Front Matter
  • 1 0000000404811396 Monetary Fund


This volume, by Joseph Gold, discusses some of the major letgal effects of fluctuating exchange rates in both public international law and national law. The problems and similarities in the solutions are reviewed, and the author recommends further developments in the law.

Legal Effects of Fluctuating Exchange Rates

ISBN 9781475506921

Price: US$37.50

In his Exchange Rates in International Law and Organization, published by the American Bar Association, the author examined the law relating to the discretionary system of exchange arrangements that has replaced the par value system. In the current system, exchange rates fluctuate, sometimes with volatility. This phenomenon has created new legal problems of considerable importance in both public international law and national law, not all of which have been settled or settled satisfactorily. The present volume discusses some of the major legal effects of fluctuation in both fields of law.

Some of the topics that are discussed include the development and use of units of account, including the SDR and the ECU; adjustments to compensate for fluctuation; maintenance of value; the selection and calculation of exchange rates for legal purposes; the measurement of changes in rates; doctrines to give relief because of changes; and the allocation and sharing of exchange risks.

A revolutionary change in national law, or in the thinking about it, in countries that have or have had hegemonic currencies is abandonment, or proposed abandonment, of the legal dogma that changes in exchange rates for these currencies result from the instability of other currencies. The examination of the consequences of this phenomenon include a critical consideration of the relevant case law in various countries, the reports of law commissions and other influential bodies, and a proposal for a uniform law on foreign money claims in the United States.

A final chapter summarizes the treatment in international and national law of the problems that have arisen and the similarities in the solutions. The chapter concludes with generalizations that can be drawn from the study and with recommendations by the author for further development of the law.

© 1990 International Monetary Fund

Cover design by IMF Graphics Section

Library of Congress Cataloging-in-Publication Data

Gold, Joseph, 1912-

  • Legal effects of fluctuating exchange rates / Joseph Gold.

    • p. cm.

  • Includes bibliographical references and index.

  • ISBN 9781475506921

  • 1. Foreign exchange—Law and Legislation. 2. Foreign exchange—Law and legislation—European Economic Community countries. 3. Foreign exchange—Law and legislation—Great Britain. 4. Foreign exchange—Law and legislation—United States. I. International Monetary Fund. II. Title.

K4440.G655 1990





Price: US$37.50

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  • Preface

  • Short Titles and Abbreviations

  • 1 The International Legal Environment of Exchange Rates

    • Original Articles of IMF and Amendments

    • Par Value System Under Original Articles

    • The Second Amendment

    • Present Provisions on Exchange Arrangements

    • A Stable System

    • Categories of Exchange Arrangements

    • Safeguards in the Discretionary System

    • Reactions to the Discretionary System

    • Appendix A: Article IV

    • Appendix B

      • Table 1. Exchange Arrangements as of June 30, 1990

      • Table 2. Comparison of Exchange Arrangements as of June 30, 1985 and June 30, 1990

    • Appendix C: Omnibus Trade and Competitiveness Act 1988 of the United States, Title III

  • 2 European Developments

    • Fluctuation of Exchange Rates

    • European Monetary System

    • Differences Between EMS and Par Value Systems

      • Margins

      • Intervention

      • Divergence

      • Changes

      • Financing

    • Appendix D: Resolution of the European Council of 5 December 1978 on the Establishment of the European Monetary System (EMS) and related matters

    • Appendix E: Agreement between the central banks of the Member States of the European Economic Community laying down the operating procedures for the European Monetary System [Basle Agreement]

