Chapter

VII: Use of the Fund’s Resources

Author(s):
International Monetary Fund
Published Date:
September 1956
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The Fund’s general policies regarding the use of its resources, set forth in detail in last year’s Annual Report (pp. 84–86), have remained unchanged during the past year.

In the course of the year, the Executive Board interpreted Article V, Section 3(a) (iii), of the Articles of Agreement with a view to clarifying the meaning of the limit of 25 per cent of quota in connection with a member’s drawing rights, which appears in that Article. Such an interpretation was important in order to determine when a waiver of the limit might be required. Under the interpretation, a member in any twelve-month period may make purchases equal to 25 per cent of its quota. If it makes such purchases which are then offset by later repurchases or sales by the Fund of its currency, the member may make further purchases equal to the amount of this offsetting. The full text of the decision of the Executive Board is given in Appendix I.

Fund Transactions

The stand-by arrangements with Belgium and Peru which were described in previous years’ Reports continued in effect during the year under review. Drawings of up to $50 million by Belgium and $12.5 million by Peru are permitted by these arrangements. Mexico allowed its stand-by arrangement, which permitted drawings up to $50 million, to expire on October 15, 1955. The Fund agreed to a stand-by arrangement with Chile, whereby up to $35 million may be drawn between April 1, 1956 and March 31, 1957. This arrangement is an integral part of the wider program, described elsewhere, which has exchange and general economic stability as its objective. The stand-by arrangement, which was made at the same time as similar arrangements with the U. S. Treasury and with private U. S. banks, is intended to give an assurance that temporary pressures upon Chile’s exchange reserves can be withstood without serious embarrassment. Since Chile’s quota is $50 million, the arrangement required the granting of a waiver of the normal limitation on annual drawings pursuant to Article V, Section 4, of the Articles of Agreement. No drawings were made during the year under any stand-by arrangement.

The Philippine Republic purchased $10,000,000 in June 1955, and $5,000,000 in April 1956, for pesos; in October 1955, Iran purchased $8,750,000 for rials; and in March 1956, Burma purchased $15,000,000 for kyats. Each of these drawings required a waiver of the normal limitations, in accordance with Article V, Section 4, of the Articles of Agreement. One of the drawings amounted to 67 per cent, and another to 100 per cent, of the member’s quota.

In the year under review, repurchases from the Fund by 10 members of amounts of their currency for gold and dollars were equivalent to $271,661,333.80 (Table 26). The total of repurchases thus again substantially exceeded the amount drawn by members during the year.

Table 26.Repurchases of Currency from the Fund, Fiscal Year Ended April 30, 1956(In U. S. dollars)
MemberU.S. DollarsGoldTotal
Australia8,000,000.008,000,000.00
Burma3,246,823.183,246,823.18
Ceylon1,001,000.001,001,000.00
Finland2,308,408.143,084,091.865,392,500.00
France75,910,548.8852,000,002.35127,910,551.23
India27,500,000.0027,500,000.00
Iran8,750,000.008,750,000.00
Japan62,437,897.1762,437,897.17
Mexico22,420,999.601,562.6222,422,562.22
Turkey5,000,000.005,000,000.00
Total211,575,676.9760,085,656.83271,661,333.80

When drawing on the Fund in October 1953, Brazil undertook to repurchase a total amount of $65.5 million in accordance with a schedule providing for payments in 1957 and 1958. The Fund subsequently granted Brazil’s request for postponement of a repurchase obligation computed by the Fund as having been incurred as of April 30, 1953, so that this payment should coincide with the payments to be made in accordance with Brazil’s repurchase schedule. At the same time, Brazil requested that the discharge of any repurchase obligation that might have accrued as of April 30, 1954 be likewise postponed, and the Fund acceded to this request. During the current year, the Fund computed a repurchase obligation in accordance with Article V, Section 7(b), in the amount of $21,606,630.63, incurred by Brazil as of April 30, 1954, and Brazil agreed with the Fund’s computation. Payment of this obligation will thus be effected not later than the dates specified in the repurchase schedule agreed between Brazil and the Fund, and in the amounts specified in that schedule.

