Relative Voting Power

The effect of some decisions on the relative voting power of members is one reason why a special majority is required for these decisions. The importance of relative voting power is not confined to those members that have substantial portions of the total. Members that have smaller portions may be concerned to increase or to maintain them in order to go on forming constituencies of their choice in electing Executive Directors, or to preserve their influence in a constituency, or simply to keep abreast of those members that they regard as their coequals.

Decisions to permit the adjustment of quotas have always required a special majority.⁵³ These decisions were one of the two categories for which the United States before the Bretton Woods Conference foresaw the need for special majorities.⁵⁴

The entry of a new member affects the relative voting power of other members, and might have a considerable impact on it if the new member had a large quota. During the drafting of the second amendment it was suggested that a special majority should be required for decisions to admit new members and establish the terms for their admission, which must include a term prescribing the amount of the quota. These decisions were taken under the original Articles by a majority of the votes cast, and no change was made by the first amendment. The proposal of a special majority was resisted not only because of past practice but also because it might introduce political considerations into the treatment of applications. A special majority appeared to be less consistent with a policy of universal membership than a majority of the votes cast, and this policy, though undeclared, has been followed by the Fund.⁵⁵ Moreover, membership in the Fund is a prerequisite of membership in the World Bank, and it would be unfortunate if countries in urgent need of assistance for development were unable to obtain that assistance from the World Bank and its associated organizations because the high majority for entry into the Fund was not available.⁵⁶

The proposal of a high majority for entry into the Fund was not adopted, even though the analogy between admission to membership and increases in quota in their effect on relative voting power was pointed out as an argument in favor of a special majority. To a large extent, however, the proposal was inspired by a desire to ensure that the terms for membership, particularly in relation to the size of quota and the payment of subscription, would not be more favorable for new members than they had been in the past. This concern was recognized by providing in the second amendment that the “terms, including the terms for subscriptions, shall be based on principles consistent with those applied to other countries that are already members.”⁵⁷

Protection of Particular Interests

An obvious explanation of special majorities for some decisions is the desire to protect a particular interest that would be affected by the decisions. Members seeking to protect a particular interest are more likely to be motivated by the wish to have a veto than by the wish to have assurance that decisions will receive broad support. The United States has concluded that its interests would be adversely affected by the restoration of a par value system in which it was obliged to maintain a fixed value for the U.S. dollar.⁵⁸ Nevertheless, in order to reach agreement on the provisions of the second amendment dealing with exchange arrangements, it was necessary to accept a compromise that recognized the possibility that a par value system might be introduced.⁵⁹ The compromise included a barricade of special majorities of the total voting power: The decision to restore a par value system will require the support of a special majority.⁶⁰ A member will still be free to refrain from adopting a par value for its currency even if the decision to introduce a system of par values is taken, but if a member does establish a par value it will be free to abandon the par value without substituting a new one unless the Fund objects by a decision taken with a special majority.⁶¹ The Fund will have the authority to recommend general exchange arrangements—other than a par value system, for which express provision is made—that will be consonant with the development of the international monetary system. Even though no member will be required to act in accordance with the Fund’s recommendation, the decision to make the recommendation will require a special majority.⁶²

The United States has been explicit about the importance it attributes to the special majority required for the decisions relating to exchange arrangements. The U.S. National Advisory Council deals with the majority as follows:

These new exchange rate provisions are of critical importance both for the system as a whole and for the United States. They focus on the essential need to achieve underlying stability in economic affairs if exchange stability is to be achieved. They provide a flexible framework for the evolution of exchange arrangements consistent with this broad focus. And they help to ensure that the United States is not again forced into the position of maintaining a value for its currency that is out of line with underlying competitive realities and that costs the United States jobs and growth due to loss of exports, increased imports and a shift of production facilities overseas. Under the new provisions, the United States will have a controlling voice in the future adoption of general exchange arrangements for the system as a whole; and will have full freedom in the selection of exchange arrangements to be applied by the United States, regardless of the general arrangements adopted, so long as it meets its general IMF obligations.⁶³

The requirement of a special majority for a decision to bring the Council into existence was accepted in the negotiation of the second amendment because developing members considered it necessary for the protection of their interests. The Council, if established, will be an organ of the Fund composed of Governors of the Fund, ministers in the governments of members, or others of comparable rank.⁶⁴ It will occupy a position in the hierarchy of organs between the Board of Governors and the Executive Board.⁶⁵ At one time during the negotiation of the second amendment, it was understood that the Council would come into existence immediately when the second amendment became effective.⁶⁶ Later, some developing members became convinced that the Council should not be established forthwith and that more experience should be obtained with the operation of the Interim Committee of the Board of Governors on the International Monetary System (the Interim Committee). It may be assumed that they wished to see whether their interests would be promoted to their satisfaction as a result of the activities of the Interim Committee before it was transformed into the Council. It has been noted that the establishment of the Council will be irreversible. Moreover, the Council will have authority to take decisions, and to take them according to the weighted voting power of members, whereas the Interim Committee has advisory functions only. Developing members proposed, and it was agreed, that a decision of the Board of Governors should be required to establish the Council, and that the decision should be taken by a special majority.⁶⁷

The effect of the special interests of “debtor” and “creditor” members on the choice of majorities for some decisions affecting these members as separate classes is discussed below in the subsection entitled “Interests of ‘Debtors’ and ‘Creditors’.”

Adaptation to Change: Amendment, Variation, “Enabling” Powers

The Articles include various techniques by which the Fund can be adapted so as to accord with or promote change. It is more than ever apparent that the international monetary system and its regulation by law will not remain static. Most of the techniques of adaptation require high majorities in order to give assurance that there will be widespread support for proposals that depart from the status quo that members have accepted.

The first of the techniques is amendment of the Articles. A decision of the Executive Board to propose an amendment and a decision of the Board of Governors to approve the proposal can be taken by a majority of the votes cast, but the proposed amendment will not become effective unless it is accepted by certain proportions of members and voting power.⁶⁸

The second technique is the variation of provisions. A variation is a change in some element of a provision that may be made under a power exercisable by an organ of the Fund. This procedure is not amendment, because a variation does not require “acceptance” by members and because the original provision remains in the Articles and will apply again as written if a variation expires or is revoked. Many of the provisions subject to a power of variation may be varied by decisions taken by special majorities, but for some decisions a majority of the votes cast suffices.⁶⁹ An earlier study, which discussed the provisions subject to variation in the original Articles and in the first amendment, explained that among the reasons for requiring no more than the basic majority for some decisions is the routine operational character of the variation or the necessity to ensure that a decision can be taken.⁷⁰

There is a natural bias in favor of requiring a special majority for decisions to exercise a power of variation. If the negotiators have considered it sufficiently important to formulate the original provision, they are likely to insist that the provision should be varied only if a special majority can be assembled in support of the variation. This tendency was particularly apparent in connection with the negotiation of the second amendment. Examples of new powers of variation included in the second amendment for the exercise of which special majorities are required are powers to change the periods for the repurchase by a member of its currency paid by the member when it purchased exchange from the Fund;⁷¹ the mode of calculating the remuneration paid to members for the use of their currencies in the operations and transactions of the Fund;⁷² and changes in the margins around the parities between currencies within which members maintaining par values must confine exchange transactions after the introduction of a par value system.⁷³

