Chapter

VI Exchange Practices and Payments Arrangements

Author(s):
International Monetary Fund
Published Date:
September 1958
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EARLIER chapters in this Report have shown how widely varied during the last year have been the experiences of Fund members with respect to their balances of payments, their reserves, and the strength of their currencies. This diversity was reflected in their exchange policies and in the extent to which exchange restrictions and discrimination were practiced. Some countries reduced restrictions and discrimination; others increased the restrictiveness of their exchange systems in order to curtail expenditures abroad. For these reasons, there is no broad uniform pattern of progress to be recorded, as there was in recent years, and the net effect of the divergent developments of the year cannot easily be assessed. The most notable achievements were the simplification of several complex multiple rate systems and the success of some countries in avoiding the reimposition of restrictions in spite of pressures on their balances of payments.

Some important advances were made in the extension of the transferability of currencies, a process which has continued steadily for several years. Most of the currencies of Western Europe are now fully transferable among most or all of the non-dollar countries. This transferability has resulted from the continuing efforts of Fund members to reduce the strictly bilateral impact of their arrangements with other countries. A considerable number of bilateral payments arrangements were allowed to lapse during the year, payments being placed, in most cases, on a transferable currency basis.

There was not, on balance, any marked change in the use of quantitative restrictions on imports or import payments. Balance of payments difficulties still provide an important reason for the maintenance of quantitative restrictions in many countries; recently, however, their retention has been to an increasing extent for other reasons, particularly as an instrument of protection. In the past year most Western European countries extended further their liberalization of imports. These relaxations were made applicable, in varying degrees, to imports from OEEC countries, other non-dollar countries, and the dollar area. Several countries outside Europe also relaxed their import restrictions. On the other hand, certain countries with deteriorating balances of payments found it necessary to reduce their exchange allocations for imports.

Although further progress was made during the year in reducing discrimination, particularly against the dollar area, it continues to be an important aspect of the restrictive system of many countries. Discrimination is still important with respect to manufactured consumer goods and, to a somewhat lesser extent, with respect to capital goods and foodstuffs.

It was reported in last year’s Annual Report that, with one exception, there had been no fundamental change in respect of the use of multiple currency practices. During the year under review in this Report, however, important modifications were made in the complex multiple rate systems of several countries. In only a few countries were multiple rate systems made more complex.

There was a marked strengthening during the year of the rates at which transferable currencies were quoted in free exchange markets. The currencies involved—mainly Western European currencies—are generally convertible into dollars in these free markets; and in the past year, the exchange rates for such conversion operations improved to a point where they were within 1 per cent of parity. The increased confidence in transferable currencies and the strengthening of the rates at which they are quoted were due to a large extent to the measures taken by several European countries, which are described elsewhere in this Report. With the narrowing of the margin between the rates for transferable exchange and the official market quotations for the currencies of these countries, the problem of broken cross rates in these currencies is no longer important, and switch trade based on differences between the rates has ceased to be profitable.

During the year under review, trade and payments relations between Brazil and Argentina, on the one hand, and certain groups of European countries, on the other, continued to be governed by the “Hague Club” and “Paris Club” arrangements described in previous Annual Reports. The European participants in the “Hague Club,” which governs relations with Brazil, are Austria, Belgium, France, the Federal Republic of Germany, Italy, Luxembourg, the Netherlands, and the United Kingdom. The “Paris Club” arrangements were formalized in November 1957 by signing a series of trade and payments agreements between Argentina and the 11 European participating countries (Austria, Belgium, Denmark, France, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom). At the same time, a similar agreement was signed with the Federal Republic of Germany, which thus became a member of the “Club.” Arrangements were also completed for the consolidation and amortization of Argentine debts to certain participants. Provisional arrangements between Argentina and Japan provide for settlements to be made in transferable sterling and for the consolidation and amortization of Argentine debts to Japan on lines similar to those applying to European partners. By signing a trade and payments agreement with Argentina, effective May 9, 1958, Finland also in effect entered the “Paris Club” group, with payments between Finland and Argentina to be effected in currencies that may be exchanged into any currency of a “Club” member, except that the French franc is excluded because of a bilateral agreement between Finland and France.