When Turkey made a drawing in August 1953, it undertook to repurchase a total of $30 million in installments in accordance with a schedule providing for payments between January 1954 and January 1957. Turkey has so far repurchased $15 million in gold and U. S. dollars, corresponding to the first four installments. In January 1956, Turkey requested a postponement of the last two installments amounting to $15 million, so that $7 million would be paid at the end of January 1957 and $8 million at the end of January 1958. Also, under Article V, Section 7(b), the Fund computed a repurchase obligation for Turkey of $7,226,422.58, as of April 30, 1955. Turkey agreed with the Fund’s computation, and requested that the discharge of the repurchase obligation be postponed to coincide with the payments to be made in January 1957 and January 1958. The Fund agreed to both requests.

Total transactions between March 1, 1947, when the Fund commenced operations, and April 30, 1956 are equivalent to $1,236.4 million. In all, 28 members have drawn on the Fund, some of them more than once. A summary of these transactions is given in Table 27, and details are given in Appendix II. Of the total sales of currency by the Fund up to April 30, 1956, $1,029 million, or about 83 per cent, has been in U. S. dollars. There have also been sales of sterling, of Belgian francs, and of deutsche mark.

Table 27.Summary of Fund Transactions from the Beginning of Operations to April 30, 1956(In millions of U. S. dollars)
MemberCurrencies

Purchased by Fund
Currencies

Sold by Fund
Repurchases

by Members
Australia50.050.0
Austria7.5
Belgium33.011.421.6
Bolivia2.5
Brazil168.5103.0
Burma15.03.2
Ceylon1.0
Chile21.312.5
Colombia25.0
Costa Rica1.22.1
Czechoslovakia6.01
Denmark10.211.0
Egypt3.08.5
Ethiopia0.62.0
Finland9.514.9
France125.0147.9
Germany4.445.1
India100.099.9
Indonesia15.0
Iran26.217.5
Japan124.0124.0
Lebanon0.9
Mexico45.044.9
Netherlands75.475.4
Nicaragua0.50.5
Norway9.69.6
Paraguay0.90.4
Peru3.1
Philippine Republic15.0
Sweden8.0
Syria1.4
Turkey35.020.0
Union of South Africa10.010.0
United Kingdom300.0191.7112.0
United States1,029.0
Yugoslavia9.0
Total 21,236.41,236.4957.9

The settlement with Czechoslovakia (see page 127) involved an offset of $2.04 million in respect of Czechoslovakia’s drawing of $6 million. The first installment paid under this settlement increased the offset to $2.37 million.

Totals may not equal sums of items because of rounding.

The settlement with Czechoslovakia (see page 127) involved an offset of $2.04 million in respect of Czechoslovakia’s drawing of $6 million. The first installment paid under this settlement increased the offset to $2.37 million.

Totals may not equal sums of items because of rounding.

Of the 25 drawings since the decision of February 1952, which stated that “each member can count on receiving the overwhelming benefit of any doubt respecting drawings which would raise the Fund’s holdings of its currency to not more than its quota,” 19 have been partly or wholly within the gold tranche which was covered by this decision. Of the total outstanding drawings which had not been repurchased or otherwise offset by April 30, 1956, amounting to $187.3 million, $115 4 million was within the gold tranche of the members concerned. As of April 30, 1956, the total amount which members other than the United States might draw if they made gold tranche drawings to the fullest possible extent was $915.3 million.