The third of the techniques is the exercise of what have been called “enabling” powers. During the drafting of the second amendment, the term was in frequent use but not defined. Every power is an enabling power in the sense that it enables the Fund to do something by exercising the power. A narrower meaning was intended. The term was used sometimes to suggest that certain provisions created authority of a kind that would have been more closely defined if the approach of the original Articles or the first amendment had been followed. The implication was that these provisions granted something resembling legislative authority. For example, it was recognized that agreement on the establishment of a link between allocations of SDRs and development finance was unlikely, and that agreement was equally unlikely on a gold substitution account by means of which SDRs could be issued in return for gold. It was proposed, therefore, that members should not attempt to reach agreement on these topics in the form of detailed amendments, but should agree on a simple amendment granting the Fund an “enabling” power, exercisable with a special majority, to elaborate and adopt by decision the detailed provisions of a link or a gold substitution account.⁷⁴ “Enabling” powers in this sense were not adopted, mainly because there was no agreement on the principle of the proposals but also because of the objection that legislatures might conclude that the technique derogated from their constitutional authority and unduly expanded the powers of the organization. The closest approach to the technique are the powers referred to below in the subsection entitled “Amplification of Provisions.”

Sometimes, general references to enabling powers were intended to suggest that the Fund would have a broader range of discretionary powers, including such novel powers as those that enable it to make the provisions on the Council or on par values begin to apply and powers to enter into new kinds of operations and transactions. The powers with respect to the Council⁷⁵ and to par values⁷⁶ are without precedent in the original Articles or the first amendment,⁷⁷ and were created in order to permit the adaptation of the Fund or the international monetary system. These powers do not resemble the enabling powers that have been mentioned in connection with the link or a gold substitution account, because the detailed provisions that would apply when the Council or a par value system was brought into being were agreed among members and included in the second amendment. The powers with respect to new operations and transactions are not different in legal character from many pre-existing powers for the exercise of which special majorities are not required. Nevertheless, the widespread impression that a great change was taking place in connection with the Fund’s powers contributed to the willingness to require special majorities for numerous decisions under new powers.

A relationship exists between amendment and the provisions under which the Fund is authorized to suspend the operation of certain provisions. The latter power was included in the original Articles as a compromise with those negotiators who had proposed that the organs of the Fund should have authority to amend the Articles without going through the procedures of acceptance of the amendment by members in accordance with their constitutional requirements.⁷⁸ The argument in support of this proposal was that the Fund was an experiment and that it might not work effectively. The argument was accepted but not the solution in support of which it was advanced. Instead, the Fund was empowered to suspend the operation of certain provisions for a period that was thought to be sufficient to permit the adoption of any necessary amendment.⁷⁹ Exercise of this power, whether or not followed by amendment, can have serious effects. It is not surprising, therefore, that the highest special majority of all was required by the original Articles for a decision to exercise the power. In 1973 and 1974 the usefulness of the power to suspend the operation of certain provisions was demonstrated in practice.⁸⁰ The second amendment will modify the provisions granting this power in order to make exercise of it easier in some respects. The size of the majority necessary for a decision to initiate a suspension is reduced, but the necessity for a special majority is retained.⁸¹

Amplification of Provisions

Some provisions of the proposed second amendment are less than comprehensive in their treatment of the topics with which they deal. The incompleteness of provisions is often demonstrated when problems arise under them that have to be resolved by interpretation or by the adoption of regulations. The necessity for resorting to these procedures in order to fill gaps may have been unintended. The drafters of the second amendment were aware that certain provisions were less than comprehensive, and that some aspects of what was omitted might be important. The provisions dealing with two new accounts, the Special Disbursement Account and the Investment Account, are examples of provisions that could have been made more detailed. The drafting of them even in their less expansive form had required the expenditure of much time and effort. It did not seem useful to give even more time to the elaboration of them. The second amendment, therefore, provides that the Fund, by decisions taken with a special majority, shall adopt rules and regulations for the administration of the two accounts.⁸² The requirement of a special majority for these purposes is in contrast to the provision under which the Board of Governors, and the Executive Board to the extent authorized, “may adopt such rules and regulations as may be necessary or appropriate to conduct the business of the Fund,” and may adopt them by a majority of the votes cast.⁸³

Novelty

For some decisions, the explanation of a special majority under an amendment is the novelty of the activity to which the decision relates when compared with the pre-existing practice of the Fund. Novelty is one reason why a special majority was required by the first amendment for certain decisions relating to SDRs.⁸⁴ The creation of a new international reserve asset was more than a radical innovation. It reversed the original agreement that the Fund should operate with subscribed or borrowed resources and should not have the power to allocate assets of its own creation.⁸⁵ The second amendment includes powers to take certain new decisions in connection with SDRs and requires special majorities for the exercise of these powers. Novelty is again responsible for the requirement, but now novelty is the extension of, or as it seemed to some observers, the departure from, powers created by the first amendment. Powers to permit participants in the Special Drawing Rights Department to engage in operations not authorized by other provisions, and to agree on rates of exchange for transactions in SDRs other than those allowed by other provisions, are examples of these new powers.⁸⁶ Novelty is also one explanation for the special majority required by the second amendment for decisions to use the resources of the Special Disbursement Account for operations and transactions consistent with the purposes of the Fund but not authorized by other provisions of the Articles.⁸⁷

In contrast to the influence of novelty, it is possible that the reduction in the size of the majority for some decisions, which is discussed in the next section—see subsection entitled “‘Operational’ and Other Decisions”—can be attributed in part to the fact that the subject matter of the decisions had ceased to be novel.

Controversy

A principle of the second amendment is that there should be a gradual reduction in the role of gold in the international monetary system.⁸⁸ One aspect of this principle is a reduction in the role of gold in the Fund itself, but full agreement was not reached on how this aim should be attained. Some members preferred that the Fund should return gold to members at the present official price. Other members preferred that the Fund should dispose of its gold in the market, but the prospect of a serious decline in the market price gave concern to some holders of substantial amounts of gold. Similar differences of opinion existed on whether the Fund should be empowered to accept gold in payments by members. In view of continuing differences of opinion on these issues, it was agreed that the second amendment would include provisions empowering the Fund to take all of these actions but requiring a special majority for decisions to exercise the powers.⁸⁹

As ardent a debate was conducted over a number of the characteristics and uses of SDRs when the first amendment was negotiated. The central issue was whether the SDR should resemble credit or a reserve asset.⁹⁰ The issue was joined with special precision on the question whether a participant should restore its holdings of SDRs after using them. The controversy was not resolved with finality. Instead, a pragmatic solution was found in certain rules for the reconstitution of holdings of SDRs that were included in the Articles but made subject to variation by decisions taken with a special majority.⁹¹ Reconstitution was controversial once again in the drafting of the second amendment, although on that occasion some of the main protagonists had exchanged positions. This movement did at least produce some greater flexibility in the rewritten provisions, but a special majority was retained.⁹²

Special majorities were adopted for decisions connected with other issues that remained controversial in the negotiation of the second amendment. Investment by the Fund is one example. There is no direction to invest. The power is discretionary and requires a special majority for its exercise.⁹³ Another controversial issue was the amount of the Fund’s holdings of a member’s currency from which reductions are to be calculated in order to determine the amount of remuneration the Fund will pay for the use of the member’s currency in operations and transactions conducted through the General Resources Account.⁹⁴ The payment of remuneration is mandatory, and it was essential, therefore, to agree on an initial norm. In recognition of the different views that had been advanced on the most desirable norm, it is provided that the norm may be varied in accordance with the prescriptions of the Articles by decisions taken with a special majority.

