It would seem unlikely that in order to provide this new facility for its members the Fund would have found it necessary to split itself into two Departments and to require each member to make a contribution equal to its quota, with one fourth normally payable in SDRs and the remainder in the member’s own currency.12 Rather, the following approach would have seemed natural.
If the credit activities of the Fund were run on an SDR basis, the present separation of the two Departments would no longer be necessary, or indeed convenient. In a unified Fund all members that extended credit through the Fund, even if they did not participate in the SDR allocation facility, would have to hold SDRs. That, however, would be predominantly a formal change. All members are now obliged to make their currencies available for sale; hence all members must stand ready, when their reserve and payments position permits, to acquire creditor positions in the Fund. Such positions are denominated in SDRs. Thus, in an economic sense, members are already bound to acquire SDRs.
The two Departments in the Fund use radically different techniques to perform financial functions for members that are in many respects similar: both Departments enable a member in deficit to use financial resources that it had not earned from a previous balance of payments surplus. Use of the resources in both Departments also has a very similar effect on the member that provides the users with foreign exchange: this member acquires, in both cases, reserves in the form of “Fund-related assets,” viz., a “reserve position in the Fund” (a reserve tranche position or a readily repayable loan claim on the Fund) when the transaction takes place in the General Department, and SDRs when it takes place in the Special Drawing Rights Department.
The amended Articles of Agreement of the International Monetary Fund refer to the objective of “making the special drawing right the principal reserve asset in the international monetary system.” 1 But relatively little is done in the Second Amendment to make the special drawing right (SDR) the core of the transactions of the Fund itself. The main assets of the Fund’s General Department 2 continue to be balances of the currencies of all members. The standard transaction of the General Department is still the sale of one currency for another currency, with the sale of SDRs listed as an optional possibility “instead of the currencies of other members.” 3 The Fund has power to borrow currencies, but not SDRs.4
The substitution of an additional acceptance obligation for an equal supply of currencies would not affect the liquidity of the Fund as a whole. However, as the sources of liquidity for the two present Departments would be merged, their liquidity would become the same. This would be desirable in itself, in that it would remove one of the differences between Fund-related assets in members’ reserves. But these brief observations on liquidity call for a clarification of the concepts involved.
The world oil market has undergone tremendous changes in the past three decades, starting from the renegotiation of the “posted price”—a reference price on which royalties to host countries were calculated—in 1970. Before that, this price was fixed (at US$1.80 a barrel during the 1960s) by the major international oil companies that operated the oil concessions in these countries. Subsequent events culminating in the 1973 oil price shock and the eventual transfer of property rights to the host countries heralded the start of a new era in the oil industry.
The world oil market has undergone a series of changes that have reduced the share of oil in the global energy balance and, with it, the influence of Middle Eastern oil exporters. In spite of oil’s loss of ground, however, Middle Eastern countries remain at the center of world oil developments. This paper focuses on the developments in the international oil market, the role of Middle Eastern countries therein, and the policy challenges arising from the dependency on oil.
A number of major simplifications that would follow from putting the Fund’s conditional credit activities on an SDR basis have already been mentioned. The split of the Fund into two Departments would disappear. Instead of two systems for the selection of creditor countries, a single system would suffice. Most of the esoteric characteristics of the Fund would vanish and this would make it much simpler to understand. Thus, there would no longer be a need for concepts such as the “reserve tranche,” 30 the “norm,” “reserve position in the Fund,” “remuneration,” or the “operational budget.” Although special facilities could continue to float in the sense that their use would not be taken into account in determining a member’s access to use of the credit tranches, there would be no need and no room for special facilities “floating with respect to the reserve tranche,” and this would do away with the complications for charges that arise from this concept. The anachronistic provisions in Article VII dealing with “scarcity of currencies” (Sections 2 to 5), which survived the Second Amendment, would have to go and would not be missed; 31 one would hope that some more effective provisions to put pressure on creditors could be substituted. Other provisions that would no longer be needed would include those on Payments when quotas are changed (Article III, Section 3); Substitution of securities for currency (Article III, Section 4); Maintenance of value (Article V, Section 11); and there would also be many minor simplifications throughout the Articles.
This paper discusses the possibility of an IMF that would be based fully on the special drawing right (SDR). The paper explores the basic economic justification for a General Department restructured in this way, the broad outline of the structure that would have to be established, the liquidity effects that would have to be considered, and the effects of these changes on other provisions. It also discusses some of the simplifications that would be brought about, and the steps involved in the transition from an IMF consisting primarily of currencies to one based fully on the SDR.