An important feature of the Articles of Agreement of the International Monetary Fund is the power which is conferred upon the Fund to adopt final interpretations of its charter. This power is to be found in Article XVIII:
It has been suggested on occasion that the Fund should take an initiative in issuing formal interpretations more frequently. This suggestion has been made in connection with Article VIII, Section 2(b), on the ground that this provision has an impact on the rights and obligations of private parties and the courts have not been expert in their understanding of it. The interpretations that are referred to in this connection are not confined to the text of Article VIII, Section 2(b), but include interpretations of other provisions that may be necessary in order to enable the courts to apply Article VIII, Section 2(b). The point has been made most recently in connection with the litigation involving a vast number of life insurance policies issued to Cuban residents by U.S. and Canadian companies that had been doing business in Cuba.72 The policyholders became refugees after the present regime came to power in Cuba, and then sued on the policies in courts in the United States and Canada. One of the defenses advanced by the insurance companies was the argument that the new regime had adopted exchange control regulations which prevented payment to the policyholders outside Cuba. The companies argued that the courts were bound by Article VIII, Section 2(b), to recognize these regulations. The cases undoubtedly raised many difficult issues of the interpretation of Article VIII, Section 2(b), and other provisions of the Articles. No one of the three members that had some connection with the litigation, Canada, Cuba, and the United States, requested an interpretation, and the Fund volunteered none. In response to requests by counsel for a number of litigants, the Fund did provide a statement which dealt in general terms with the sole question of the consistency of Cuban exchange control regulations with the Articles.73
In connection with assistance to the courts, there has been an interesting development in Fund practice. On June 30, 1965 the President of the First Civil Division of the Circuit Court of Appeals of Karlsruhe addressed a letter to the Managing Director of the Fund which was transmitted to him by the executive director appointed by the Federal Republic of Germany. The letter stated that the basic problem in a case before the court was whether the court had to apply Brazilian private law and Brazilian currency law. The letter asked whether Brazilian Decree No. 23501 of November 21, 1933 was an “exchange control regulation” that was “maintained or imposed consistently” with the Articles of the Fund within the meaning of Article VIII, Section 2(b).
There can be little doubt that an international tribunal would regard itself as concluded by an interpretation under Article XVIII. The interpretation is binding under treaty law, and no action is required, such as may be necessary under some systems of national law, to give the interpretation the force of law in international law.
This and the subsequent sections of this pamphlet deal with the practice of the Fund in connection with problems of interpretation that do not arise on the Articles. The Board of Governors has adopted By-Laws, consisting of 24 sections, pursuant to its authority to adopt such rules and regulations as are necessary or appropriate to conduct the business of the Fund.85 The preamble to the By-Laws declares that
In recent years borrowing has been added to the categories of the financial operations engaged in by the Fund. Under Article VII, Section 2, if the Fund deems it appropriate to replenish its holdings of a member’s currency, it may agree to borrow that currency from the member itself or, with the approval of the member, from some other source either within or outside the territories of the member. No member is under any obligation to lend to the Fund or to approve a borrowing by the Fund from any other source.87
Under the General Arrangements to Borrow, the Fund is able to replenish its holdings of the currencies of ten members, but the Fund has no legal powers to borrow the currencies of nonmembers. In certain circumstances, however, when the Fund borrows under the General Arrangements in order to finance a transaction with a member which is intended to forestall or cope with an impairment of the international monetary system, it might be a useful contribution to that objective if Swiss francs could be made available to the member. The legal problem posed by the Fund’s inability to borrow Swiss francs has been solved by an agreement between the Fund and Switzerland which is in the nature of a stipulation pour autrui.91
The stand-by arrangements of the Fund are arrangements under which the Fund assures a member that it will be able to use the Fund’s resources up to a prescribed amount during a specified period and usually subject to certain conditions.93 These arrangements are now very frequent in Fund practice, and a large proportion of the Fund’s financial transactions is covered by them. Almost invariably, a stand-by arrangement consists of two documents, one of which sets forth largely standard terms that are intended on the whole to fit the operation into the Articles and the Fund’s unique form of financing. The second document is an attachment in the form of a letter or memorandum, usually signed by the Minister of Finance or Governor of the central bank of the member for whose benefit the arrangement is made, or by both. This document, frequently referred to as a letter of intent, sets out, often in some detail, the policies that the member will follow. The general objective of these policies is to ensure that the member’s use of the Fund’s resources under the stand-by arrangement will be consistent with the purposes and provisions of the Articles and with the policies adopted by the Fund under them. By means of appropriate provisions in the covering document, the observance of certain features of the member’s letter of intent is made a condition of its continued ability to use the Fund’s resources under the stand-by arrangement.
The Fund is one of the international organizations that have a power of internal authoritative interpretation. This power is conferred on the Fund by Article XVIII and is exercised by the same organs, the Executive Directors and the Board of Governors, as exercise most of the other powers of the Fund. Although voting is avoided, if a vote had to be taken on a matter of interpretation, it would be taken in accordance with the system of weighted voting that prevails in the Fund, and a majority of the votes cast would be decisive.
While this pamphlet was in the press, the subject of interpretation by the Fund came under review in the following circumstances. At its Twenty-Second Annual Meeting at Rio de Janeiro, the Board of Governors adopted a Resolution requesting the Executive Directors to proceed with their work on the establishment in the Fund of a new facility based on special drawing rights to meet the need, as and when it arises, for a supplement to existing reserve assets and on the improvements in the present rules and practices of the Fund that appeared desirable as a result of developments in world economic conditions and the experience of the Fund since its inception. The Executive Directors were asked to propose amendments to the Articles for both purposes, and they did this in April 1968. Article XVIII was among the possible modifications that the Executive Directors discussed, and they decided to propose a change in that provision.