The examples cited above involved differences of opinion that were not wholly reconciled, and in these cases, therefore, it was agreed to postpone further debate on outstanding aspects of the problem and to resume it, if necessary, in the course of the Fund’s activities. Powers were granted under which the Fund may take action, but by a special majority because the parties to the former debate had not reached complete agreement on a solution. Under some provisions, a special majority is required even though a compromise was found that resolved the issue on which there had been differences of opinion. The special majority is designed not for the purpose of postponing the resolution of the issue but as part of the compromise. For example, in the negotiation of the first amendment it was proposed that the Fund’s power of internal authoritative interpretation of the Articles,⁹⁵ under which the Fund interprets its Articles with finality, should be eliminated in favor of interpretation by some external tribunal. This change was resisted by some members. The compromise that was reached retains a power of internal and final interpretation. The Executive Board continues to have authority to decide questions of interpretation, and appeals continue to go to the Board of Governors. The appellate procedure was changed, however, by requiring that a Committee on Interpretation of the Board of Governors must consider any question of interpretation that is referred to the Board of Governors. A decision of the Committee⁹⁶ is deemed to be the decision of the Board of Governors unless the Board decides otherwise by a special majority.⁹⁷

Safeguarding Character and Resources of Fund

Each member of the Fund is required to pay a subscription to the Fund in an amount equal to its quota.⁹⁸ The resources obtained in this way, the proceeds of loans entered into by the Fund to supplement its resources, and the assets into which the Fund’s resources are transformed in the course of its operations and transactions will be held in the General Resources Account of the General Department under the second amendment.⁹⁹ The Fund will make these resources temporarily available to members, as it has in the past, to give them the opportunity to correct maladjustments in their balances of payments without resorting to measures destructive of national or international prosperity.¹⁰⁰ The transaction by which the Fund makes its resources available is the sale to a member of SDRs or the currencies of other members in return for the purchasing member’s currency.¹⁰¹ No more than a temporary use may be made of the Fund’s resources, in order to ensure that financial assistance by the Fund is confined to balance of payments problems and that the resources will revolve for the benefit of all members.

In order to achieve these objectives, a member making a purchase from the Fund must repurchase with SDRs or foreign exchange the currency it paid to the Fund when making its purchase.¹⁰² Under the second amendment, the basic period for repurchase that has developed in practice will be incorporated in the Articles. Repurchase must begin not later than three years and must be completed within five years after a purchase.¹⁰³ The sale of currencies to members in balance of payments difficulties is one of the leading financial activities of the Fund. In order to permit flexibility in conducting this activity, the Fund may vary the commencement or termination of the basic period for repurchase by all members, adopt a different basic period for all members under a special policy on the use of the Fund’s resources, or permit postponement of the discharge of a repurchase obligation by an individual member if prompt discharge would result in exceptional hardship for the member.¹⁰⁴ For all these decisions a special majority is required in order to safeguard the resources of the Fund against the impropriety of protracted use, or a change in the character of the Fund as an organization that gives balance of payments assistance and not aid or development assistance.¹⁰⁵

Protection of Reserve Tranches

As part of the objective of achieving a gradual reduction in the role of gold in the international monetary system, members will no longer be required to discharge certain obligations with gold. Instead, they will have to discharge these obligations with SDRs. This change has been made in order to assist the SDR to become the principal reserve asset of the system,¹⁰⁶ and also to enhance the liquidity of the Fund. A participant in the Special Drawing Rights Department can be required by the Fund to sell its currency to the Fund in return for SDRs held in the General Resources Account, for the purpose of replenishing the Fund’s holdings of the participant’s currency.¹⁰⁷ Even though the Fund will not be able to require the participant to increase its holdings of SDRs beyond the maximum amount that it can be compelled to hold, and even though the Fund must pay due regard to the principles of designation in choosing the participants that it selects for the purpose of replenishment,¹⁰⁸ payments to the Fund in SDRs in lieu of gold may give the Fund a measure of flexibility that it would not have if currency were paid in lieu of gold. The currency might be inappropriate for use in the Fund’s operations and transactions from time to time, whereas with SDRs the Fund might be able to replenish its holdings of currencies that were appropriate for use.

It has been recognized, nevertheless, that it would be undesirable, or even impracticable, to insist on the discharge of obligations with SDRs in all circumstances. The Fund is empowered, therefore, to accept currency under various provisions, some but not all of which establish certain safeguards. Special majorities are not prominent among these safeguards. It would have been impracticable to provide safeguards to each interested member by prescribing a special majority that would have given it a veto. The differences in the treatment of payments under the various provisions are explained in the following paragraphs.

The Fund may permit a new member to pay in the currencies of other members the portion of its original subscription that formerly would have been payable in gold.¹⁰⁹ A special majority is not required for decisions on the means of payment, and the concurrence of the issuers of the currencies is not a condition of the receipt of their currencies. In this way, possible hindrances to membership are avoided. Similarly, a member may repurchase from the Fund any part of its currency that is subject to repurchase with currencies of other members without obtaining their concurrence. The currencies are specified by the Fund in accordance with its policies, which it may adopt by a majority of the votes cast.¹¹⁰ The provisions permitting the use of currencies in repurchase are designed to promote the temporary use of the Fund’s resources by broadening the assets that members may use in repurchase and to increase the liquidity of the Fund’s resources by enabling it to accept currencies that are suitable for use in its activities. Payment to the Fund of periodic charges with the currencies of other members has been facilitated to some extent. In exceptional circumstances the Fund may permit these payments in currencies specified by the Fund. There is no necessity for a special majority or for the concurrence of the issuers, although the Fund is required to consult with them, and the Fund’s receipt of their currencies in repurchase or in payment of charges must not subject them to an obligation to pay the periodic charges that are levied by the Fund on certain holdings by it of a member’s currency.¹¹¹ The concurrence of the issuers is not required because a member must be enabled to pay charges with reserve assets when its holdings of SDRs are inadequate.¹¹²

Under one provision, the balancing of equities among the Fund, the paying member, and the issuing member has led to a different solution. The policy of the Articles in avoiding hindrances to membership for applicants that meet the criteria for membership¹¹³ does not extend to encouraging them to increase their quotas at the cost of reductions in the reserve tranches¹¹⁴ of other members. A reserve tranche has a special utility to a member because the member can make purchases equivalent to its reserve tranche without challenge by the Fund.¹¹⁵ The Fund’s receipt of a member’s currency reduces any reserve tranche that it has. Therefore, a special majority is required for a decision to permit payment of part or all of 25 per cent of an increase in quota—which formerly would have been payable in gold¹¹⁶—in the currencies of other members.¹¹⁷ Moreover, the Fund can specify the currencies of other members that it will receive in these payments only if the issuers concur, and currency may not be received if it would subject the issuer to the payment of periodic charges levied by the Fund.¹¹⁸

