gold. All these Fund-related transactions will be without regard to market prices, and will not affect the volume of sales of newly mined gold in the market.

South Africa expressed its intention to sell current gold production in an orderly manner on the private market to the full extent of current payments needs during periods when the private market price for gold exceeds $35 a fine ounce and, when selling gold other than in the private market, in practice normally to offer such gold to the Fund. The Fund decision is to be reviewed whenever requested because of a major change in circumstances and in any event after five years.

During the first six months of 1970, the Fund purchased the equivalent of $307 million of gold from South Africa, of which the equivalent of $34.8 million was in respect of a request previously made by South Africa to obtain £14.5 million from the Fund’s currency holdings.

In another decision taken on December 30, the Executive Directors decided that the Fund would not levy a handling charge on the sale of gold to it by a participant in the Special Drawing Account for the purpose of obtaining currency to provide to a user of special drawing rights.12 In this connection, the Fund has bought $6.26 million of gold under Article V, Section 6(a), from Austria. Included in the gold purchased from South Africa was $4 million sold to the Fund for the same purpose.

The General Account

By far the larger proportion of the record level of financial assistance extended by the Fund in the year ended April 30, 1970 went to industrial countries and reflected, as in previous years, the payments imbalance among these countries and uncertainties in the foreign exchange markets. Some of these countries, especially Belgium, Denmark, Germany, and Ireland, met the strains by using reserve positions in the Fund to supplement their other reserves. Purchases by developing countries continued to decline, reflecting to some degree a general improvement in the balance of payments positions of these countries as a group and their use of special drawing rights.

While the volume of net purchases (purchases minus repurchases) was larger in 1969/70 than in the preceding year, a considerable portion of it represented the drawing down of super gold tranche positions by creditor countries. These drawings represented a shift in the distribution of members’ reserve positions in the Fund rather than a net increase. Reflecting this development, the net addition to members’ reserves during the year, as a result of General Account operations, amounted to $593 million, compared with $761 million in the preceding year.

Under the amended Articles of Agreement, members purchasing from the Fund must continue to represent that they have a balance of payments need, but for gold tranche purchases this representation is no longer subject to challenge by the Fund. In the light of this change in the status of the gold tranche, the Executive Directors decided in September 1969 that gold tranche purchases should not await their prior approval but should be effected automatically and as promptly as practicable. The Executive Directors also decided to abolish the service charge of ½ of 1 percent on gold tranche purchases made after July 27, 1969. (The relevant decision is reproduced in Appendix I.) A decision of the Executive Directors adopted in March 1970 provided that the procedure for purchases under stand-by arrangements be simplified, similar to the revised procedure for executing gold tranche purchases.

Purchases

During the fiscal year 1969/70, 33 members purchased currencies from the Fund, amounting to $2,996 million and exceeding the previous year’s record by $157 million.13 The figure of $2,996 million includes $2,261 million purchased by 22 members under the terms of stand-by arrangements;14 2 countries, France and the United Kingdom, each accounted for about 44 percent of total purchases under such arrangements. Purchases under the Decision on Compensatory Financing, totaling $9 million, were made by 2 members—Ecuador and El Salvador.

There were 14 other purchase transactions by 13 members amounting to $726 million, compared with $919 million purchased by 9 members in the previous year. Of these, 9 were gold tranche purchases, of which those by Germany and Ireland were in the super gold tranche. Three large super gold tranche purchases took place after the end of the fiscal year. In May 1970 purchases of $100 million and $150 million were made by South Africa and the United States, respectively, and in July a purchase of $133 million was made by Italy.

Stand-By Arrangements

During the year ended April 30, 1970, the Fund approved 23 stand-by arrangements authorizing purchases up to $2,381 million, the largest amount approved in any fiscal year. A summary of the stand-by arrangements in effect during 1969/70 is shown in Table 43.

Repurchases

During the past fiscal year, repurchases reached a record $1,671 million, 8 percent more than the 1968/69 figure of $1,542 million. Of the total amount repurchased during 1969/70, repurchases of $934 million by the United Kingdom accounted for 56 percent of the total. The United Kingdom repurchased its May 1965 drawing, thereby enabling the Fund to repay completely the amounts borrowed at that time under the General Arrangements to Borrow (GAB). Part of these repurchases and a number of those by other members were made prior to the latest date under the commitments or on a voluntary basis, reflecting balance of payments improvements of the members concerned.

