Chapter

Appendix I. Executive Board Decisions and Report to the Board of Governors

Author(s):
International Monetary Fund
Published Date:
September 1970
Share
  • ShareShare
Show Summary Details

A. Stabilization of Prices of Primary Products

1. The Executive Board, having considered the staff study on “The Problem of Stabilization of Prices of Primary Products,” decides that the Fund will be prepared to extend assistance to members in connection with the financing of international buffer stocks of primary products in accordance with the principles and subject to the quantitative limits set forth in Chapter III, Section 2, and Annex A of Part II of the study.

2. In accordance with paragraph 1 above, the total of purchases outstanding pursuant to paragraph (5) of Executive Board Decision No. 1477-(63/8) of February 27, 1963, on Compensatory Financing of Export Fluctuations, as amended by Executive Board Decision No. 2192-(66/81) of September 20, 1966, and pursuant to paragraph 1 of this decision shall not exceed 75 percent of quota; provided that under neither of these two paragraphs shall outstanding purchases exceed 50 percent of quota.

3. In order to carry out the purposes of this decision, the Fund will be prepared to waive the limit on purchases that raise the Fund’s holdings above 200 percent of quota, where appropriate.

4. When purchases are made pursuant to paragraph 1 of this decision, the Fund will so indicate in an appropriate manner.

5. A member requesting a purchase pursuant to paragraph 1 of this decision will be expected to represent that it will make a repurchase corresponding to the purchase (i) in accordance with the principles of Executive Board Decision No. 102-(52/11) of February 13, 1952, as renewed by Executive Board Decision No. 270-(53/95) of December 23, 1953, or (ii) if the international buffer stock for the financing of which the purchase was made makes distributions in currency to the member at an earlier date, when these distributions are made and to the extent thereof.

6. In view of the Fund’s purposes, which include the facilitation of “the expansion and balanced growth of international trade,” the Fund, in its consultations with members, will pay increased attention to their policies in the commodity field.

Decision No. 2772-(69/47)

June 25, 1969

B. Gold Tranche Purchases Under Article V, Section 3(d)

  • I. The procedure for gold tranche purchases under the Articles of Agreement as amended will be as follows:

    • (a) Upon receipt of a request, the Executive Directors will be notified as soon as possible but not later than on the first business day after the receipt of the request. The notification will include a statement that a decision along the following lines will be recorded in the minutes of the next Executive Board meeting:

      [Member] is making a gold tranche purchase in an amount equivalent to ________ in [currencies], pursuant to its request dated ________. The Fund notes [member’s] request, including its representation in accordance with Article V, Section 3(a)(i), and its statement that it will comply with the principles set forth in Executive Board Decision No. 102-(52/11), adopted February 13, 1952.

    • (b) Not later than the close of the first business day after the receipt of the request, the Fund will instruct the appropriate depository to make the transfer.

    • (c) If a request is made for a purchase in both the gold tranche and credit tranches, the procedure for purchases in the credit tranches will be followed unless the member requests that the gold tranche procedure be followed for the gold tranche portion of the request.

  • II. Pursuant to Article XIX (j) the Fund decides that purchases and holdings under policies on the use of the Fund’s resources for compensatory financing of export fluctuations shall be excluded for the purposes of the definition of gold tranche purchases in that provision.

  • III. In stand-by arrangements the amount made available shall be expressed as follows:

    For a period of one year from ________, [member] will have the right, after making full use of any gold tranche that it may have, to make purchases from the Fund in the currencies of other members in exchange for its own currency in an amount equivalent to _______ million, etc.

  • IV. No service charge shall be payable in respect of any purchases made after July 27, 1969, to the extent that it is a gold tranche purchase.

Decision No. 2836-(69/87)

September 15, 1969

C. Use of Special Drawing Rights in Repurchases and Payment of Charges

1. For the first allocation of special drawing rights, increases in monetary reserves resulting from allocations of special drawing rights during the financial year ending April 30, 1970, shall not be taken into account in calculating monetary reserves and increases in them during that year.

2. Members are authorized to discharge with special drawing rights any repurchases outside Article V, Section 7(b).

3. Members are authorized to use, at their option, special drawing rights to settle all charges payable to the General Account.

