Net Official Holdings: Principles of Interpretation

In order to ensure the uniform application of the relevant Articles of Agreement as they apply to determinations of members’ net official holdings of gold and U.S. dollars for the purposes of Article III, Section 3(b) (ii), the Fund adopts or reaffirms the following principles of interpretation for the indicated provisions of the Fund Agreement:

• (a)* ………………………………………………………………………………………………………

• (b)* ………………………………………………………………………………………………………

• (c)Article XIX(b): “The official holdings of a member means central holdings (that is, the holdings of its Treasury, central bank, stabilization fund, or similar fiscal agency).”

  • (1) “Central holdings” are confined to holdings owned by the institutions set forth in Article XIX(b).

  • (2) The term “similar fiscal agency” means an institution which performs an important function or functions similar to those normally performed by a Treasury, or central bank, or stabilization fund.

  • (3) No distinction is made among the departments of a central bank or other central institution as specified in Article XIX (b). No distinction is made on the basis of the use to which gold or dollars may be put by any of the institutions covered by Article XIX (b). That is to say, all gold or dollars owned by such institutions are central holdings.

• (d) Article XIX(c): “The holdings of other official institutions or other banks within its territories may, in any particular case, be deemed by the Fund, after consultation with the member, to be official holdings to the extent that they are substantially in excess of working balances; provided that for the purpose of determining whether, in a particular case, holdings are in excess of working balances, there shall be deducted from such holdings amounts of currency due to official institutions and banks in the territories of members or nonmembers specified under (d) below.”

  • (1) “Other official institutions” and “other banks” are official institutions and banks not embraced by Article XIX(b). “Other official institutions” are those representing a member anywhere. “Other banks” are banks within its territories.

  • (2) “Working balances” must be determined in the light of all the facts of the individual case, and no rigid rule can be formulated for their measurement. The general idea is that a working balance is one which is necessary to meet the requirements of its owner, taking into account normal receipts and payments, for a period not unreasonably protracted.

  • (3) No deduction may be made from central holdings on the ground that they are said to represent, in whole or in part, “working balances,” for example, because there are no commercial banks or because the holdings of commercial banks are alleged by the member to be inadequate for working purposes.

  • (4) Gold or dollars owned by “other official institutions” and “other banks” may be included in a member’s official holdings, after consultation with the member, to the extent that they are substantially in excess of “working balances.”

  • (5) The proviso in Article XIX(c) declares that in determining whether the holdings of other official institutions and other banks are substantially in excess of working balances, certain deductions shall be made. These deductions are in respect of liabilities arising from the holdings of the currency of the member whose official holdings are being calculated. Such liabilities must be owed by that member’s official institutions and banks to the official institutions of and banks in the territories of countries which were members of the Fund on September 12, 1946.

• (e) Article XlX(h): “For the purpose of calculating gold subscriptions under Article III, Section 3, a member’s net official holdings of gold and United States dollars shall consist of its official holdings of gold and United States currency after deducting central holdings of its currency by other official institutions and other banks if these holdings carry specified rights of conversion into gold or United States currency.”

  • (1) Article XIX(h) establishes the only deduction from gross official holdings. That is to say, gross official holdings are the total of gold and dollars which a member owns; net official holdings are those holdings minus the one deduction which Article XIX (h) establishes.

  • (2) A deduction cannot be made under Article XIX(h) in the calculation of a member’s net official holdings unless the following conditions are satisfied:

    • (a) There is a holding of the member’s currency.

    • (b) There is a right of conversion of the currency into gold or U.S. dollars exercisable by virtue only of the holdings of the currency and not, for example, by reason of forward exchange contracts.

    • (c) The right of conversion is exercisable at the option of the holder of the currency and not at the option of the member whose currency is held.

    • (d) The option is exercisable by the central or other official institutions or other banks in the territories of other countries, and not by the member’s own official institutions or by banks in the territories in respect of which it has accepted the Agreement in accordance with Article XX, Section 2 (g). “Other countries” embraces all countries, and not simply member countries or nonmember countries which have been specified under Article XIX (d).

    • (e) The right of conversion was in existence on September 12, 1946 (or any later date substituted under Article III, Section 3(d)). However, the right of conversion need not have been exercisable on that date, but may be exercisable at any time thereafter.

• (3) Liabilities payable in gold or dollars where the conditions of Article XIX(h) as set forth in 2 above are not otherwise met, e.g., where the creditor’s right to gold or dollars is not attached to a holding of the currency of the member whose net official holdings are being calculated, are not deductible under Article XIX (h).

Decision No. 298-3

April 14, 1948

Currency Liabilities: Article XIX(e)

1. ………………………………………………………………………………………………………

2.* ………………………………………………………………………………………………………

3. [A member has contended] that where, under a payment agreement, the other contracting party held [its currency and the member] held the currency of the other party, the full amount of the holdings of [the member’s currency] should not be deducted but the two amounts should be offset for the purposes of calculating deductible currency liabilities under Article XIX(e) [ibid]. It is determined that the meaning of the term “currency liabilities” under Article XIX(e) cannot be restricted in this way. It must be applied in the gross sense to include all of the holdings of a member’s currency by another party under a payment agreement.

4. ………………………………………………………………………………………………………

Decision No. 486-2

October 7, 1949

Currency Liabilities: Article XIX(e)

The Executive Board has considered questions relating to the concept of currency liabilities in Article XIX(e), as set forth in Executive Board Special No. 107 (10/18/49), and agrees that the following principles apply:

1. The currency liabilities of a member are the liabilities represented by the holdings of its currency by the Treasuries, central banks, stabilization funds, similar fiscal agencies, other official institutions or other banks of other members, or of such nonmembers as have been specified by the Fund.

2. Currency liabilities are not confined to convertible currencies.

3. The deductibility of currency liabilities does not depend on whether the holder’s currency is convertible.

4. “Currency” in the concept “currency liabilities” means “without limitation coins, paper money, bank balances, bank acceptances, and government obligations issued with a maturity not exceeding twelve months.”

5. A blocked balance is not a currency liability.

Decision No. 493-3

November 4, 1949