V. FUND TRANSACTIONS
- International Monetary Fund
- Published Date:
- September 1951
The development of policy respecting the use of the Fund’s resources has been affected by the fact that the international payments situation has been very much more distorted and confused than was envisaged for the postwar period at Bretton Woods. The Fund’s efforts are now concentrated on the formulation of policy respecting the use of resources in the less disturbed payments situation which it is hoped lies ahead.
The Executive Board has examined the problem from a number of points of view during the year and has approved a proposal designed to ensure that in the present world monetary situation the Fund’s resources will be made available to give confidence to members in undertaking practical programs of action to help achieve the purposes of the Fund Agreement. It is contemplated that these programs would be the result of consultations between member countries and the Fund. Particular attention would be given to the formulation of positive steps by a member willing to run greater risks because of the availability of assistance from the Fund. The steps contemplated would be designed to make possible more rapid and significant progress toward the achievement of the Fund’s objectives, which include the achievement of monetary stability, the adoption of realistic rates of exchange, the relaxation and removal of restrictions and discrimination, and the simplification of multiple currency practices. Arrangements would be worked out appropriate to the particular situation of the member concerned and intended to ensure that use of the Fund’s resources would be temporary. When a program is found acceptable, the member would be assured that the Fund’s resources would be available if the implementation of the proposed program required such assistance. This proposal was approved by the Board on May 2, 1951, as a procedure for use in appropriate cases in addition to and without prejudice to existing procedures or policies respecting the use of the resources of the Fund.
During the 1950-51 fiscal year Brazil purchased £10 million sterling from the Fund for cruzeiros. On the other hand, two members made use of their improved reserve position to repurchase for dollars, on a voluntary basis, amounts of their currency from the Fund. Details of these transactions are given in the next section.
Between March 1, 1947, when the Fund commenced operations, and April 30, 1951, the Fund has effected exchange transactions totaling the equivalent of US$805.2 million, on behalf of nineteen members. A summary of these transactions appears in Appendix I.
As the combined result of the payment by Ceylon, Pakistan, and Panama of that part of their subscriptions payable in gold, of adjustments of the subscriptions originally paid on a provisional basis by two other members in gold and their own currency, of repurchase with gold by one member and of the payment of service and other charges in gold, the Fund’s holdings of gold increased during the year ended April 30, 1951, from $1,459.5 million to $1,495.0 million. On April 30, 1951, its holdings of currencies, including non-negotiable, non-interest-bearing notes, amounted to the equivalent of $5,628.8 million, of which $1,313.4 million was in U.S. dollars.
At various points of time since the Fund started operations, exchange transactions have raised the Fund’s holdings of the currencies of twelve members above their quotas. These members, therefore, became subject to the appropriate charges prescribed in the Fund Agreement. On April 30, 1951, nine members were currently liable to pay these charges to the Fund.
During the year four members with monetary reserves lower than one half of their quotas have availed themselves of the opportunity provided in the Fund Agreement to pay in their own currencies all or part of the Fund’s charges that are normally payable in gold. Such payments are accepted provisionally, and are subject to adjustment after the amount of the monetary reserves of the member involved has been determined.
The total of the charges on balances in excess of quota amounted to the equivalent of US$1.9 million in the fiscal year ended April 30, 1950. In the year ended April 30, 1951, which is covered by this Report, the total was about $2.4 million. The increase of income from this source was the result of the higher rates at which these charges are levied as the periods lengthen during which the excess balances are held by the Fund. The total amount of the balances held by the Fund on which charges were payable was somewhat reduced during the year mainly as the combined result of the adjustment in the subscription payments in gold and currency initially made by one member on a provisional basis, and of the sale by the Fund of the currency of a member subject to the payment of those charges.
Under the provisions of the Agreement, a member that has, with the approval of the Fund, changed its par value by depreciating its currency in relation to gold, must pay to the Fund within a reasonable time an amount of its own currency equal to the reduction in the gold value of its currency held by the Fund. Two members who, during the year under review, changed their agreed par values with the Fund made the necessary additional payments in their own currencies to the Fund. In addition, two other members, for whom there has been no agreed change of par value, but the foreign exchange values of whose currencies have been reduced to a significant extent, arranged for supplementary payments of their own currencies to the Fund, in conformity with the relevant provisions of the Agreement.
Reports on monetary reserves as of April 30, 1950, have been received from thirty-seven members. Although frequent reminders have been given, and the Fund’s services have been offered to deal with any technical difficulties that may hamper the completion of the monetary reserves report forms, the remaining ten members have not yet submitted monetary reserves information either for April 30, 1950, or for previous years.