4. Paragraphs 2 and 3 of this decision, including the amounts and proportions permitted thereunder, shall be subject to review in 1970 as soon as experience warrants.

Decision No. 2901-(69/122) G/S

December 18, 1969

D. Increases in Quotas of Members—Fifth General Review

Report of the Executive Directors to the Board of Governors

1. At its 1969 Annual Meeting in Washington, the Board of Governors adopted the following Resolution:

WHEREAS the Executive Directors have been considering the question of an appropriate adjustment of the quotas of Fund members; and

WHEREAS the Executive Directors have been considering this question in relation to the allocation of special drawing rights; and

WHEREAS the Board of Governors has adopted a Resolution on the allocation of special drawing rights for a first basic period of three years beginning on January 1, 1970; and

WHEREAS the Fifth Quinquennial Review of Quotas is to begin not later than the end of 1969; and

WHEREAS Governors have expressed their views on the Fifth Quinquennial Review and the adjustment of quotas;

NOW, THEREFORE, the Board of Governors hereby RESOLVES:

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.

2. Pursuant to the foregoing Resolution the Executive Directors have considered the adjustment of the quotas of members and recommend that the Board of Governors propose to members the increases in quotas set forth in the Annex to the proposed Resolution which is attached to this Report. The reasons for this recommendation are outlined in this Report.

3. Article III, Section 2, of the Articles of Agreement states in part that:

“The Fund shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members.” The periodic general review of quotas which is required by this provision facilitates an adjustment of the size of the Fund to the growth of the world economy; it also offers an opportunity to adjust individual quotas to reflect changes in the position of members in the world economy.

4. The increase in Fund quotas which may be appropriate from time to time must be assessed chiefly on the basis of factors affecting the need for international liquidity in general and the need for conditional liquidity in particular. In connection with the Managing Director’s Proposal on the Allocation of Special Drawing Rights for the First Basic Period, certain quantitative studies were undertaken that have a bearing on these questions. As was noted in the 1969 Annual Report of the Executive Directors, conditional and unconditional liquidity, although serving to some extent the same broad purpose, cannot be freely or fully substituted for each other. Decisions with respect to the creation of conditional liquidity should, therefore, be taken in the light of developments and decisions in the area of unconditional liquidity.

5. In the light of these considerations the Executive Directors propose increases in Fund quotas which, if all members were to avail themselves of the opportunity to increase their quotas to the maximum proposed to them, would bring Fund quotas to an approximate total of $28,900 million.

6. The individual quota adjustments that are recommended have been determined by the kind of considerations that have been applied by the Fund in the past. These considerations will be reviewed for the purpose of future adjustments. Changes in the economic and financial position of members have been taken into account in arriving at the proposed adjustments, as well as the maintenance of a balanced distribution of quotas within the whole membership of the Fund.

7. Under the proposed Resolution, a member will be able to consent to the increase in its quota at any time on or before November 15, 1971. Therefore, unless this period is extended by the Executive Directors, members will have until November 15, 1971 to take whatever action may be necessary under their laws to enable them to give their consent.

8. The increase in a member’s quota under the Resolution will take effect when the member has consented to the increase in quota and has paid the increase in subscription, provided that no increase will take place before October 30, 1970. In other words, the increase in a member’s quota will take effect on the latest of the following three dates:

  • (a) the date on which the Fund receives the member’s consent to the increase in quota,

  • (b) the date of the payment of the increase in subscription,

  • (c) October 30, 1970.

9. Under the Resolution, a member may pay the increase in its subscription at any time before it is due. If a member pays before the increase in its quota takes effect, the increase in subscription will be kept in a separate suspense account of the Fund. A member is required to pay its increase in subscription not later than 30 days after the later of (a) the date of its consent to its quota increase and (b) October 30, 1970.

10. The increased quotas recommended in the attached Resolution are the maximum amounts to which quotas could be increased under the Resolution. Any member consenting to an increase under the Resolution may consent to a smaller increase in its quota than the amount shown against its name but the quota consented to should be a whole number in millions of U.S. dollars. At any time not later than November 15, 1971, or any later date to which the Executive Directors extend the period for consent, a member may consent to further increases up to the amount shown in the attached Resolution if it has not yet consented to the full increase.