  • 3 SDR as Unit of Account

    • Composite Units of Account

    • Origin of the SDR

    • Valuation of the SDR

    • SDR in Treaty Law

  • 4 ECU as Unit of Account

    • Role of the ECU

    • Composition of the ECU

    • Private Uses

    • ECU Clearing System

    • Relationships Between SDR and ECU

    • ECU in Treaty Law

  • 5 Other Developments in Units of Account

    • Other Units of Account

    • World Bank

    • Multilateral Investment Guarantee Agency

    • European Bank for Reconstruction and Development

    • International Development Association

    • Nonmembers of IMF

    • International Telecommunication Union

    • Universal Postal Union

    • IMF and Units of Account

    • Transcending Legal Limits

  • 6 Adjusting to Fluctuations

    • Discretionary Adjustments

    • Automatic Adjustments

  • 7 Maintenance of Value and Investment

    • Maintenance of Value

    • Financial Structure of IMF

    • Limitation of Maintenance of Value

    • Maintenance of Value and IDA

    • Investment

  • 8 Selection and Calculation of Exchange Rates Under International Arrangements

    • Problems of Choice

    • IMF’s Former Practice

    • IMF’s Present Practice

    • EMS Practice

    • Delayed Discharge of Obligations to IMF

    • Negotiable Instruments and Exchange Rates

    • Treaties on Investment

    • IMF’s Advice to Other Organizations

    • MIGA and Exchange Rates

    • Disputed Exchange Rates

    • Averaging Exchange Rates

    • Averaging and SEC

  • 9 Measuring Change in Exchange Rates

    • GATT

    • IMF

  • 10 Allocation and Sharing of Exchange Risks

    • Bilateral Situations

    • Technicality and Realism

    • Multilateral Situations

      • Insolvency

      • Other Claims to Share in a Fund

      • World Bank’s Currency Pooling System

      • Other Policies of World Bank

    • A Third Situation of Risk

  • 11 Hardship, Impracticability, Unconscionability, Unforeseeability

    • Hardship Clauses

    • Impracticability and Unconscionability

    • Unforeseeability

    • Foreseeability and International Developments

  • 12 Judgments in Foreign Currencies

    • Hegemonic Currencies

    • Foreign Currency Judgments of English Courts

    • Expansion of the Miliangos Doctrine

    • A Controversial Decision

    • True Currency of Loss

    • English Law Commission’s Conclusions

    • Set-Off

  • 13 Other Consequences of Miliangos in English Law

    • Tort

    • Company Law

    • Garnishment

    • Taxation

    • Restitution

  • 14 Miliangos in Other Jurisdictions

    • Australia

    • Canada

    • An Excursus on Prejudgment and Postjudgment Interest

    • Cyprus

    • New Zealand

    • Scotland

    • South Africa

    • Zimbabwe

  • 15 Post-Miliangos Developments in U.S. Law

    • Traditional Principles

    • American Law Institute

    • Section 823 of Restatement

    • New York Law

    • Restatement Further Considered

    • Choice Among Exchange Rates

    • Currency of Account and Currency of Payment

    • Restatement Criticized

    • Uniform Foreign-Money Claims Act

  • 16 SDR, ECU, and Judgments

    • Validity of SDR or ECU Clauses

    • Negotiability

    • Convention on Negotiable Instruments

    • Validity Examined Further

    • Judgments and Currencies

    • Is the SDR or the ECU a Currency?

    • Delors Committee Report

    • Legislation

    • A Decision of the European Court of Justice

    • U.S. Developments

  • 17 A Survey and Some Generalizations

    • Changed Role of U.S. Dollar

    • Change in International Monetary System

    • Change in International Law

    • Composite Units of Account

    • Change in National Law

    • Foreign Currency Claims and Fairness

    • Some Generalizations on Fluctuation

  • Indexes

  • Index A. Table of Cases Cited (alphabetically arranged)

  • Index B. Table of Cases Cited (arranged by country or forum)

  • Index C. Authors and Others

  • Index D. Subjects


This book is a study of changes in the law that have come about as a direct result of the disappearance of the system of fixed exchange rates for currencies established by the original Articles of Agreement of the International Monetary Fund, the present freedom of member countries under the Articles to choose their exchange arrangements, and the freedom of these countries to allow the exchange rates for their currencies to fluctuate. Legal consequences of fluctuation determine the scope of the study and not the international law that permits fluctuation. A detailed account of the law that has validated fluctuation appears in the author’s Exchange Rates in International Law and Organization, which was published in 1988 by the Section of International Law and Practice of the American Bar Association. Some treatment of that body of law, however, cannot be avoided for the purposes of the present study. A brief account of some aspects of the international legal environment in which exchange rates fluctuate will be found in Chapter 1 of this book. For the same reason, some features of the European Monetary System, as a regional effort to restrain fluctuation, are examined in Chapter 2. Basic texts and other expository material are appended to these two chapters.

