IV. Exchange And Gold Transactions

International Monetary Fund
Published Date:
September 1948
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Exchange and Gold Transactions During the Past Year

During the 10 months fiscal period extending from July 1, 1947 to April 30, 1948 *, the Fund completed 28 exchange transactions aggregating $544 million on behalf of 10 members. Three transactions, aggregating the equivalent of $62 million, were consummated on behalf of 2 members in the four months from the beginning of exchange transactions on March 1, 1947 to the end of the previous fiscal year on June 30, 1947. From March 1, 1947 to April 30, 1948, the Fund therefore effected exchange transactions totaling the equivalent of $606 million.

The following is a tabulation of these exchange transactions. Further details of these transactions are contained in Appendix VIII.

Currencies Purchased From the Fund(in millions of United States dollars)
In fiscal periodBeginning of operations
Purchased byending April 30, April 30,1948.
United Kingdom300.0300.0

The transactions with Denmark, France, India and the United Kingdom had the effect of increasing the Fund’s holdings of these members’ currencies to amounts in excess of their quotas and in consequence these members became subject to the pertinent charges.

As a result of the payment of members’ subscriptions, the increase in the quotas of Paraguay and Egypt, and the payment of service charges in gold, the Fund’s gold holdings rose during the fiscal period under review from US $1,344 million to US $1,363 million.

At the request of one of its European members who wished to make an immediate sale of gold against United States dollars, the Fund delivered gold for the member’s account out of the Fund’s depository in New York and took delivery in Europe of an equivalent quantity. The member bore the cost of shipping the gold from Europe to New York.

Use of the Fund’s Resources

The Executive Board recognized that in starting operations in a war-devastated world before relief and reconstruction requirements had been fully met, the Fund was running the risk that some of its resources might be used for other than temporary assistance and this was pointed out in the first Annual Report of the Executive Directors. It was thought desirable to assume this risk in order that the Fund might make a contribution to the maintenance of national economies and of exchange stability during the transitional period.

In considering applications for the use of the Fund’s resources during this period, the Executive Board has endeavored to limit the risk involved to a minimum. The Board has kept under review the situation of its members and has examined the causes of balance of payments deficits, the use by members drawing on the Fund of their own gold and foreign exchange resources, and the bearing of the par values of their currencies on their balance of payments position and prospects. Views expressed in the course of these discussions have been communicated informally to the countries concerned and in certain cases where the Fund came to the conclusion that the existing situation was not conducive to the proper use of the Fund’s resources, members have been asked to refrain from making further applications for exchange purchases pending consultations with the Fund. The Fund has emphasized to members that the purpose of the use of the Fund’s resources is to give them time to make necessary readjustment and not to avoid the necessity of such readjustments.

There is no formula which can be used to ascertain the probable duration of a disequilibrium in a member’s balance of payments. Inevitably, therefore, judgment is involved in attempting to determine whether any particular drawing on the Fund will be outstanding for a relatively short or a relatively long period of time. The Board has had, moreover, within the limits of the Fund Agreement, to weigh the advantages from both its own point of view and the point of view of its members of conserving the resources of the Fund for use in the post-transitional period against the advantages which members could derive from some immediate use of the Fund’s resources. In the grave and unsettled conditions which prevailed, the Fund reached the conclusion that in some doubtful cases there were in general more disadvantages involved in denying members access to its resources than in allowing them such access.

In order to formulate the procedures the Fund would follow when it received requests for exchange transactions, the Executive Board reviewed the powers of the Fund to accept, refuse, postpone, or accept subject to conditions members’ requests to purchase exchange. The decisions reached are set out in Appendix IX.

The Executive Board has given consideration to the bearing of the European Recovery Program on the monetary and balance of payments situation of its members and has reviewed its policy towards use its resources in the light of this new and important development. It is obvious that the provision of large additional financial assistance under ERP introduces a new element into the situation which has an important bearing on the Fund’s attitude towards drawings of United States dollars by participants in this program. As indicated above, international payments are now in disequilibrium mainly because of the need of European countries for United States dollars with which to buy the goods needed to complete their recovery. The availability of dollars under this program will naturally ease the general disequilibrium in the international balance of payments and should contribute substantially towards meeting the demand for this currency. Since ERP is to be handled year by year, related policies on use of the Fund’s resources will be developed at similar intervals. With ERP assistance available for the first year, the Fund felt that it could proceed on the assumption that the minimum needs for consumption and investment goods in the countries participating in the ERP program would be met and that accordingly there would normally be no needs of an urgent character which could only be satisfied through purchases of United States dollars from the Fund. It is therefore to be expected that members of the Fund receiving ERP assistance will have less occasion than in the past to wish to purchase United States dollars from the Fund. For the first year the Fund takes the view that ERP members should request the purchase of United States dollars from the Fund only in exceptional or unforeseen circumstances.

The probability that the balance of payments difficulties of member countries will not be overcome completely by the end of the ERP period leads to the conclusion that during the ERP period the Fund’s members participating in ERP should not encumber their access to the resources of the Fund to such an extent that they would be unable to secure help from the Fund thereafter. This conforms with the objective of Article XIV, Section 1 of the Fund Agreement which is not only to safeguard the resources of the Fund but also to prevent undue impairment of members’ access to the Fund by purchase of exchange during the transition period.

In view of the balance of payments situation of some members it is possible that during the current fiscal year they may wish to purchase from the Fund currencies other than United States dollars, including the currencies of some countries participating in ERP. In this connection, it may be recalled that members are not entitled to veto or limit the Fund’s sales of their currencies to other members. The Fund does recognize, however, that such sales should not have the effect of compelling a country to finance a large bilateral surplus with another country while it has to make net drawings on its gold and convertible currency reserves for current payments. Such circumstances would fall within the meaning of the exceptional or unforeseen cases mentioned above and would justify requests by a country participating in ERP to purchase United States dollars from the Fund to make to another member current payments or payments authorized by Article VI, Section 2 of the Fund Agreement but not to build up its monetary reserves. This is in fact the manner in which the Fund is intended to facilitate a system of multilateral payments.

The policies which will govern the use of the Fund’s resources in the light of the European Recovery Program have been communicated to the members for their information and guidance and are set out in Appendix IV.

Resolution No.12, adopted at the Second Annual Meeting of the Board of Governors, changed the beginning of the fiscal year of the International Monetary Fund from July 1 to May 1. The fiscal year 1947-48 therefore covers the period from July 1, 1947 to April 30, 1948.

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