11. Under the proposed Resolution, any member consenting in one step to the full increase in its quota as shown against its name in the Annex may consent to the increase by installments. Any member consenting to an increase by installments must pay an initial installment of the increase in subscription, and an installment in each period of 12 months thereafter. Each installment will be not less than one fifth of the full increase, but members may accelerate payment under this installment schedule. Each installment of the increase in quota would correspond to the amount of gold and currency paid by the member as an increase in subscription.

12. The maximum quotas recommended in the attached Resolution take account of the special adjustment of their present quotas that a few members could still obtain under the Fund’s Decision on “Compensatory Financing of Export Fluctuations” (Executive Board Decision No. 1477-(63/8), February 27, 1963). Therefore, the policy on the special adjustment of quotas under that Decision together with the related Executive Board Decision (No. 1529-(63/33), June 14, 1963) will be regarded as having been superseded by the terms of the attached Resolution in those cases in which increases under Decision No. 1477 have not yet been approved by the Board of Governors.

13. Under Article III, Section 4(a), each member increasing its quota must pay an increase in its subscription equal to the increase in quota, of which 25 percent must be in gold and the balance in the member’s currency. Payment of both portions of the increase in subscription must be made before the increase in a member’s quota can become effective, even if, under a Membership Resolution, the member has not yet been required to pay its original subscription.

14. Article III, Section 4(a), provides in part that “If, … on the date when the member consents to an increase, its monetary reserves are less than its new quota, the Fund may reduce the proportion of the increase to be paid in gold.” The date for the calculation referred to in the provision is the date on which the member consents to the increase even if the increase will not become effective until later. The Executive Directors have again considered whether the Fund should exercise its discretion under the provision to reduce the portion of the increases in subscriptions payable in gold. The Executive Directors have concluded that on this occasion it would be desirable to exercise this discretion and that any member that would qualify should be permitted to pay in gold only that proportion of 25 percent of the increase in quota which the member’s monetary reserves bear to the increased quota to which the member has consented and the balance of the increase in quota in currency. If a member wishes to pay in currency more than 75 percent of the increase in its subscription in accordance with this paragraph, the Fund will calculate the member’s monetary reserves as of the date of each consent to an increase in quota, whether it be to an increase to the maximum amount, or to an increase less than the maximum amount, or to increases by successive amounts (see paragraph 10), or to increases by installments (see paragraph 11).

15. In connection with paragraph 14, the Executive Directors have felt that, as a condition of the exercise of the power to reduce the gold payment, the Fund should require that any additional currency subscription beyond 75 percent of the increase in quota be repurchased by the member unless the Fund’s holdings of that currency are otherwise reduced. Repurchase must be made in five equal annual installments commencing one year after the date on which the quota increase becomes effective. When paying less than 25 percent of its subscription in gold a member must undertake to repurchase in accordance with this paragraph. Members will be able to discharge these repurchases in the same reserve assets as may be used in other repurchases.

16. Many members will pay the increases in their gold subscriptions from their own gold holdings, but it is likely that in some cases members will purchase gold from other members. In order to mitigate the impact of these gold purchases, the Executive Directors believe that the Fund should take the action which is indicated in the following paragraphs and for which appropriate provision is made in the attached Resolution.

17. In connection with purchases of gold by members for the purpose of paying their increases in subscription under the proposed Resolution, it will be the policy of the Fund to sell gold under Article VII, Section 2 of the Articles of Agreement up to a maximum amount equivalent to US$700 million when the Fund needs to replenish its holdings of the currencies of members from which gold has been purchased by other members. As in the past, it may be expected that most members wishing to purchase gold for the purpose of paying their increases in subscription will buy that gold from the United States and that, therefore, to a very large extent the sale of gold by the Fund will be for the purpose of replenishing its holdings of U.S. dollars. To the extent that the Fund does not have a need to replenish its holdings of U.S. dollars, it will be suggested to members that they purchase the gold needed for the payment of their increases in subscription from members which agree to sell gold and the currencies of which the Fund needs to replenish.