The changes in the law discussed in this study had occurred by the fall of 1990, but no claim is made to comprehensiveness. The topics chosen for discussion seemed to deserve attention because of their importance. Developments in the law that had occurred before the breakdown of the par value system are not examined unless they are directly related to the topics discussed in this volume.

In the first half of the study, the major emphasis is on public international law, including the practice of a number of international organizations. Much attention is given to the use of the SDR and the ECU as units of account for various purposes in the hope that as composite units of account they will fluctuate less in exchange value than single currencies. No unit of account, however, can eliminate the manifold legal problems that arise in international and national law as consequences of the fluctuation of the exchange rates of currencies.

The second half of the study concentrates more on problems of national law. A leading problem in this field is the expression of judicial decisions or arbitral awards in a currency foreign to the forum or in a composite unit of account. This problem is discussed mainly in relation to English and American law, because sterling and the U.S. dollar have been hegemonic currencies in the twentieth century and this role has left a deep impress not only on English and American law but on the law of other countries as well. The fluctuation of exchange rates has brought about revolutionary departures from former law in England, and the process seems likely to be repeated in the United States.

Notwithstanding the emphasis on the law of these two countries for the reason that has been cited, comparisons are made with the law of various other countries to illustrate the existence of different solutions or additional problems.

The distinction between the content of the first and second parts of this study as outlined above is not a rigid one. On the contrary, whenever it seems profitable, a comparison is made between the solutions of international and national law.

A final chapter surveys most of the consequences of the legal problems discussed in the preceding chapters. In addition, an effort is made to deduce some of the general ideas that underlie the problems and the solutions that have been considered in this study.

Something should be said about two problems of terminology. It is common practice in judicial and academic language to speak of the “conversion” of currencies to mean sometimes the exchange of currencies and sometimes calculation of the value of one currency in relation to another when an exchange is not involved. I have confined “conversion” to the exchange of currencies and referred to “translation” when there is calculation but not exchange.1

A more troublesome problem of terminology is the usage of “currency” and “money.” The words can be distinguished so that “currency” refers to a national unit in which national means of payment, namely “money,” are denominated. The National Conference of Commissioners on Uniform State Laws of the United States of America has recommended for adoption by States of the Union a Uniform Foreign-Money Claims Act. The word “money” is used throughout the proposed text of the Act. In a long list of definitions, the recommended Uniform Act defines “money”2 but not “currency.” Although “money” is appropriate in most contexts on the basis of the distinction drawn above between “currency” and “money,” there is reason to believe that the Commissioners have not observed this distinction to the fullest extent.3

I too have not observed the distinction. I have preferred in most contexts to refer to “currency,” even when I discuss provisions of the proposed Uniform Foreign-Money Claims Act that mention “money.” One reason for my preference is that usually in this study “currency” would be more appropriate if the distinction were being observed. A pedantic adherence to the distinction, however, might create confusion and stimulate unnecessary doubt and dispute. Furthermore, the Articles of Agreement of the International Monetary Fund refer throughout to “currency” and nowhere mention “money,” even though the word “monetary”4 appears in the name of the organization and elsewhere in the treaty.5

I acknowledge with gratitude the invaluable help of Patricio Aranda-Coddou, Tobias M.C. Asser, John F. Chown, Lester J. Dally, John Dewhurst, Werner F. Ebke, Juan Javier Negri, Stephen A. Silard, Peter Stern, Amokrane Touami, and Reinhard Welter, who have provided material or answered questions related to this work, but they have no responsibility for any shortcomings in the use I have made of the material or answers. Tobias M.C. Asser, Lester J. Dally, and Philine R. Lachman have been kind enough to read a draft of this book and have commented in detail on it. I have profited from their comments, and the study is undoubtedly better than it would have been without their generous efforts, but again they are not accountable for the outcome.

Rose Bedrossian and Stella Ymar have typed and organized a succession of hand-written drafts, and have converted them into a text that Esha Ray, a paragon among editors, could scrutinize. I acknowledge all three as indispensable partners, to whom I express my thanks not only for their skills but also for their fortitude and cheerfulness.