During the year, several members repurchased in terms of recommendations made under the amended Compensatory Financing Decision. India’s repurchases, totaling $187 million, included $49.5 million in this category. Colombia repurchased $61 million, of which $20.8 million ($11 million more than the amount recommended) was in respect of its outstanding compensatory financing purchases. Guatemala, whose purchase under a stand-by arrangement was partially reclassified as having been effected under the Compensatory Financing Decision, repurchased the recommended amount of $1.6 million. Ceylon, the Dominican Republic, and Ghana proposed schedules for repurchasing within a three-year to five-year period from the dates of purchases; these schedules were agreed by the Executive Directors.

Other repurchases included those by Belgium and South Africa, which reduced the Fund’s holdings of the currencies of these members to 75 percent of their quotas.

Of total repurchases during the fiscal year, 77 percent was under schedules approved by the Fund; repurchases in accordance with Article V, Section 1(b), of the Fund Agreement accounted for 11 percent; repurchases in respect of purchases under stand-by arrangements (made within three years of the dates of purchases) and voluntary repurchases accounted for 5 percent and 6 percent, respectively. (See Table 45.)

Resources Available for Financing Fund Transactions

The selection of currencies for purchases and repurchases is based on the principles set forth in a statement entitled “Currencies to Be Drawn and to Be Used in Repurchases” approved by the Executive Directors in a decision taken in July 1962.15Table 46 shows the amounts and media used in purchases and repurchases effected during 1969/70, with separate columns for large transactions and for the discharge of repurchase obligations incurred under Article V, Section 1(b), of the Fund Agreement.

In accordance with the statement of July 1962, the currencies of 17 members were purchased from the Fund during 1969/70, compared with 20 currencies in the previous fiscal year. The equivalent of $289 million was purchased from the Fund for gold by Austria and South Africa. In repurchases, the currencies of 13 members were used, compared with those of 11 members in the previous fiscal year. Special drawing rights were used by members to effect 11 percent of their total repurchases or 29 percent of repurchases over the period January-April 1970 during which SDR’s were available.

The Fund’s holdings of usable currencies need augmenting from time to time, and Article VII of the Fund Agreement permits the Fund both to sell gold for currency and, with the agreement of a member, to borrow its currency, if it deems such action appropriate. On occasion, the Fund has replenished its holdings of currencies by the sale of gold. In the past fiscal year sales of $250 million were made in connection with purchases by France and the United Kingdom. The GAB, which first went into effect on October 24, 1962, enables the Fund to supplement its resources by borrowing up to $5.89 billion in the currencies of 10 industrial member countries.16 A total equivalent to $2,155 million had actually been borrowed under the GAB, and repayments had amounted to $1,340 million, leaving the equivalent of $5,074 million unutilized as of April 30, 1970. The Arrangements were activated three times during the past year, for purchases by the United Kingdom in June 1969 and by France in September 1969 and February 1970.17

In June 1970 the Fund consented to the transfer to Japan of Italy’s claim on the Fund equivalent to $250 million. This claim had been acquired by Italy in August 1966 when it lent the equivalent amount in lire to the Fund.

In July 1970 the Fund agreed to a request by the Government of Italy for repayment of the Fund’s indebtedness to Italy under the GAB. The repayment, totaling the equivalent of $330 million, was made in the currencies of five member countries.

The Fund’s gold holdings showed a net increase of $192 million during 1969/70, compared with a net decrease of $445 million in the previous year. The increase reflected not only the gold purchases of $289 million and sales of $250 million noted above but also receipts of $24 million in connection with quota subscriptions, $81 million in discharge of repurchases, and $68 million in payment of charges levied by the Fund. Partly offsetting this were interest payments of $17 million in gold under the GAB and the borrowing arrangement with Italy, and transfer charges of $2 million paid on new borrowings during the year.

The Fund’s General Account also received a net amount equivalent to $212 million in special drawing rights during the last four months of the fiscal year. These special drawing rights can be used to replenish the Fund’s currency holdings in accordance with Article XXV, Section 7 (d).

