9. Agreement Between Fund and Switzerland—Stipulation Pour Autrui

International Monetary Fund
Published Date:
January 1966
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One effect of the Articles on non-members results from the exercise of the Fund’s authority to enter into agreements with them. The major example of an international agreement of this kind is the agreement of June 11, 1964 between the Fund and Switzerland.44

On October 24, 1962 the Fund’s General Arrangements to Borrow took effect.45 Under them, eight members and the central banks of two other members agreed to lend their currencies to the Fund in accordance with the terms of the Arrangements. One purpose of the Arrangements, although not the only one, is to provide the Fund with supplementary resources of the currencies of those members to which capital is likely to flow from a member whose currency is under pressure.46 In this way, the Fund can replenish its resources of the currencies with which it could appropriately help the member in difficulties. However, the ring was not complete because some capital might move to Switzerland, and Switzerland is not a member of the Fund.

Under Article VII, Section 2,47 the Fund may agree with a member that it lend its currency to the Fund. It is also provided that, with the approval of a member, the Fund may borrow that member’s currency from “some other source either within or outside the territories of the member.” These territories are not expressly declared to be the territories of members, and there is no reason to assume any tacit limitation of this kind. It would therefore be possible for the Fund to borrow from non-members or their residents. However, it is quite clear that no matter who the lender may be, the Fund’s power to borrow under Article VII, Section 2, is confined to the replenishment of its holdings of member currencies. In short, the Fund does not hold Swiss francs and has no power to borrow them under Article VII, Section 2.48

The agreement of June 11, 1964 between the Swiss Federal Council and the Fund solves the problem by providing for a form of association of the Swiss Confederation with the General Arrangements to Borrow.49 Switzerland could not adhere to the General Arrangements, but undertakes, subject to the terms of the agreement, to make a direct loan to a participant in the General Arrangements when the Fund borrows under the General Arrangements in order to finance an exchange transaction with that participant. For this purpose, there has to be an “implementing agreement” between the participant and Switzerland, which will be written in terms of reciprocity if Switzerland requires. Switzerland undertakes that it will be prepared to consider the conclusion of an implementing agreement if requested by a participant. The Fund accepts no responsibility or liability, whether as guarantor or otherwise, in connection with the basic agreement or any implementing agreement. Switzerland is to advance to the participant in the General Arrangements the amount specified by the Managing Director, provided that this does not exceed the amount of the implementing agreement or a total of outstanding advances to all participants equivalent to US$200 million, and provided further that Switzerland does not represent that its present and prospective balance of payments and reserve position do not justify the advance. A number of other provisions of equal importance need not be referred to here. However, it is important to note that Switzerland undertakes that repayment terms in an implementing agreement will correspond to the maximum extent practicable with the repayment provisions of the General Arrangements. Special arrangements were made by Switzerland for this purpose because the repayment provisions of the General Arrangements permit a use of the resources advanced that goes beyond the customary period of loans by the Swiss National Bank under Swiss law.50 The form of the resources to be advanced is not prescribed in the agreement between Switzerland and the Fund, but the Decree enacted by the Swiss Federal Council authorizing entry into the agreement refers to Swiss francs or gold.51

The crux of the agreement is that the “Swiss Confederation will be prepared to consider the conclusion of agreements (hereinafter referred to as ‘implementing agreements’) with any of the participants in the General Arrangements if requested by such participants.” 52 Although legally any participant can benefit from this undertaking, there is less likelihood that in practice the benefit will be needed by participants that are not reserve currency countries, and this accounts for the fact that the undertaking is written in low key (“prepared to consider”). Whatever the content of the undertaking, it appears to be a stipulation pour autrui, that is to say, a stipulation for the benefit of the participants in the General Arrangements to Borrow on which they can rely on their own initiative. They are third parties because they are not parties to the agreement between Switzerland and the Fund.

Sir Gerald Fitzmaurice, in the Report already referred to, concluded that international law recognizes the stipulation pour autrui as conferring a right or benefit on a third party which it can legally insist on against the parties to the treaty.53 Sir Gerald reconciles the stipulation with the basic rule that treaties cannot confer legal rights on third parties by stating that legal rights can be created only if the parties intend this result. It is perhaps more satisfying to regard the stipulation pour autrui simply as an important exception to the traditional rule than to attempt a reconciliation with it. In any event, it is hardly likely that the stipulation pour autrui could create a legal right unless the parties so intend. However, although Sir Gerald speaks of an intention to create a legal right against them both, there would seem to be no reason why it should not be possible for them to create a legal right exercisable against only one party if that is their intention. In the case of the agreement between Switzerland and the Fund, it is Switzerland that must consider the conclusion of an implementing agreement. It will be recalled that the Fund accepts no responsibility or liability, whether as guarantor or in any other capacity, in connection with the agreement.

The Fund is, of course, a third party in relation to any “implementing agreement” that is entered into between Switzerland and a participant in the General Arrangements. The Fund has no responsibility or liability in connection with the performance of an implementing agreement. However, without prejudice to this, it is stated in the agreement between Switzerland and the Fund that, at the request of a party to an implementing agreement, the Fund may make any determination or use its good offices to facilitate the operation of the implementing agreement.

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