Finally, as the former General Counsel and Director of the Legal Department, and at present Senior Consultant, of the International Monetary Fund, it is necessary to clarify that the opinions expressed in this book are those of the author and not those of any organizations or other persons in the absence of an express attribution of the opinions to them.

September 30, 1990


This distinction is observed by Helen Gernon Morsicato in Currency Translation and Performance Evaluation in Multinationals (Ann Arbor, Michigan: UMI Research Press, 1980). She notes that accountants also frequently use the word conversion to refer to both exchanges and calculations without distinction (p. 36).


Section 1(8).


See Section 12.


For the organization that became the International Monetary Fund, John Maynard Keynes preferred the name International Currency (or Clearing) Union. See The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, Volume III: Documents, ed. by J. Keith Horsefield (Washington: International Monetary Fund, 1969), pp. 3-36.


See, for example, Article I(i), Article VIII, Section 5(c), and Article VIII, Section 7. But the word “monetary” has been deleted by the Second Amendment of the Articles from references to “monetary reserves” even though the concept has not been changed. Note also that the original Articles (Article XIX(d)) defined “currency” to include a list of means of payment.

Short Titles and Abbreviations

Articles, the

The Articles of Agreement of the International Monetary Fund, negotiated at the Bretton Woods Conference July 1944, and effective December 27, 1945.

Bank, the

International Bank for Reconstruction and Development (World Bank)


Bank for International Settlements

British Columbia Report

Report on Foreign Money Liabilities of Law Reform Commission of British Columbia (LRC 65, 1983)


Currency adjustment factors


Commodity Futures Trading Commission of the United States


Chicago Mercantile Exchange

Delors Committee Report

Committee for the Study of Economic and Monetary Union, Report on economic and monetary union in the European Community (1989)


European Bank for Reconstruction and Development


European Community


European currency unit

ECU Newsletter

Published by the Istituto Bancario San Paolo di Torino


European Investment Bank


European Monetary Cooperation Fund


European Monetary System

English Law Commission’s Report

English Law Commission’s Report on Foreign Money Liabilities and Private International Law (Cmnd. 9064, October 1983)


Exchange rate mechanism or exchange rate and intervention arrangements of the EMS


European unit of account

First Amendment

Amendment of the IMF’s Articles that took effect on July 28, 1969


General Agreement on Tariffs and Trade


International Chamber of Commerce


International Development Association


International Monetary Fund

International Monetary Reform

Documents of the Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) (Washington: International Monetary Fund, 1974)

Member (of the IMF)

A country that has accepted membership in the IMF and has undertaken thereby to perform the obligations imposed by the Articles and enjoy the benefits of having done so


Multilateral Investment Guarantee Agency


Decision of the English House of Lords in Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443


Options Clearing Corporation


Organization for Economic Cooperation and Development

Original Articles

The Articles of the IMF in the form that became effective on December 27, 1945 and preceded the two Amendments

Outline of Reform

Document presented to the IMF’s Board of Governors by its Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) on June 14, 1974


Philadelphia Stock Exchange

Report on Second Amendment

Proposed Second Amendment to the Articles of Agreement: A Report by the Executive Directors to the Board of Governors (Washington: International Monetary Fund, March 1976)


See Third Restatement


Special drawing right


Securities and Exchange Commission of the United States

Second Amendment

Amendment of the IMF’s Articles that took effect on April 1, 1978

Selected Decisions

International Monetary Fund, Selected Decisions of the International Monetary Fund and Selected Documents, Eighth Issue, May 10, 1976, and Fifteenth Issue, April 30, 1990 (Washington)

Third Restatement

American Law Institute’s Third Restatement of the Foreign Relations Law of the United States (1987)


Uniform Commercial Code of the United States

Uniform Foreign-Money Claims Act

Uniform Foreign-Money Claims Act drafted by National Conference of Commissioners on Uniform State Laws and approved and recommended for enactment in all States of the United States at the Annual Conference July 28–August 4, 1989


United Nations Commission on International Trade Law


Universal Postal Union

World Bank

International Bank for Reconstruction and Development