Under other provisions of the second amendment, the equities have been balanced in yet another way. The Fund may agree to sell SDRs to a member in return for the currencies of other members under policies that take into account the principles for the selection of currencies to be used in purchases and repurchases. A special majority is not required for the adoption of these policies or for decisions on sales of SDRs under them, but the concurrence of the issuers of the currencies to be received is necessary. The solution provides a safeguard for these members, and the absence of a special majority makes it easier for the Fund to enter into these transactions in a more routine way.¹¹⁹

Interests of “Debtors” and “Creditors”

The Articles have always provided for the levying of periodic charges on the Fund’s holdings of a member’s currency in excess of quota.¹²⁰ The main function of these charges is to impose a cost on members for their use of the Fund’s resources. Rates of charge were set forth in the original Articles but were subject to variation by a special majority.¹²¹ It was assumed that there might be different attitudes to the level of charges by members that make a net use of the Fund’s resources (“debtor” members) and members that have provided the resources that are being used (“creditor” members). It seemed desirable that changes in rates of charge should be broadly acceptable to both classes of members. A special majority was designed to ensure that there would be broad consent. Experience has shown that the prospect of different viewpoints was not an illusion, and a special majority continues to be necessary for decisions to vary rates of charge.¹²²

The first amendment introduced the novel idea of paying remuneration to creditor members.¹²³ The word “remuneration” was chosen instead of “interest” in order to avoid any misunderstanding about the legal character of the subscriptions paid by members.¹²⁴ They are contributions to the resources of the Fund and create no indebtedness on the part of the Fund, although they give rise to rights on the withdrawal of a member¹²⁵ or on the liquidation of the Fund.¹²⁶ The rate of remuneration included in the first amendment was made subject to variation within a narrow band by a majority of the votes cast. The consideration that was responsible for the requirement of a special majority for variation in the rates of periodic charges led the drafters of the first amendment to adopt a similar majority for changes in the rate of remuneration outside the band, whether the new rate was above or below the outer limits of the band.¹²⁷

The first amendment, which created the concept of the SDR, provided that interest should be paid in SDRs on holdings of SDRs, that a charge should be levied in SDRs on net cumulative allocations of SDRs, and that the rates of charge and interest should be the same.¹²⁸ As a result, a participant that uses SDRs and reduces its holdings below its net cumulative allocation pays a net amount of SDRs, while a participant that holds SDRs in excess of its net cumulative allocation receives a net amount of SDRs. It might have been concluded that decisions to change the rate of charge and interest should require a special majority because the decisions raise issues so similar to those involved in changing the rates of charge or the rate of remuneration in the General Department. Nevertheless, this solution was not adopted. The first amendment established a rate of interest and charge on SDRs and provided that it might be changed so that it would be no greater than 2 per cent or the rate of remuneration, whichever was higher, or smaller than 1 per cent or the rate of remuneration, whichever was lower.¹²⁹ Under this formula, the rate of remuneration determined the upper limit above 2 per cent or the lower limit below 1 per cent. The formula was based on the thesis that the reserve asset represented by that part of the gold tranche¹³⁰ on which remuneration was paid was so similar to SDRs that there should be a bias, although not a legal requirement, in favor of the same rate for both. A special majority was not prescribed for changes in the rate of charge and interest on SDRs, but because any change outside the band would have to be preceded by a change in the rate of remuneration, a change outside the band would be controlled by the rate of remuneration, which could itself be moved outside a similar band only by a decision taken by a special majority.

By the time of the second amendment, the conviction had grown that the chain between the rate of remuneration and the rate of charge and interest on the SDR should be slacker. This conclusion was based on the desire to give greater flexibility in establishing the rate for the SDR in order to help it to achieve the status of the principal reserve asset of the international monetary system. It was agreed, therefore, that the upper or lower limit beyond the band should not be the rate of remuneration. Instead, the Fund should be free to establish whatever rate of charge and interest on the SDR was deemed appropriate, without even the specification of a rate in the Articles that would be subject to variation. This new freedom did not mean that the reconciliation of the interests of the two groups of participants, those holding more and those holding fewer SDRs than their net cumulative allocations, was ignored. For the exercise of this new freedom, a special majority is necessary.¹³¹

The second amendment includes a new provision on remuneration, which continues to establish a tie between the two rates. The rate of remuneration, however, will be controlled by, instead of controlling, the rate of interest and charge on the SDR. The rate of remuneration may not exceed the other rate, but it may not be less than four fifths of it. A special majority continues to be necessary for decisions to determine the rate of remuneration.¹³²

Pressures

The enforcement against a member of what are called “pressures” in the Outline of Reform in order to ensure compliance with the obligations imposed by the Articles is obviously a sensitive activity.¹³³ The pressures available to the Fund have been classified under the headings of the judgment of peers, publicity, increased burdens, and the denial of benefits.¹³⁴ The application of pressures involves directly the relationship between the Fund and the member against which a pressure is applied, and indirectly the relationships between that member and those members that support the action. It is not surprising, therefore, that a special majority should be required for decisions to apply pressures. Indeed, it is even more surprising that some pressures may be enforced without the necessity for a special majority.

The original Articles required, and the second amendment continues to require, a special majority for a decision to publish a report made to a member regarding its monetary or economic conditions and developments that tend directly to produce a serious disequilibrium in the international balance of payments of members.¹³⁵ The pressure consists partly in the mobilization of shame against the member and partly in the possibility that it may suffer financial detriment, such as the withholding of loans to it by public and private entities. For this latter reason, the pressure was regarded by many members of the Committee of Twenty and its Deputies as an extreme one.¹³⁶

A special majority has always been necessary for a decision to compel a member to withdraw from the Fund.¹³⁷ The seriousness of the pressure is obvious. The majority was a modest one in the original Articles, but the majority in terms of a proportion of the total voting power was augmented by the necessity for a vote in favor of a decision by a majority of Governors. The second amendment does not change this second requirement, but it has increased the proportion of the total voting power. This change recognizes not only the gravity of the pressure but also the growing distaste for compulsory withdrawal, which can harm not only the member that is compelled to withdraw but also the whole community of members.¹³⁸ The expulsion of a member for failure to perform an obligation under the Articles releases the country from all obligations. The realization that compulsory withdrawal may have this consequence induced the drafters of the first amendment to refrain from including in the Articles the pressure of compulsory withdrawal for any failure to perform obligations connected with the SDR. For these failures, the pressures were confined to suspension of the right to use SDRs acquired after the suspension,¹³⁹ or, on the failure of a participant to accept SDRs and provide currency for them when designated for the purpose, suspension of the right to use any SDRs.¹⁴⁰

Special majorities were not prescribed for decisions to suspend the use of SDRs. The desire to safeguard the proper functioning of SDRs made it advisable to apply the pressure with ease. Similarly, a special majority has never been necessary for decisions to declare members ineligible to use the Fund’s resources because of an improper use of them¹⁴¹ or because of a failure to fulfill obligations imposed by the Articles.¹⁴² The necessity to safeguard the resources of the Fund made it desirable to empower the Fund to adopt decisions on ineligibility without the hindrance of a special majority even though a declaration of ineligibility is a necessary prelude to compulsory withdrawal.¹⁴³ The latter pressure, however, does not have to be applied because a declaration of ineligibility has been made.