Finland has also made an agreement with the countries (except France) participating in the Western European multilateral arbitrage arrangements and with Portugal, as a result of which Finland’s earnings from exports to any of these countries may be exchanged into the currency of any other. At the same time, Finland granted a high degree of import liberalization to these countries without discrimination among the group, and these countries give OEEC liberalization treatment to imports from Finland.

The European Payments Union (EPU) was renewed in May 1957 for a further period of one year, that is, until June 30, 1958, without change in either its operating rules or its termination provisions. Credit facilities available for 1957-58 were left unchanged from the preceding year, except that Italy renounced an unused special credit of $50 million and France was granted a new rallonge of $200 million.

In June 1958 the Managing Board of the EPU recommended to the Council of the Organization for European Economic Cooperation that the EPU be renewed on the same terms for a further year as from July 1, 1958.

During the period covered by this Report, the Federal Republic of Germany, which continued to grant unlimited credit up to 25 per cent of its surpluses, remained by far the largest creditor of the Union. However, its monthly surpluses, which were especially large in the third quarter of 1957 as a result of the speculative movements described elsewhere, were subsequently reduced and in some months replaced by small deficits. Belgium and the Netherlands remained the next largest creditors of the EPU, and the United Kingdom and France its largest debtors. Except during the wave of exchange speculation in the third quarter of 1957, when a large deficit was recorded, the United Kingdom’s EPU transactions were in approximate equilibrium in 1957; in the first few months of 1958, they showed a small surplus. France ran large deficits during most of 1957, but these deficits were reduced later in the year. In January 1958, France received another rallonge of $400 million, i.e., the right to settle future deficits up to that amount 75 per cent in gold and 25 per cent in credit. A special credit of $150 million was made available to France to help it make the required gold payments. Of this credit, $32 million was borne by the EPU itself, $100 million by Germany, and the remainder by Switzerland, Belgium-Luxembourg, Italy, and Austria. Of the total credit, $80 million was available for use in the first half of 1958; use of the remainder was subject to approval by the EPU.

On January 1, 1958, the Treaty establishing the European Economic Community (Belgium, France, the Federal Republic of Germany, Italy, Luxembourg, and the Netherlands) entered into force. Since that time, substantial progress has been made in setting up the Institutions of the Community. Under the Treaty, the Member States intend to eliminate customs duties and other obstacles to trade and to the free movement of persons, services, and capital among themselves over a period of 12 to 15 years, to set up a common customs tariff for imports from countries outside the Community, and to establish a common economic policy.

The first step to be taken, a reduction of 10 per cent in customs duties existing among the members of the Community, is intended to take place on January 1, 1959. The Treaty expresses the intention of the members of the Community to comply with their other international obligations which naturally include those under the Articles of Agreement of the Fund.

Members of the Fund have individually shown interest in the effects of the establishment of the EEC. The Fund, with its special responsibilities in the field of international payments, will follow developments with equal interest.

As this Report is being written, negotiations are continuing for the drawing up of arrangements under which other members of the OEEC could be associated with the Six Member States of the European Economic Community in a European Free Trade Area. In other parts of the world also, plans for closer regional associations have been under discussion. A Multilateral Treaty of Free Commerce, which is still subject to ratification, aims at the eventual establishment of a customs union between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

Par Values and Exchange Rates

On September 15, 1957, the Fund concurred in a proposal by the Government of Finland for a change in the par value of the Finnish markka from Fmk 230 per U.S. dollar, the rate established on July 1, 1951, to Fmk 320 per U.S. dollar. At the same time, all multiple currency practices were to be abolished in Finland. The tourist rate of exchange, with a buying rate of Fmk 325 and a selling rate of Fmk 330 per U.S. dollar, as well as the Clearingkunta arrangements under which certain exporters received and certain importers paid a markka premium of up to 20 per cent on the official exchange rate, ceased to exist. Measures were adopted for the liberalization of imports shortly after the devaluation of the markka, and some additional steps have since been taken.

On May 8, 1957, the Fund concurred in a proposal by Iran to change the initial par value of the rial from Rls 32.25 per U.S. dollar, the rate established on December 18, 1946, to Rls 75.75 per U.S. dollar, effective May 22, 1957. After a period of exchange depreciation, during which there had also been some use of multiple exchange rates, Iran in 1953 initiated a policy of exchange appreciation and unification of the exchange rate, which in March 1956 culminated in the establishment of a de facto unitary exchange rate. The rate thus established was given formal recognition by the establishment of the new par value in May 1957.