During the fiscal year, Egypt discharged repurchase obligations that had been incurred as of April 30, 1948, and April 30, 1949. These payments reduced the Fund’s holdings of Egyptian pounds to 75 per cent of Egypt’s quota. The repurchase obligation as of April 30, 1949, of which Chile had been notified during the previous fiscal year, has been agreed to by Chile and payment is awaited.1 Discussions with Peru are still in progress to determine a repurchase obligation as of April 30, 1949. On the basis of data supplied as of April 30, 1950, the Fund has computed repurchase obligations for Lebanon, Mexico, and Norway. The repurchase obligation of Lebanon in the amount of $793,412.94 in gold and $62,429.30 in U.S. dollars has been agreed to by Lebanon. The Fund has accepted a Mexican proposal to discharge the repurchase obligation as of April 30, 1950, at the same time that it discharges a repurchase obligation that will accrue as of April 30, 1951.1 Consultation with Norway is still in progress.
When, during the previous fiscal year, some members tendered U.S. dollars to the Fund in order to reduce the Fund’s holdings of their currencies, the question arose whether the Fund had the power to accept the offer of such voluntary repurchase, that is, a repurchase not required by Article V, Section 7 (b), and not covered by any express provision of the Fund Agreement (e.g., Article V, Section 7 (a) or Section 8 (d)). The Executive Board accepted the view that a member ought to be able to terminate, in whole or in part, its use of the Fund’s resources, and that the acceptance of gold or convertible currency by the Fund, even though the offer were not under any express provision, would help to maintain the revolving character of its resources. Voluntary repurchases could thus be regarded as promoting the same purpose as the provisions of the Fund’s Agreement governing mandatory repurchases. The Fund could, therefore, accept such voluntary repurchases, although it would not, of course, be compelled to do so. By analogy with the repurchase provisions, a voluntary repurchase would not be allowed to reduce the holdings of the repurchasing member’s currency below the level of 75 per cent of the quota concerned, or to increase the Fund’s holdings of another member’s currency beyond 75 per cent of that member’s quota. The Fund, moreover, could not accept inconvertible currencies by way of voluntary repurchase, as their acceptance might operate in circumvention of, instead of being complementary to, the express repurchase provisions of the Fund Agreement. If a member had outstanding a repurchase obligation under Axticie V, Section 7(b) , it must discharge the obligation in accordance with the relevant provisions of the Fund Agreement. However, if currency were payable, the member might pay gold in lieu thereof under Article V, Section 6 (a).
The Executive Board’s decision on voluntary repurchases was made on March 8, 1951, in the following terms:
(1) Subject to paragraph (3) below, a member may offer in voluntary repurchase, and the Fund has the power to accept, if it so decides, gold or convertible currencies to the extent that (a) the Fund’s holdings of the convertible currency of a member which is offered would not be increased above 75 per cent of the quota of that member, and (b) the Fund’s holdings of the repurchasing member’s currency would not be decreased below 75 per cent of its quota.
(2) As a matter of legal interpretation it is determined that the consent of the member whose currency is offered in voluntary repurchase is not necessary as a condition precedent to the acceptance by the Fund of such currency.
(3) Where a member has an accrued and undischarged repurchase obligation under Art. V, Sec. 7 (b), and Schedule B in respect of any financial year of the Fund, the member must discharge the obligation in accordance with those provisions; provided, however, that the payment of currency under those provisions may be combined with the sale of gold to the Fund for the currency under Art. V, Sec. 6 (a).
After this decision had been taken, repurchases offered by Costa Rica and Nicaragua in the previous fiscal year, and by Ethiopia in the current year, which had been accepted provisionally, were declared final, with a minor readjustment in the case of Nicaragua. A second voluntary repurchase in U.S. dollars by Ethiopia, and one by the Union of South Africa, were also accepted later in the year.
If there is an increase in the monetary reserves, in the sense of Article XIX (a), of a Fund member which on joining the Fund paid less than 25 per cent of its quota in gold, the member may incur a repurchase obligation irrespective of any previous purchase of currency from the Fund. Two of the repurchase transactions already completed, and some of those still pending, involve, in part or in whole, payments of gold and U.S. dollars to the Fund of this kind.
The repurchase transactions of the Fund, including both mandatory and voluntary repurchases, effected up to April 30, 1951, are shown in the following table in terms of U.S. dollars:
|May 1,1950-April 30, 1951||From beginning of operations|
until April 30, 1951
|(in U.S. dollars)|
|Gold||U.S. Dollars||Gold||U.S. Dollars|
|Union of South Africa||9,985,314.69||9,985,314.69|
Payment was received from Chile on June 29, 1951.
Payment was received from Mexico on June 29, 1951.