The absence of a requirement of a special majority for decisions to apply other pressures can be explained in much the same way, namely, the desirability of facilitating the Fund’s conduct of its financial or regulatory functions. These pressures include “representations” that the Fund may make to members¹⁴⁴ and a declaration of the scarcity of the Fund’s holdings of a member’s currency.¹⁴⁵ The declaration involves the severe consequence that other members may impose discriminatory restrictions on exchange operations in the member’s currency. It may seem surprising, therefore, that a special majority is not necessary even under the second amendment. The explanation may be that the adoption of the “scarce currency clause” in the original Articles was a compromise with those negotiators who feared that there would be a dollar shortage and that there would be no way of bringing pressure to bear on the United States to eliminate a large and persistent surplus in its balance of payments. To have required a special majority, even if it did not permit the veto of a decision by the negative vote or abstention of the United States, would have minimized the compromise. To have required a special majority in the second amendment would have been inconsistent with the conclusion of many members that the failure to invoke the scarce currency clause, or rather the failure of will on the part of the Fund’s membership to apply the clause, was regrettable.¹⁴⁶

Nevertheless, it is strange to compare the pressure involved in the declaration of scarcity with the pressure of increased periodic charges on the Fund’s holdings of a member’s currency. The original Articles empowered the Fund to impose such charges as it deemed appropriate after a certain level of charges had been reached.¹⁴⁷ The purpose of the provision was to encourage a member to repurchase its currency from the Fund and therefore avoid prolongation of the use of the Fund’s resources beyond a temporary period. The second amendment makes the purpose clearer by substituting a failure to perform an obligation to repurchase for a particular level of charges as the circumstance entitling the Fund to impose what are often called “penalty” rates of charge.¹⁴⁸ In both the original Articles and the second amendment, a special majority is required for decisions to impose these charges.¹⁴⁹ The difference between these decisions and decisions to apply pressures for which a special majority is not required may be that the former seem more punitive in inspiration. Another explanation may be that because a special majority is required for determining the normal rates of periodic charge, it seemed logical to require a special majority for abnormal rates as well.

Distribution of Assets and Movement of Funds Between Accounts

All members may be expected to have an interest in the distribution of assets by the Fund. Nevertheless, the Fund has always been authorized to determine annually, without the necessity for a special majority, what part of its net income shall be placed to general reserve and what part, if any, shall be distributed to members.¹⁵⁰ A special majority was not required even though provision was made by both the original Articles and the first amendment for a preferential distribution to the issuers of those currencies that had been reduced on the average below 75 per cent of quota during the year as a result of the Fund’s use of their currencies in its operations and transactions.¹⁵¹ A preferential distribution is eliminated by the second amendment, so that any net income earned during a year that is distributed as the result of an annual determination will be received by all members in proportion to their quotas at the end of that year.¹⁵²

The Fund has also had the power at all times to distribute its general reserve. A distribution of this kind would have been regarded as a distribution of the net income of some determined earlier year. Therefore, the distribution would have been made to the members that would have received it had the net income of that year been distributed immediately without placing it to general reserve, and in the proportions in which the members would have received it at that time. A distribution made in this way would have included any preferential distribution tjiat was payable. The second amendment changes the former legal position by allowing the Fund to distribute any part of the general reserve without determining that the distribution is in respect of some former year. A distribution under the second amendment would be made to all members in proportion to their quotas at the time of distribution. Members were willing to forgo whatever benefits they might have had in principle under the former provision and to agree on a simplified provision, but in order to safeguard the assets of the Fund and to ensure reasonably broad agreement by members with diverse interests, a special majority is required for a distribution of the general reserve.¹⁵³

The second amendment provides for the establishment of three accounts in the General Department and for the movement of funds between accounts. Currencies may be transferred from the Special Disbursement Account for immediate use in operations and transactions conducted through the General Resources Account.¹⁵⁴ Similarly, currencies may be transferred from the Special Disbursement Account and from the General Resources Account for investment through the Investment Account.¹⁵⁵ Special majorities are necessary for decisions to make these transfers. The novelty of the transfers, the differences of opinion on investment as an activity of the Fund, and the impact of transfers from the General Resources Account on the rights and obligations of members that are affected by the level of the Fund’s holdings of their currencies in that account are among the reasons why the second amendment provides that special majorities are necessary for these transfers.

Composition of Executive Board

The original Articles provided that five Executive Directors would be appointed by the five members having the largest quotas, two would be elected by the American Republics not entitled to appoint Executive Directors, and five would be elected by all other members.¹⁵⁶ Elections were to be held at intervals of two years.¹⁵⁷ If the five members entitled to appoint Executive Directors did not include the two members that had provided the largest amounts of resources used by the Fund in its operations and transactions in the two years before a regular election, then these two members also could appoint Executive Directors.¹⁵⁸

The Fund was empowered by the original Articles to increase the number of elective Executive Directors if countries that were not represented at the Bretton Woods Conference entered the Fund.¹⁵⁹ A decision to increase the number above the number in the Articles was taken for a single regular election and required a special majority. The basic reason for this requirement was that the composition of the Executive Board, including both the number and the distribution of seats, was of direct concern to all members because of the range and importance of the decisions it takes. Members have become even more deeply concerned about the composition of the Executive Board in recent years because the constituencies that appointed or elected Executive Directors were also the constituencies that made appointments to the ad hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Issues (the Committee of Twenty).¹⁶⁰ The same constituencies determine the composition of the Interim Committee of the Board of Governors on the International Monetary System (the Interim Committee)¹⁶¹ and, in alternate biennial periods, the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (the Development Committee).¹⁶² Furthermore, the constituencies will determine the composition of the Council.¹⁶³

The interest of all members in appointing or electing persons to these organs and bodies is the fundamental reason for requiring a special majority for decisions to determine the number of constituencies, but experience has shown that questions of the composition of these organs and bodies can be controversial, which is another reason for requiring a special majority. Controversy results from the need to reconcile opposing interests. One interest is the desirability of ensuring that the number of Executive Directors is not increased beyond the point at which the Executive Board can perform its duties efficiently. Another interest is the desire of members to be involved in the process that leads to decisions or to recommendations on which decisions will be based. Determination of the number of Executive Directors is an even more complex problem than the reconciliation of these interests, as is shown by the following passage in the Executive Board’s report on the proposed second amendment:

…[T]he Fund has been guided by the objectives of ensuring that the size of the Executive Board will contribute to the effective despatch of its business, that a desirable balance will be maintained in the composition of the Executive Board, that the size of constituencies will not place undue burdens on Executive Directors and hinder the efficient conduct of the business of the Executive Board, that members will be as free as possible within the provisions of the Articles and the regulations for the elections to form the constituencies of their choice, and that a relative equilibrium will be achieved in the voting power of the constituencies electing Executive Directors.¹⁶⁴

The second amendment has modified the provisions of the original Articles by substituting 20 Executive Directors for 12 as the minimum number, and it is also provided that there will be a single election for all elective Executive Directors.¹⁶⁵ Provision for 15 elective Executive Directors will “reflect the existing balance of areas and interests in the Executive Board.”¹⁶⁶ The Fund will continue to have a power to vary the number of elective Executive Directors by decisions taken with a special majority but not to reduce it below 15 except in the circumstances discussed below. The exercise of this power will not depend on the entry of new members into the Fund, but the Fund will continue to be guided by the considerations referred to in the passage quoted above.