Among the members that have no par value, Greece and Italy have maintained unitary fixed rates—Italy since 1949 at approximately 625 lire per U.S. dollar, and Greece since 1954 at 30 drachmas per U.S. dollar. The free market selling rate for the U.S. dollar in Thailand fluctuated between 20.66 baht and 20.90 baht, and the rate for sterling between 57.08 baht and 58.35 baht, during the calendar year 1957.

The de facto depreciation of the franc exchange rate from 350 francs to 420 francs per U.S. dollar in France, which in 1948 altered the par value of its currency and has not agreed a new par value with the Fund, is noted elsewhere in this Report.

Canada has maintained a unitary, though fluctuating, exchange rate since September 1950, when it was decided that, temporarily, the Canadian exchange rate could not be maintained within the specified margins of the par value agreed with the Fund in September 1949. The influences which produced fluctuations in the Canadian exchange rate during the last year are analyzed in Chapter V of this Report. During the first eight months of 1957, when there was a heavy capital inflow, the rate rose almost continuously from US$1.0411 to a high point of US$1.06 on August 20. With the subsequent decline of the capital inflow and despite a smaller current account deficit and some reduction of official gold and dollar holdings, the rate then fell until in early January 1958 it reached US$1.0091. In the first quarter of 1958 renewed sales of Canadian security issues in the United States were again followed by a rise in the value of the Canadian dollar, which averaged US$1.03 in April.

In Lebanon and Syria, there are no exchange transactions at rates related to the par values of these countries. In Lebanon the exchange rate in terms of U.S. dollars was about LL 3.16 per U.S. dollar for most of the year. Previously, the authorities had maintained a policy of preventing the rate from appreciating beyond LL 3.20 per U.S. dollar. In Syria, the controlled rate applying to most trade transactions remained unchanged in terms of U.S. dollars, with the selling rate at LS 3.585 per U.S. dollar, while the market exchange rate was fairly stable throughout the year with variations of less than 3 per cent from the controlled rate.

Several Fund members have found unsatisfactory the complex multiple currency systems with which they have been experimenting for varying periods of time; however, finding it difficult to change immediately to a unitary fixed rate system governed by a par value, some of them have in recent years tried to ease the transition by first establishing a free exchange market in which the rate is allowed to fluctuate. Peru established two such free markets in November 1949, and similar steps were taken by Chile in April 1956 and by Bolivia in December 1956. In 1957, Colombia and Paraguay initiated reforms of their exchange systems on lines which in broad outline are similar to the reforms undertaken earlier in Peru, Chile, and Bolivia.

The foreign exchange reform in Colombia, approval of which was announced by the Fund on June 18, 1957, was adopted as part of a stabilization program whose purpose was to curb inflationary pressures and to remedy a serious payments situation. The stabilization program included internal measures to restrain demand, as well as the adoption of a simpler and more realistic exchange system. The new system provided for two exchange markets, in each of which the rate was to fluctuate freely. Trade and specified transactions in invisibles, including the service of registered capital, were to be conducted through an exchange certificate market, with all other exchange transactions taking place in a free market. An exchange tax of 15 per cent, which was first levied on all export proceeds, was subsequently limited to the major exports. Payments through the certificate market were subjected to a 10 per cent remittance tax.

The certificate rate depreciated from Col$4.80 per U.S. dollar in June 1957 to about Col$6.15 toward the end of February 1958; during the same period, the free market rate moved from Col$5.90 per U.S. dollar to around Col$6.90. The depreciation reflected the continued imbalance in international transactions resulting from a deterioration of Colombia’s terms of trade, the heavy burden of the large short-term foreign debt incurred in the settlement of commercial arrears, and to some extent the continuation of a high level of internal demand.

In March 1958, the buying rate for all export proceeds was fixed by the authorities at Col$6.10 per U.S. dollar. The central bank became the sole supplier of exchange to the certificate market, where exchange certificates were sold to importers and other authorized users through public auction. The yield from the differential between the buying rate and the auction selling rates was to be used to finance purchases of coffee by the National Coffee Fund and for the repayment of the indebtedness of the Federation of Coffee Growers to the central bank. Further changes in the markets resulted from a lowering of the minimum exchange surrender requirement per bag for coffee exports to bring the amount of exchange to be surrendered more closely in line with the external price. To offset this reduction in supply in the certificate market, exchange payments for freight and the 10 per cent remittance tax payable in foreign exchange, which had previously been effected through the certificate market, were shifted to the free market.