Since August 1953, the date of the first purchase from the Fund which required a waiver of the limitation of drawings from the Fund, laid down in Article V, Section 3, to such an amount as will not increase the Fund’s holdings of a member’s currency by more than 25 per cent of its quota in any period of 12 months, 15 purchases have been made by members. Of these purchases, 6 have required the exercise of the Fund’s discretion to grant a waiver. Several of these waivers have been granted to members whose quotas are very small in relation to the present volume of their trade. The amounts of individual waiver transactions have ranged from 31.2 per cent to 100 per cent of quota; in two cases, the Fund’s holdings of the member’s currency were raised to 175 per cent of quota. Three stand-by arrangements have been for amounts that exceeded 25 per cent of the member’s quota; one of these arrangements permits drawings up to 70 per cent of the member’s quota. The comparatively frequent use of the waiver in recent years may be taken as evidence of the Fund’s readiness to consider all aspects of a member’s position. It has shown that granting a waiver is not to be regarded as something so exceptional as to be of little practical importance to members.

Repurchases of their currencies by 29 members, which on April 30, 1956 amounted to $957.9 million, have had the effect of maintaining a high degree of liquidity for the Fund. Most of the purchases of U. S. dollars that were made in 1947 and 1948 have since been reversed. There has been a considerable volume of voluntary repurchases, which by April 30, 1956 amounted to $612.6 million, including both repurchases offered by members on their own initiative and repurchases in fulfillment of representations made on the occasion of drawings in accordance with the Executive Board decision of February 13, 1952. Of the total of $1,236.4 million drawn from the Fund, $1,048 9 million, or 85 per cent, has been repaid through repurchases by members that had drawn upon the Fund, through drawings by other members of the currencies of members that had purchased from the Fund, and by the settlement with Czechoslovakia. Fourteen members, which on joining the Fund had paid less than 25 per cent of their quotas in gold, have incurred repurchase obligations in excess of any previous transactions they had had with the Fund. The total of repurchases in excess of previous transactions has amounted to $114.6 million.

The Fund’s gold holdings increased steadily from $1,325.1 million on April 30, 1947 to $1,811.4 million on April 30, 1956. The increase of $67 million in the year ended April 30, 1956 was due to the settlement of repurchases by 4 members, the payment of various Fund charges, and the payment of Afghanistan’s and Korea’s gold subscriptions. The Fund’s holdings of U. S. dollars, which were originally $2,062.5 million, reached their lowest point, $1,269.2 million (46.2 per cent of the U. S. quota), on August 20, 1952; on April 30, 1956, they were $1,776.9 million (64.6 per cent of the U. S. quota). 1

Since the Fund started operations, 17 members have had to pay charges because transactions raised the Fund’s holdings of their currencies above their quotas. On April 30, 1956, 6 members were paying such charges. The Fund Agreement provides that, if a member’s monetary reserves are less than one half its quota, part of the Fund’s charges may be paid in the member’s own currency. One member is currently availing itself of this provision.

Approximately $1 1 million was received in charges on balances in excess of quota in the year under review. In the preceding year, the total was $2.0 million.

Fund Charges

The revised schedule of charges which has been in effect from January 1, 1954 and which expired on December 31, 1955 was extended by the Executive Board, first for six months until June 30, 1956, and then, after further study and consideration of the general principles involved, for another six months until December 31, 1956. The schedule of charges is being kept under review by the Fund.

Computation of Monetary Reserves

Monetary reserves data as of April 30, 1955 have been received from 53 members. Of the 3 members that have not yet submitted the required reports, 2 cannot have repurchase obligations. For the remaining member, Brazil, the submission of monetary reserves data is indispensable in order to determine whether it has incurred a repurchase obligation as of April 30, 1955, and efforts to obtain the data are being continued. The computation of France’s monetary reserves as of April 30, 1954 and April 30, 1955 has not been completed, since discussions of some legal problems between the Fund and France are still in progress. Since the Fund’s holdings of French francs have been reduced by voluntary repurchases to 75 per cent of the French quota, the computation will affect only the distribution between the types of reserve in which any obligation would be discharged.

The investment of Fund assets, amounting on April 30, 1956 to $50 million, which is described later in this Report, is not taken into account in calculating either of the above totals.

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