18. Replenishment by the Fund of its holdings of the currency of a member in accordance with paragraph 17 above would normally take place on the same value date as the sale of gold by that member. Alternatively, this replenishment of a currency could take place on the occasion of sales of that currency to other members.

19. Under Article XII, Section 2(b) (ii), the power to take the action with respect to the payment of increases recommended in paragraphs 14 and 15 is reserved to the Board of Governors, and under Article III, Section 4(c) exercise of the power requires a majority of eighty-five percent of the total voting power. The same rules apply to the action recommended in paragraphs 16 and 17 for the purpose of mitigating the effects of providing gold for payment of the gold portion of increases in the subscriptions of other members. Appropriate provision has been made in the attached Resolution for the Board of Governors to take the necessary action to give effect to these recommendations.

20. The Executive Directors recommend the adoption of the attached Resolution. This Resolution is designed to enable the Board of Governors to vote at one time on all matters connected with the increases in quotas under the Resolution, including those referred to in paragraph 19, which, under the Articles of Agreement, as amended, are reserved to the Board of Governors. To be adopted, the Resolution will need to receive the affirmative vote of eighty-five percent of the total voting power of members. To be valid, votes on the Resolution as a whole must be received at the seat of the Fund on or before February 9, 1970.

December 24, 1969

Resolution Submitted to the Board of Governors

WHEREAS the Executive Directors have considered the adjustment of the quotas of members in accordance with the Resolution of the Board of Governors of the International Monetary Fund at its 1969 Annual Meeting:

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;

WHEREAS the Executive Directors have submitted to the Board of Governors a Report entitled “Increases in Quotas of Members—Fifth General Review”; and

WHEREAS the Executive Directors have recommended the adoption of the following Resolution of the Board of Governors, which Resolution proposes increases in the quotas of members of the Fund as a result of the fifth general review of quotas and deals with certain related matters, by vote without meeting pursuant to Section 13 of the By-Laws of the Fund;

NOW, THEREFORE, the Board of Governors, noting the said Report of the Executive Directors, hereby resolves that:

  • The International Monetary Fund proposes that, subject to the provisions of this Resolution, the quotas of members of the Fund shall be increased to the amounts shown against their names in the Annex to this Resolution, provided that any member (a) may consent to an increase in its quota which is smaller than that shown in the said Annex and (b) may consent thereafter to further increases up to the said amount.

  • An increase in a member’s quota under this Resolution shall become effective when the member has notified the Fund that it consents to the increase and has paid in full the increase in the quota, provided, however, that no increase in quota shall become effective before October 30, 1970. The increase in the quota of a member which has notified the Fund of its consent and has completed payment of the increase at any time prior to October 30, 1970, shall become effective on that date.

  • Notices in accordance with paragraph 2 shall be executed by a duly authorized official of the member.

  • Notices in accordance with paragraph 2 shall be received in the Fund not later than November 15, 1971, provided that the Executive Directors may extend this period as they may determine.

  • Subject to paragraph 6(b), each member shall pay to the Fund the increase in its quota within 30 days after the date on which it notified the Fund of its consent or October 30, 1970, whichever is later. Twenty-five percent of the increase shall be paid in gold and the balance in the member’s currency, provided, however, that, if on the date when a member consents to any increase under paragraph 1 or paragraph 6 its monetary reserves are less than the new quota to which it has consented, the member may pay in gold that proportion of 25 percent of the increase in quota which the member’s monetary reserves on the date of consent bear to the quota to which the member has consented and the balance of the increase in quota shall be paid in currency. A member which, in accordance with this paragraph, pays more than 75 percent of the increase in currency shall undertake to repurchase the currency paid in excess of 75 percent of the increase. Unless the Fund’s holdings resulting from such payment are otherwise reduced, repurchase shall be completed in five equal annual installments commencing one year after the date on which the increase becomes effective.

  • (a) In giving notice in accordance with paragraph 2, any member consenting to the increase in its quota to the full amount shown against its name in the Annex to this Resolution may consent to that increase as increases by installments.