Under the second amendment, if 1 or 2 Executive Directors are appointed by members because they have provided the largest amounts of resources utilized by the Fund, the total number of elective Executive Directors will be reduced below 15 in order to maintain the same number of Executive Directors, but the Fund may prevent this reduction if it concludes that the reduction would hinder the effective discharge of the functions of the Executive Board or of Executive Directors or would threaten to upset a desirable balance in the Executive Board.¹⁶⁷ It is apparent from this provision that priority has been given to the principle of preserving the compactness of the Executive Board, because there is an automatic reduction in the number of elective Executive Directors and because a special majority is required to prevent the reduction. It may also be concluded that the same principle of compactness was responsible for the requirement of a special majority to increase the number of elective Executive Directors beyond the minimum stated in the Articles.

Changes in Number of Special Majorities

The Articles declare that, “except as otherwise specifically provided,” all decisions shall be taken by a majority of the votes cast.¹⁶⁸ This language does not mean that the Fund can decide that a special majority will be required for the adoption of certain decisions. It means that a majority of the votes cast is sufficient for the adoption of decisions unless there is express provision in the Articles for a special majority.¹⁶⁹

The original Articles included five special majorities of the total voting power: absolute majority, two thirds, three fourths, four fifths, and a “unanimous vote.” The first amendment added a further special majority, 85 per cent of the total voting power. The explanation of this last proportion is that it was sufficient to give a veto to the six members that constituted the European Communities at that time. The special majority was adopted for decisions connected with the new reserve asset, the SDR, on certain aspects of which there were doctrinal differences of opinion between the United States and one or more members of the European Communities.¹⁷⁰ The majority was extended at the same time to certain decisions in the General Account relating to global liquidity, such as decisions on increases in quotas as the result of a general review,¹⁷¹ and to certain other decisions, such as interpretation of the Articles,¹⁷² even though they were not related to global liquidity. The new majority was introduced for many decisions involving global liquidity that had provoked controversy, and the thought at the time was that it might as well be adopted for other controversial issues.

All special majorities are majorities of the total voting power.¹⁷³ Special majorities are prescribed in order to ensure that a certain proportion of the voting power of all members, or for some purposes of all participants in the Special Drawing Rights Department, supports a proposed decision. Under the second amendment special majorities are required for certain decisions of the Board of Governors, the Executive Board, and the Council. There are no circumstances in which the Governor appointed by a member will be unable to cast the number of votes allotted to that member, but it has been seen that there may be circumstances in which no Executive Director or Councillor will cast the number of votes allotted to a member. Nevertheless, if a special majority is required for the adoption of a decision by an organ, the special majority is taken to be a proportion of the voting power of all members, including the votes that cannot be cast.

The increase in the number of decisions for which special majorities are required by the second amendment is accompanied by the opposite phenomenon of a decrease in the number of different special majorities. The new situation has been described as follows:

Subject to one exception and one qualification, only two special majorities are required: seventy percent and eighty-five percent of the total voting power. The tendency has been to confine the smaller majority to operational decisions that are not routine but are nevertheless not of the same importance as the decisions for which the larger majority is required. This distinction has not been applied with mechanical precision because of the necessity for compromise on certain provisions, and in any event opinions may differ in some instances about the application of the distinction.¹⁷⁴

The consequences of reducing the number of special majorities are discussed below in the subsection entitled “‘Operational’ and Other Decisions.”

It may be necessary to determine whether a particular decision falls into a category for which a special majority is required or whether the decision is subject to one special majority rather than another. Decisions on the valuation of the SDR under the second amendment are clear examples of the necessity for the latter determination. A majority of 70 per cent is required for decisions to determine the method of valuation, but a majority of 85 per cent is required for a change in the principle of valuation or for a fundamental change in the application of the principle in effect.¹⁷⁵ The decision to classify a proposed change so that it will require the higher or the lower special majority will be taken by a majority of the votes cast. A special majority is not prescribed for this or any other decision on classification, in order to give the greatest degree of assurance that this preliminary question can be resolved.

Participation Clauses

The Executive Board’s report on the proposed second amendment notes that, with one exception and one qualification, the number of special majorities for the adoption of decisions has been reduced to two. The exception is the requirement of an absolute majority, i.e., a majority of the total voting power, for a decision of the Executive Board to terminate the suspension of the operation of a provision.¹⁷⁶ The qualification is the requirement not only of a majority of 85 per cent but also of a majority of the Governors for a decision to compel the withdrawal of a member from the Fund.¹⁷⁷ This requirement of a majority of the Governors is the only participation clause in the Articles. A participation clause provides that a decision cannot be taken by an organ of the Fund unless certain members or Governors, or a certain proportion of them, support the decision.¹⁷⁸ Under the original Articles, a decision to make uniform proportionate changes in the par values of the currencies of all members (i.e., a change in the price of gold) could be made without the necessity for a special majority, but the surprising modesty of this rule was qualified by the necessity for the approval of every member that had 10 per cent or more of the total of quotas.¹⁷⁹ The participation clause was abrogated by the first amendment and replaced by the requirement of a special majority on the ground that the clause was an overt discrimination in favor of the United States, although the special majority continued to give that member a veto.¹⁸⁰ The second amendment, of course, has no provision on a change in the price of gold.

Participation clauses for decisions have been regarded with distaste because of the impression they give of special privilege. Nevertheless, they were proposed in the course of the negotiation of the first amendment. The European Communities proposed that decisions on the allocation of SDRs should require a majority of 85 per cent, in which at least half the major creditors were numbered. The United States proposed a procedure under which a decision of the Executive Board could be taken by a majority of 90 per cent but the decision could be overruled by a majority of the Governors within 60 days. Ultimately, it was agreed that the majority of 85 per cent gave adequate protection to the legitimate interests of those members that were seeking a participation clause.¹⁸¹

The objection to participation clauses in the Articles has not extended to adjustment of quotas. In various general reviews of quotas it was decided that no increase in any quota would become effective until members having a certain proportion of total quotas had consented to increases in their quotas. The purpose of these clauses has been to ensure that the liquidity of the Fund was adequately increased before larger drafts could be made on the Fund’s resources under increased quotas.¹⁸²

“Operational” and Other Decisions

The agreement to reduce the number of special majorities has resulted in the requirement of 85 per cent for 29 of the 53 categories of decision listed in the Annex to the Commentary. As the report of the Executive Board implies, there were differences of opinion during the drafting of the second amendment on whether certain decisions were “operational” or not. With respect to some of the decisions involved in this debate, the substantive issue was not so much the question of precise classification as the desire for a veto by one or more members or the desire to make it difficult to exercise a particular power. It is apparent, for example, that the decisions on repurchase for which the higher majority is required could have been regarded as “operational.”¹⁸³ The fact that these decisions relate to general policies and not to individual requests by members is not conclusive in favor of a classification of them as nonoperational. For example, decisions to adopt general policies on the repurchase of the Fund’s holdings of currency not acquired as the result of purchases are taken with the lower special majority, and decisions to adopt general policies on the selection of currencies for use in purchases and repurchases do not require a special majority of any kind.¹⁸⁴ The main reason for adopting the higher majority for decisions on repurchase was not so much the desire to provide vetoes as to safeguard the character of the Fund and its resources by making it difficult to permit a more prolonged use of the resources.

