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International Monetary Fund

parties or non-members. However, as already noted, under Article I (iii), it is a purpose of the Fund to promote exchange stability, maintain orderly exchange arrangements among members, and avoid competitive exchange depreciation; and under Article IV, Section 4( a ), members undertake to collaborate with the Fund to promote exchange stability, maintain orderly exchange arrangements with other members, and avoid competitive exchange alterations. On June 18, 1947, the Fund communicated to members a policy statement 16 in which it deprecated international sales of gold

International Monetary Fund

part of the gold produced would constitute an increase in price which would not be permissible if the total price paid by the member for gold were thereby to become in excess of parity plus the prescribed margin. Subsidies involving payments in another form may also, depending upon their nature, constitute an increase in price. Under Article IV, Section 4(a), each member of the Fund “undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations

International Monetary Fund

or part of the gold produced would constitute an increase in price which would not be permissible if the total price paid by the member for gold were thereby to become in excess of parity plus the prescribed margin. Subsidies involving payments in another form may also, depending upon their nature, constitute an increase in price. Under Article IV, Section 4(a), each member of the Fund “undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations

International Monetary Fund. External Relations Dept.

international transactions. The United States said that it would continue to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations. The Fund said in a public statement that it noted the circumstances which led the U.S. authorities to take this action. The statement said that the Fund emphasized the undertaking of members to collaborate with it to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive

International Monetary Fund

members undertake to collaborate with the Fund to promote exchange stability and to avoid competitive exchange alterations. 12 Whatever the difficulties of understanding Article XI, Section 1, it is clear from its structure and scope that it was intended to have a broad sweep in regulating the relations of members with non-members. This is apparent from the use of such general terminology as “transactions” and “practices” and is confirmed by the hearings on the U.S. Bretton Woods legislation before the Committee on Banking and Currency of the U.S. Senate. Senator Taft

Ian S. McDonald

of floating exchange rates, which were discussed both by the Executive Directors and the members of the Committee of 20, are intended to provide criteria for Fund members to observe in performing their “undertaking to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.” Although the Fund cannot legally authorize floating, it is able to exercise surveillance over the manner in which members fufill this undertaking. The guidelines are based on the

W. R. Gardner and S. C. Tsiang

W. R. Gardner and S. C. Tsiang * T HE FUND AGREEMENT outlaws competitive depreciation. Article I (iii) states that it is a purpose of the Fund “to avoid competitive depreciation” and under Article IV, Section 4(a) “each member undertakes to collaborate with the Fund . . . to avoid competitive exchange alterations.” Since every exchange devaluation is designed to strengthen the competitive position of the devaluing country in the markets of the world, a question might be raised whether the Fund is basically opposed to exchange adjustments. It is

International Monetary Fund

begins with a general undertaking on the part of the signatory relating to exchange stability, the maintenance of orderly exchange arrangements with other contracting parties to GATT, the avoidance of competitive exchange alterations and the elimination of certain restrictions, all of which derives from Article I and Article IV, Section 4( a ), of the Fund’s Articles. The signatory is bound to establish a par value, in effect by agreement with the Contracting Parties, and by a procedure comparable to the one prescribed by Article XX of the Fund’s Articles for the

International Monetary Fund

stability depends on effective rates, the general purposes of the Fund and the members’ undertakings of Article IV, Section 4(a) “to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations” are fundamental considerations in an interpretation of the rights and obligations of members under Article XIV, Section 2 or Article VIII, Section 3, to maintain, introduce, or adapt multiple currency practices. Subject to these general principles, the following conclusions are

International Monetary Fund

. Thus, whereas the Bretton Woods code directed countries to “avoid competitive exchange alterations,” 13 the present Articles warn countries to avoid manipulating exchange rates either “to prevent effective balance of payments adjustment” or “to gain an unfair competitive advantage over other members.” 14 (3) The present codes imply a more active role for the Fund itself in monitoring the adherence of countries to their exchange rate policy obligations. Thus, whereas the Bretton Woods code assigned the Fund only the responsibility to concur with or to object to