    • (b) Notwithstanding paragraph 2, a member increasing its quota by installments shall pay not less than one fifth of the increase in gold and currency in accordance with paragraph 5 within 30 days after the date on which it notified the Fund of its consent or October 30, 1970, whichever is later, and shall pay further installments of gold and currency of not less than one fifth of the increase in each twelve months after the first payment until the full amount has been paid. For the purpose of determining under paragraph 5 the gold and currency portions of an installment subsequent to the initial installment, a member shall be deemed to have consented to the increase in its quota equivalent to the installment 30 days before it pays the installment.

    • (c) Subject to paragraph 2, on the completion of the payment of each installment of the increase, the member’s quota shall be increased by an amount equal to the installment.

  • The Fund shall replenish its holdings of the currencies of members which sell gold to other members to enable the latter members to pay the increases in their quotas under this Resolution. Replenishment under this paragraph shall be by the sale of gold in accordance with the provisions of Article VII, Section 2 and shall not exceed an amount equivalent to US$700 million.

Board of Governors Resolution No. 25-3

Adopted February 9, 1970

Annex to Resolution

Proposed
Maximum Quota
(In millions of
U.S. dollars)
1.Afghanistan37
2.Algeria130
3.Argentina440
4.Australia665
5.Austria270
6.Belgium650
7.Bolivia37
8.Botswana5
9.Brazil440
10.Burma60
11.Burundi19
12.Cameroon35
13.Canada1,100
14.Central African Republic13
15.Ceylon98
16.Chad13
17.Chile158
18.China550
19.Colombia157
20.Congo (Brazzaville)13
21.Congo, Democratic
Republic of113
22.Costa Rica32
23.Cyprus26
24.Dahomey13
25.Denmark260
26.Dominican Republic43
27.Ecuador33
28.El Salvador35
29.Ethiopia27
30.Equatorial Guinea8
31.Finland190
32.France1,500
33.Gabon15
34.Gambia, The7
35.Germany, Federal
Republic of1,600
36.Ghana87
37.Greece138
38.Guatemala36
39.Guinea24
40.Guyana20
41.Haiti19
42.Honduras25
43.Iceland23
44.India940
45.Indonesia260
46.Iran192
47.Iraq109
48.Ireland121
49.Israel130
50.Italy1,000
51.Ivory Coast52
52.Jamaica53
53.Japan1,200
54.Jordan23
55.Kenya48
56.Korea80
57.Kuwait114
58.Laos13
59.Lebanon56
60.Lesotho5
61.Liberia29
62.Libya67
63.Luxembourg24
64.Malagasy Republic26
65.Malawi15
66.Malaysia186
67.Mali22
68.Malta16
69.Mauritania13
70.Mauritius22
71.Mexico370
72.Morocco113
73.Nepal14
74.Netherlands700
75.New Zealand202
76.Nicaragua27
77.Niger13
78.Nigeria135
79.Norway240
80.Pakistan235
81.Panama36
82.Paraguay19
83.Peru123
84.Philippines155
85.Portugal117
86.Rwanda19
87.Saudi Arabia134
88.Senegal34
89.Sierra Leone25
90.Singapore62
91.Somalia19
92.South Africa320
93.Southern Yemen29
94.Spain395
95.Sudan72
96.Swaziland8
97.Sweden325
98.Syrian Arab Republic50
99.Tanzania42
100.Thailand134
101.Togo15
102.Trinidad and Tobago63
103.Tunisia48
104.Turkey151
105.Uganda40
106.United Arab Republic188
107.United Kingdom2,800
108.United States6,700
109.Upper Volta13
110.Uruguay69
111.Venezuela330
112.Viet-Nam62
113.Yugoslavia207
114.Zambia76
*115.Cambodia25

Cambodia was added by Board of Governors’ Resolution No. 25-4, adopted June 15, 1970, which amended Resolution No. 25-3. The amendment allows Cambodia, which became a member of the Fund on December 31, 1969 after the Executive Directors’ report and proposed Resolution had already been submitted to the Governors, the same opportunity as other members to increase its quota in accordance with Resolution No. 25-3.

Cambodia was added by Board of Governors’ Resolution No. 25-4, adopted June 15, 1970, which amended Resolution No. 25-3. The amendment allows Cambodia, which became a member of the Fund on December 31, 1969 after the Executive Directors’ report and proposed Resolution had already been submitted to the Governors, the same opportunity as other members to increase its quota in accordance with Resolution No. 25-3.