One of the effects of the treatment of special majorities has been an enlargement of the majority required for certain decisions. Some decisions fall into this class because of the agreement that for all decisions requiring 80 per cent the majority would be increased to 85 per cent. This agreement was included in the communiqué issued by the Interim Committee on June 12, 1975.¹⁸⁵ In the same communiqué the Committee also noted with approval the draft of an amendment by which proposed amendments to the Articles would become effective when accepted by members having 85 instead of 80 per cent of the total voting power.¹⁸⁶ The requirement of acceptance by three fifths of the members was not modified. The change in the provision with respect to amendment was the most important element in the compromise by which the United States, as part of the sixth general review of quotas, agreed to a quota that would give it less than 20 per cent of the total voting power.¹⁸⁷ By concurring in this reduction in its relative voting power, the United States contributed to a solution of the vexing problem of distributing increases in quotas among industrial members. The problem of distribution resulted in part from the understanding that the relative share of the major oil exporting members as a group would be doubled and that the relative share of all other developing members as a group would not be reduced.¹⁸⁸ It followed necessarily that a smaller relative share would be left for the industrial members as a group. Maintenance by the United States of more than 20 per cent of the total voting power would have impeded an agreed apportionment of increases in quotas among industrial members.

The increase in the majority of 80 per cent for other decisions was of less importance. Only three categories were involved. They were decisions to permit the adjustment of a quota as the result of a request that was not part of a general review of quotas,¹⁸⁹ to increase the number of Executive Directors,¹⁹⁰ and to prolong a suspension of the operation of certain provisions.¹⁹¹

Some decisions that could be taken by a majority of the votes cast will be subject to special majorities under the second amendment. These changes have been made for the various reasons that have been analyzed already. Decisions to establish service charges on sales of SDRs or currencies by the Fund,¹⁹² to distribute any part of the general reserve,¹⁹³ and to determine the rate of charge and interest on the SDR¹⁹⁴ will require a majority of 70 per cent of the total voting power under the second amendment.¹⁹⁵ Some decisions to adopt certain policies or to take certain actions in connection with repurchase will require a majority of 85 per cent and others 70 per cent under the second amendment.¹⁹⁶ The decision of June 13, 1974 on the valuation of SDRs in terms of currencies according to the “standard basket” was taken by a majority of the votes cast, but under the second amendment some decisions on the method of valuation will require 70 per cent and others 85 per cent of the total voting power.¹⁹⁷ The absolute majority required for a decision to compel a member to withdraw is increased to 85 per cent.¹⁹⁸ The majority of two thirds of the total voting power required for the publication of certain reports made to a member has been increased to 70 per cent.¹⁹⁹

The majorities required for certain decisions have been reduced. Decisions to change rates of periodic charge on the Fund’s holdings of currencies or the rate of remuneration paid to members will require a majority of 70 per cent, instead of 75 per cent, under the second amendment.²⁰⁰ These changes have been made solely as a result of the decision to reduce the number of different majorities. The majority of 85 per cent required for the adoption, modification, or abrogation of rules for the reconstitution by participants of holdings of SDRs has been reduced to 70 per cent.²⁰¹ The motive for this reduction was the desire to compromise with those members that wished to delete the concept of reconstitution from the Articles.

A similar reduction has been agreed in connection with decisions to make uniform proportionate changes in the par values of currencies,²⁰² but the caveat must be observed that the function of these changes in a par value system under the second amendment would be different from its function in the past. Formerly, the purpose of uniform proportionate changes would have been to change the price of gold in terms of currencies, and therefore to bring about changes in global liquidity. Under the second amendment, the purpose would be to bring par values into line with the values of currencies in terms of the SDR as determined by the Fund for the purpose of transactions in SDRs.²⁰³

The unanimous vote that was required for decisions to suspend the operation of certain provisions²⁰⁴ has been changed to 85 per cent of the total voting power.²⁰⁵ The purpose of the change was to make it easier to take the decision. It does not follow, however, that this would always be the result. A unanimous vote has been understood to mean a vote by the Executive Board without dissent.²⁰⁶ Therefore, the absence or abstention of some Executive Directors when a vote was taken would not have prevented the vote from being unanimous. If some Executive Directors were to be absent or to abstain under the second amendment, they would prevent the adoption of a decision if their voting power exceeded 15 per cent of the total voting power. By way of contrast, however, the dissenting vote of any Executive Director would have prevented a decision from being unanimous under the original Articles and the first amendment, but it will not prevent the adoption of a decision under the second amendment unless the dissenters have more than 15 per cent of the total voting power.

Original Articles

The reasons for the choice of particular proportions of the total voting power for special majorities in the original Articles can be the subject of surmise only. The reason for a unanimous vote is obvious. It was required in connection with a novel procedure and produced the serious consequence of suspending the operation of one or more of the provisions in the Articles²⁰⁷ on the basis of which all members had entered the Fund.

The majority of 80 per cent required for decisions to adjust quotas, including the original quotas set forth in Schedule A,²⁰⁸ and to increase the number of elective Executive Directors²⁰⁹ was probably chosen because of the modifications these decisions would bring about in the numbers included in the original Articles. A similar consideration must have been responsible for the requirement of acceptance by members having 80 per cent of the total voting power as one of the conditions for the adoption of amendments.²¹⁰ This majority would give the United States the assurance of a veto and help to convince American public opinion that modifications in the Articles, in the negotiation of which the United States had taken a leading role, would not be detrimental to its interests. This assurance was particularly important at a time when it seemed that the currency subscribed by the United States would be the currency in major use in the Fund’s financial activities.²¹¹

The majority of 80 per cent required for decisions by the Board of Governors to extend the period of suspension by the Executive Board of the operation of a provision²¹² may have been chosen because it was too much to hope for a unanimous vote. Governors would be considerably more numerous than Executive Directors. Unanimity in a small body of Executive Directors was feasible, but less likely in the larger and less collegial body of Governors.

The majority of 75 per cent for changes in periodic charges²¹³ was probably chosen in order to ensure that there would be broad agreement between the groups of “debtor” and “creditor” members, with less insistence on a veto by the United States alone, perhaps because it was not unreasonable to assume that in time it would not be the only “creditor” member. The two-thirds majority of total voting power required for decisions to publish certain reports to members²¹⁴ was probably designed to ensure reasonably broad support, but without giving a veto to the United States because of the possibility that there might be a proposal to publish a report to the United States. The absence of a veto may have been accepted by the United States as an assurance to other members, supplementing the assurance given by the scarce currency clause,²¹⁵ that its policies would not be responsible for a dollar shortage.²¹⁶ The absolute majority that is sufficient for a decision to terminate the suspension of the operation of a provision²¹⁷ was probably intended to prevent the prolongation of a suspension if there was no support for continuance of it by a true majority of the total voting power as compared with a majority of the votes cast, which might of course be less than a majority of the total voting power.

First Amendment

There is no uncertainty about the choice of the majority of 85 per cent of the total voting power introduced by the first amendment. The purpose, as explained already, was to reach agreement on the creation of the SDR by giving a veto on important decisions connected with it to the members of the European Communities at that time. Their agreement was essential because by then they had become “creditor” members in the Fund and were expected to be major holders of the new asset. In addition, it appeared to them that the enthusiasm of the United States for the SDR was inspired to some extent by self-interest. The creation of SDRs might reduce some of the demand for the conversion of dollars into gold by the United States. This was another reason why the United States should not have the only veto.