Payment of Remuneration and Net Income

Under Article V, Section 9, of the Fund Agreement as amended effective July 28, 1969, the Fund is required to pay a return to members on the amount by which 75 percent of a member’s quota exceeds the average of the Fund’s holdings of its currency (any holdings in excess of 75 percent of the quota being excluded in the calculation). The rate of remuneration is to be a uniform 1½ percent a year, but in its discretion the Fund may increase or reduce this rate, provided that the rate shall be uniform for all members. A three-fourths majority of the total voting power shall be required for every increase in the rate above 2 percent per annum or reduction below 1 percent per annum. In April 1970 the Executive Directors decided that the Fund could offer to pay participants, at their option, in special drawing rights for any amount of gold or currency payable as remuneration on their creditor positions, provided that the General Account’s holdings of special drawing rights at the end of a financial year exceed the amount of remuneration payable for that year.18

For the fiscal period July 28, 1969 through April 30, 1970, remuneration at 1½ percent amounted to $27.2 million and was paid to 32 members in May 1970, $18.4 million being paid in special drawing rights, $8.7 million in gold, and $0.01 million in members’ own currencies.

After payment of remuneration, the Fund’s net income for the fiscal year ended April 30, 1970 amounted to $57.6 million.

Annual Report, 1969, pages 38-40.

The unit of value of special drawing rights is equivalent to 0.888671 gram of fine gold. This is equivalent to one U.S. dollar of the weight and fineness in effect on July 1, 1944.

Summary Proceedings of the Twenty-Fourth Annual Meeting of the Board of Governors, pages 326–27.

One participant, China, exercised its option not to receive an allocation.

Executive Board Decisions No. 2909-(69/124) S, adopted December 22, 1969, entitled “Special Drawing Account—First Designation Plan” and No. 2918-(69/128) S, adopted December 31, 1969, entitled “Currency Convertible in Fact—The U.S. Dollar.” See below, pages 29-31.

Executive Board Decision No. 2901-(69/122) G/S, adopted December 18, 1969 and reproduced in Appendix I. (This decision is subject to review before the end of 1970.)

A participant’s “net cumulative allocation” is the total amount of SDR’s allocated to it less any cancellation.

Resolution No. 24-15; see Summary Proceedings of the Twenty-Fourth Annual Meeting of the Board of Governors, page 329.

Under the Fund’s Decision on Compensatory Financing of Export Fluctuations, which was adopted in 1963, 26 members were also eligible for special increases in their quotas. By the end of 1969, 6 members had not taken the increases to which they were entitled under that decision and this was taken into account during the Fifth General Review. Accordingly, the policy on special adjustment of quotas under the Compensatory Financing Decision is regarded as having been superseded by the terms of Resolution No. 25-3, where increases under the Compensatory Financing Decision had not been approved by the Board of Governors before December 24, 1969.

See Annual Report, 1959, pages 185-89; Annual Report, 1963, pages 196-99; Annual Report, 1964, page 135; and Annual Report, 1965, pages 124-32.

These did not include provision for special drawings; under the amended Articles of Agreement unconditional drawings in the credit tranches for this purpose would not be permitted.

Executive Board Decision No. 2916-(69/127), adopted December 30, 1969, reproduced in Appendix I.

In this Report, data on transactions are expressed in terms of U.S. dollars, regardless of the currencies in which they took place.

Four of these members also made purchases outside the stand-by arrangements.

Details were provided in the Annual Report, 1969, pages 150-53.

Commitments to lend are expressed in national currency. Thus, the U.K. commitment fell from $1,000 million to $857 million with the devaluation of sterling in November 1967, the French commitment fell from $550 million to $489 million with the devaluation of the franc in August 1969, and the commitment of the Deutsche Bundesbank rose from $1,000 million to $1,093 million with the revaluation of the deutsche mark in October 1969. The net effect of these changes was to reduce the total commitment of participants in the GAB from $6,000 million to $5,889 million.

For details of transactions see pages 143-44 and 146.

Executive Board Decision No. 3033-(70/38), adopted April 29, 1970, reproduced in Appendix I.

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