E. South Africa: Policy on Sales of Gold to the Fund

1. The Fund notes the letter from the Minister of Finance of the Republic of South Africa set forth [below].

2. In this letter, South Africa has stated its intention to offer to sell gold to the Fund only in the following circumstances:

  • (a) (i) when the price for gold in the market is $35 per ounce or below, up to an amount to meet South Africa’s current foreign exchange needs for that period and

    • (ii) regardless of the market price, up to the extent that South Africa has a need for foreign exchange over a semiannual period beyond the need that can be satisfied by the sale of all of its current production of newlymined gold on the market or by sales to the Fund under (i) above;

  • (b) when South Africa has been designated under Article XXV, Section 5, up to the amount for which South Africa has been designated; and

  • (c) from the stock held by South Africa on March 17, 1968 up to $35 million in each quarter, beginning January 1, 1970.

3. As a matter of policy, with the understanding that members generally do not intend to initiate official gold purchases directly from South Africa and without prejudice to the determination of the legal position under the Articles of Agreement, the Fund decides that it will purchase gold from South Africa when South Africa states that it is offering gold in accordance with the terms of its letter. When South Africa offers to sell gold to the Fund under this policy, the Fund will follow a procedure similar to the procedure for gold tranche purchases.

4. In addition, the Fund will accept gold from South Africa in accordance with the Fund’s normal policies and practices under Paragraph 3 of Decision No. 7-(648) or under provisions of the Articles other than Article V, Section 6.

5. A charge of one-quarter of one percent shall be levied on sales of gold to the Fund under Sections 2(a) and (c) of this decision pursuant to Rule G-7 and Rule I-8.

6. This decision shall be subject to review whenever this is requested because of a major change in circumstances and in any event after five years.

Decision No. 2914-(69/127)

December 30, 1969

Letters to the Managing Director of the Fund from the Minister of Finance of the Republic of South Africa and the Acting Secretary of the Treasury of the United States

Ministry of Finance

Union Buildings

Pretoria

South Africa

23rd December, 1969

South African Embassy

Dear Mr. Schweitzer,

As you know, for some time the Republic of South Africa has been discussing with the United States, with other members, and with you procedures for the orderly sale of newly-mined gold in the market and the sale of gold to the International Monetary Fund. I wish to inform you that as a result of these discussions, the South African authorities have adopted a policy with respect to gold sales and I would like to request that the Fund confirm that it will be prepared in the light of this statement of policy to buy gold from South Africa in the circumstances and under the conditions set forth below.

The following are the intentions of the South African authorities as to the handling of newly-mined gold and reserves.

  • (1) Without prejudice to the determination of the legal position under the Articles of Agreement of the Fund, the South African authorities may offer to sell gold to the Fund for the currencies of other members at the price of 35 Dollars per ounce, less a handling charge, as follows:

    • (a) During periods when the market price of gold falls to 35 dollars per ounce or below, at which times offers to sell gold to the Fund under this paragraph (a) would be limited to amounts required to meet current foreign exchange needs, and

    • (b) regardless of the price in the private market, up to the extent that South Africa experiences needs for foreign exchange over semi-annual periods beyond those which can be satisfied by the sale of all current new gold production on the private market or by sales to the Fund under paragraph (1)(a) above.

  • (2) (a) The South African authorities intend to sell current production of newlymined gold in an orderly manner on the private market to the full extent of current payments needs. It is anticipated that new production in excess of those needs during a semi-annual period may be added to reserves.

    • (b) When selling gold other than in the private market, the South African authorities intend in practice normally to offer such gold to the Fund.

    • (c) The South African authorities may use gold in normal Fund transactions, e.g. in repurchase of appropriate drawings from the Fund, and to cover the gold portion of any South African quota increase, and to obtain currency convertible in fact to exchange against special drawing rights for which South Africa is designated by the Fund. Rand drawn from the Fund by other members would generally be converted into gold when Rand are included in drawings under normal Fund procedures. These Fund-related transactions, which may take place without regard to the market price of gold, will be reflected by changes in the composition of South Africa’s reserves but will not affect the volume of sales of newlymined gold in the market.