The same majority was required for certain other decisions that have been mentioned earlier in this pamphlet. The tendency was to adopt the new majority for decisions on all issues that had been the subject of doctrinal differences of opinion in the negotiation of the first amendment.

The majority of 85 per cent was not incorporated in the first amendment without resistance. Some members objected to it because they considered it too high. Developing members were particularly disturbed by the increase from 80 per cent to 85 per cent for decisions to permit the adjustment of quotas as the result of a general review. They regarded the conditional liquidity available to them through the General Department as an important form of assistance. The use they might make of the Fund’s general resources was likely to be more substantial for some time to come than the allocations of SDRs that they might receive during that period. It was also argued that 80 per cent should be preserved as a traditional majority, but the public impression that it was required for many decisions was a mistaken one. The argument that “creditor” members should seek increases in their quotas and obtain a veto on the basis of a majority of 80 per cent, at least for certain decisions not related to SDRs, did not appeal to the “creditor” members. One reason was that they had adhered to the General Arrangements to Borrow, under which they made resources available to the Fund but received no increase in their voting strength for these loans.²¹⁸ The new majority was sufficiently familiar by the time of the second amendment to provoke no objection to it in principle, although, as discussed later in this pamphlet under the heading “Classification of Decisions Subject to Special Majorities,” it was resisted for some decisions.

The majority of 85 per cent was designed originally to balance the veto that the United States had with a veto that would be available to the members that belonged to the European Communities. During the negotiation of the first amendment, the United States made an effort to avoid this too obvious balancing of vetoes in connection with decisions to allocate SDRs. It suggested that a proposal on allocation by the Managing Director should be deemed to be accepted if it received the support in the Executive Board of 90 per cent of the total voting power and was not opposed by a majority of the Governors. If a proposal received the support of 75 per cent or more but less than 90 per cent of the total voting power in the Executive Board, it would still be deemed to be accepted if it received the support of at least 75 per cent of the total voting power in the Board of Governors. The majority of 75 per cent would have given a veto to neither the United States nor the members that belonged to the European Communities.²¹⁹

Second Amendment

An even broader range of special majorities was discussed during the drafting of the second amendment. The motives for proposing them were complex. Sometimes a special majority was proposed in order that members could be assured that there would be a large measure of support for a decision or in order that one or more members would be able to exercise a veto because they were uncertain how they would react to proposals in the future, but sometimes the motive might have been the desire to make it exceptionally difficult to adopt a decision in whatever circumstances it might be proposed.

The highest special majority that was proposed was 90 per cent of the total voting power. It was proposed for decisions connected with the Fund’s gold and for the decision to bring the Council into being.²²⁰ The proposal was intended to make it as difficult as possible to exercise the powers to take these decisions without provoking the charge of a lack of serious intent that proposals for unanimity might have provoked.

A more extensive use of the majority of 75 per cent was supported because it would have given developing members a veto and would not have made the adoption of decisions excessively difficult. The same motives were responsible for the support given to proposals of two thirds of the total voting power, but there was also opposition to this majority because it might not be sufficient to give developing members a veto.

Agreement on reducing to two the proportions of total voting power required for special majorities²²¹ was reached largely in the interest of simplification. The higher majority, 85 per cent, was chosen because it was already in existence, was of recent origin, and gave the United States, the members that belonged to the European Communities, and developing members a veto. The United States had accepted 85 per cent in the negotiation of the first amendment as a concession to the members that belonged to the European Communities, but in the negotiation of the second amendment it was itself an advocate of this majority for numerous decisions. The reason, of course, was the diminished proportion of the total voting power of the United States, and the possibility of further diminution in the future.²²² One explanation of the choice of the lower majority, 70 per cent, is that it was a compromise between 75 per cent and two thirds of the total voting power. Those who wanted the higher of these two proposed majorities were reconciled to 70 per cent to some extent by the thought that the transitional provisions of the second amendment would maintain existing rules and regulations, rates, procedures, and decisions in effect at the time when the amendment became effective²²³ and that 70 per cent would make it sufficiently difficult to change them to something less satisfactory to these negotiators.

The motives for the distribution of decisions between the two special majorities of 70 per cent and 85 per cent were no less complex. It has been seen that a broad distinction was made between “political” decisions—which were sometimes referred to as “structural”—and “operational” decisions. The distinction is inherently imprecise, and was certainly applied in a way that escapes definition. For example, it might seem that decisions on policies with respect to the periods for repurchase in connection with the use of the Fund’s resources would be regarded as “operational.” For these decisions, however, 85 per cent of the total voting power²²⁴ is required, in contrast to certain other decisions on repurchase for which the lower special majority is required,²²⁵ or for which there is no requirement of a special majority.²²⁶ The explanation of the higher special majority, and indeed for the lower special majority to some extent, is that some members considered the period for repurchase in connection with the use of the Fund’s resources to be closely related to the character of the Fund. A prolonged period for repurchase might modify the character of the Fund as an organization providing short-term or medium-term balance of payments assistance. For these members, the period for repurchase was a “political” or “structural” issue. Even decisions on periodic charges and remuneration were regarded by some members as closely connected with the “political” question of the type of financial institution that the Fund should be, and for this reason a special majority has been required, although 70 per cent of the total voting power has been deemed sufficient.²²⁷

Some provisions seemed to be related to each other conceptually, with the result that when a special majority was chosen for one of them there was a logical argument for applying it to its congeners. It has been recalled that this was a reason for adopting 85 per cent in the first amendment not only for a group of decisions dealing with SDRs²²⁸ but also for some decisions affecting international liquidity,²²⁹ for which a lower special majority was required by the original Articles.²³⁰ In the negotiation of the second amendment, decisions on periodic charges, remuneration, and the rate of charge and interest on SDRs were considered to constitute a class, and 70 per cent of the total voting power has been required for all of them.²³¹

For some decisions, the main motive for selecting 85 per cent was not the conviction that so high a majority was necessary because of the character of the decision, but the feeling that the decision should be taken by the Board of Governors. The decision to prescribe a holder of SDRs²³² is an example of this attitude, at least on the part of some members. The tendency was to choose 85 per cent as the appropriate majority for the Board of Governors if it was to take a decision by special majority, because this majority was thought to emphasize the “political” character of the decisions reserved to the Board of Governors. The majority of 70 per cent is required for only one of the decisions taken by the Board of Governors by special majority. This exceptional decision is the prescription of the medium of payment of subscriptions payable as the result of increases in quota.²³³ The lower majority was accepted with a shrug by those who preferred the higher majority because the decision on an adjustment of quotas requires the higher majority.²³⁴ It seemed unlikely that a decision on adjustment would be taken unless a decision on payment satisfactory to the larger majority was taken at the same time. It must not be assumed, however, that all the powers reserved to the Board of Governors can be exercised only by a special majority. For example, the power to admit an applicant to membership in the Fund, which cannot be delegated by the Board of Governors, can be exercised by a majority of the votes cast.²³⁵

The majority of 85 per cent has been criticized on some occasions because it gives a veto to one member of the Fund. This criticism was made less frequently in the negotiation of the second amendment, probably because a veto was wanted by some groups of members. The objection was limited to a few of the decisions for which it was proposed. The leading examples were the decisions that affect the number of elective Executive Directors.²³⁶ It was argued that a member that appoints an Executive Director should not have the privilege of determining the number of elective Executive Directors by exercising a veto over any number that it regarded as unsatisfactory.