  • (3) Notwithstanding paragraphs (1)(b) and (2)(a) above, the amount of gold held by South Africa on March 17, 1968, reduced by sales by South Africa to monetary authorities (including Fund-related transactions) after that date and further reduced by such future sales to monetary authorities as may be made to finance deficits or as a result of Fund-related transactions, will be available for such additional monetary sales as the South African authorities may determine, up to 35 million Dollars quarterly beginning January 1, 1970. It is also contemplated that as an implementation of this understanding, the Fund would agree to purchase the amount of gold offered to it by South Africa in May 1968.

In order to determine whether South Africa has balance of payments surpluses or deficits as well as to indicate other operational and procedural points with respect to this policy, I enclose a memorandum which clarifies these particular matters.

It would be appreciated if, in the light of these policy intentions, the Fund were able to decide that it would purchase gold from South Africa in the circumstances outlined above. I would expect that the Fund would review the situation at any time if there were a major change in circumstances and in any event after five years.

The South African authorities will work out with the Managing Director consultation procedures on the currencies to be purchased from the Fund with gold.

I hope that this announced policy, the implementation of which I believe will be a contribution to the stability of the International Monetary System, and my suggestion meet with the concurrence of the Fund. A copy of this letter has been sent to the Secretary of the Treasury of the United States.

Yours sincerely,

/s/

N. Diederichs

Minister of Finance

Republic of South Africa

The Managing Director,

International Monetary Fund,

19th and H Street, N.W.,

Washington, D.C. 20431,

United States of America.

Operational and Procedural Points

  • A. For the present purposes, balance of payments deficits and surpluses will be equal to the change during the accounting period in the total of South African official gold and foreign exchange reserves, the net IMF position and changes in SDR holdings, and any foreign assets held by other South African banking institutions and public agencies under swap arrangements with the Reserve Bank. It is understood that changes in gold holdings outside the monetary reserves and in monetary banks’ positions not covered by Reserve Bank swaps are normally not significant. If they should at any time become significant, further consideration will be given to their inclusion in the calculation. SDR allocations will not be considered as reducing a deficit or increasing a surplus as above defined. South Africa does not envisage unusual or non-traditional foreign borrowings or other special transactions that would affect the elements listed in this paragraph.

  • B. Addition of newly mined gold to South African reserves under paragraph 2(a) will take place when there is a surplus for an accounting period. It is envisaged that all new gold production, less domestic consumption, during the accounting period will be treated as a balance of payments credit item and that it will, in fact, be sold currently under paragraph 1 (a) and paragraph 2(a) to the full extent necessary to meet payments needs, except for the sales available under paragraph 3, apart from the Fund transaction initiated in May 1968.

  • C. Sales of gold by South Africa to monetary authorities under paragraph 1(a) may be made for any day when both London fixing prices are $35.00 p.f.o. or below, in an amount reasonably commensurate with one-fifth of weekly sales from new production required to be marketed to meet balance of payments needs.

  • D. Subject to paragraph 2(a):

    1. Should sales to monetary authorities under paragraph 1(b), plus sales of SDRs and drawings from the IMF by South Africa, exceed the deficit defined under paragraph A of this memorandum, such excess will be deducted from the amount allowable for the first succeeding accounting period wherein a deficit is again encountered.

    2. Should sales to monetary authorities under paragraph 1(b), plus sales of SDRs and drawings from the IMF, fall short of the amount allowable for an accounting period in which South Africa aims to finance its entire deficit by these means, such shortfall will be added to the amount allowable for the next succeeding accounting period.

    3. It is expected that any discrepancies under 1 and 2 above will be minimal.

    4. Should sales to monetary authorities under paragraph 1(b), plus sales of SDRs and drawings from the IMF, fall short of the amount allowable for an accounting period in which South Africa does not aim to finance its entire deficit by these means but chooses to sell more on the free market than it undertakes to do in paragraph 2(a), no correction will be made for any succeeding accounting period.

  • E. When the price criterion is operative, sales of gold to the IMF shall be attributed to the total deficit, if any, during the accounting period. The balance of such sales, if any, will be attributed to newly mined gold to the extent of gold production during the accounting period.

  • F. Sales or payments under paragraph 2(c) in connection with IMF-related transactions are expected to take place only within the criteria normally envisaged for IMF drawings by members, for use of members’ currencies in drawings by other members and for SDR transactions.

  • G. Fundamentally, it is expected that the composition of South African reserves will not be greatly changed. In particular, it is understood that the ratio of gold to total reserves will remain relatively stable. If South Africa should desire to make additional sales of gold or otherwise exchange assets for the purpose of achieving a basic change in the composition of its reserve holdings, further discussion would be held with a view to clarifying intentions.

The Secretary of the Treasury Washington

December 24, 1969

Dear Mr. Schweitzer:

I have received a copy of the letter dated December 23, 1969, sent to you by Mr. Diederichs in which he sets forth the intentions which South Africa proposes to follow with respect to the handling of its newlymined gold and reserves. This matter bears importantly on the continued effective functioning of the two-tier gold market which was initiated at a meeting on March 16-17, 1968, which you attended.

In view of the intentions of South Africa, and in view of discussions we have had with other Fund members, I should like to inform you that I have instructed the U.S. Executive Director to take the following position. The United States is prepared to support decisions of the International Monetary Fund to purchase gold offered for sale by South Africa in the circumstances and under the conditions described in that letter, assuming that there is an understanding among Fund members generally that they do not intend to initiate official gold purchases directly from South Africa. With this understanding, I believe that the policies to be followed will be consistent with the stability and proper functioning of the international monetary system.

Sincerely yours,

/s/

Paul A. Volcker

Acting Secretary

Mr. Pierre-Paul Schweitzer

Managing Director

International Monetary Fund

19th and H Streets, N.W.

Washington, D.C. 20431

F. Sale of Gold to the Fund by Participant Designated Under Article XXV, Section 5

If a participant wishes to obtain currency by the sale of gold to the Fund in order to discharge the participant’s obligation under Article XXV, Sections 4 and 5 of the Articles of Agreement, the Fund will not levy a handling charge under Rule I-8 of the Rules and Regulations or collect the costs referred to in Rule G-7.

Decision No. 2916-(69/127)

December 30, 1969

G. Currency to Be Used by Participants Acquiring Special Drawing Rights from the General Account for Payment of Charges and Assessments

Participants in the Special Drawing Account that are obligated and entitled, in accordance with Article XXVI, Section 5, to obtain special drawing rights in a transaction with the Fund conducted through the General Account in order to pay any charge or assessment, and do not wish to use gold, may use any convertible currency acceptable to the Fund in repurchases, provided that the participant has consulted the Managing Director on the currencies and the amounts of each to be used to acquire the special drawing rights.

Decision No. 3010-(70/25) G/S

March 25, 1970

H. Exclusion of Special Drawing Rights in Certain Calculations of Monetary Reserves

Paragraph 1 of Executive Board Decision No. 2901-(69/122) G/S, adopted December 18, 1969 shall be applied in accordance with the following Rule:

In calculating monetary reserves and increases in them for the purposes of Article V, Section 7(b) and Schedule B for the Fund’s financial year ending April 30, 1970, the lowest amount of special drawing rights held by a participant in the period January 1 to April 30, 1970 shall be excluded from the calculation.

Decision No. 3032-(70/38) G/S

April 29, 1970

I. Use of Special Drawing Rights in Payment of Remuneration

Pursuant to Article XXV, Section 7(f), the Fund shall offer to pay participants, at their option, in special drawing rights for any amount of gold or currency payable as remuneration, 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.

Decision No. 3033-(70/38)

April 29, 1970

J. Treatment of Holdings of Special Drawing Rights in Certain Calculations of Monetary Reserves for the Financial Years Ending April 30, 1971 and 1972

Increases in monetary reserves resulting from allocations of special drawing rights during the financial years ending April 30, 1971 and 1972 shall not be taken into account in calculating monetary reserves and increases in them during those years.

Decision No. 3034-(70/38)

April 29, 1970

    Other Resources Citing This Publication