At the opening of the exchange auctions, the certificate rate averaged Col$6.85 per U.S. dollar. It subsequently appreciated and was Col$6.64 at the end of April 1958.

In August 1957, when the Fund was informed that the Paraguayan exchange rate would not be maintained within the prescribed margins of the par value of 60 guaraníes per U.S. dollar, which had been agreed with the Fund in March 1956, Paraguay eliminated its quantitative restrictions on imports and adopted a freely fluctuating exchange rate as part of a comprehensive stabilization plan. Import surcharges and special subsidies on exports were eliminated. The new exchange market opened with the rate of

95 per U.S. dollar, approximately the level to which the previous free market had appreciated in expectation of the coming reform. The rate subsequently depreciated again, until in November it reached & 110 per U.S. dollar, a rate which was thereafter maintained. The stability in recent months is attributable directly to the progress made under Paraguay’s stabilization program. Financial policies have been strengthened, and bank credit, particularly to the private sector, has been strictly limited. The public sector deficit is expected to be reduced sharply in 1958. The rise in internal prices, very pronounced in recent years, slowed down considerably after mid-1957, and prices actually fell by 3 per cent during the first five months of 1958.

In Peru, the free exchange rate for the sol in the certificate market, which had been maintained at S/. 19 per U.S. dollar since late 1954, was allowed to fall in January 1958. This action followed a decline of export prices, expansion of domestic bank credit, and budgetary deficit operations which had caused a serious deterioration in Peru’s payment position. The maintenance of the S/. 19 rate was found to require extensive market intervention by the monetary authorities and a consequent decline in exchange reserves. A series of measures was taken for the restoration of monetary and exchange equilibrium, and the authorities withdrew support from the exchange market so that the rate might find its own level. As a result of these developments, there was a steady depreciation of the sol in both the certificate and the draft markets until early March, when the certificate rate reached S/. 23.50 per U.S. dollar. Subsequently it appreciated somewhat, with fluctuations between S/. 22.50 and S/. 23. By the end of April 1958, the certificate rate was about S/. 22.68, and the free or draft market rate, which had been S/. 19.03 per U.S. dollar at the end of April 1957, was about S/. 22.75 per U.S. dollar.

Rates in the two free exchange markets which have been maintained in Chile since April 1956 steadily depreciated in the course of the past year. Exchange receipts fell sharply with serious declines in the price of copper, but the supply of exchange in the market was maintained by drawing on reserves. Pressures on the exchange market were, however, attributable primarily to continued credit expansion to both the private and the government sector of the economy at a rate more rapid than the rate of growth of production.

The exchange rate for the peso in the Banking Free Market depreciated from Chil$582 per U.S. dollar at the end of April 1957 to Chil$757 at the end of April 1958. The rate of depreciation of the Brokers’ Free Market rate in the same period was substantially greater, from Chil$652 to Chil$980 per U.S. dollar.

The spread between the buying and the selling rates in the Banking Free Market was reduced in July 1957 by the elimination of a specific tax of Chil$15 per U.S. dollar and the reduction from 5 per cent to 1 per cent of an exchange tax which was, however, subsequently increased to 2 per cent.

Bolivia maintained a unified fluctuating exchange rate throughout the year, without any restrictions on trade and payments. The rate for the boliviano depreciated until August 1957, largely under the impact of some wage increases together with weakening prospects for mineral exports. The average rate, which had been about Bs 7,700 per U.S. dollar in April, fell in August to Bs 8,700. Thereafter, for the rest of the year it moved within a fairly narrow range, with a tendency toward moderate appreciation. In early 1958, a substantial decline in export proceeds produced renewed pressure on the exchange market. There was some decline in reserves, and by the end of April 1958 the rate had depreciated to about Bs 8,855.

The history of the last year has again demonstrated that the adoption of a fluctuating exchange rate is not by itself any guarantee of payments stability. If a satisfactory exchange situation is to be maintained, and fluctuations in the exchange rate held to a minimum, the economy must also be strengthened by a wide variety of appropriate policies in other fields.

Other Changes in Exchange Practices

The exchange systems of Fund members that maintain multiple currency practices are described in the Ninth Annual Report on Exchange Restrictions. The more important developments during the past year in the exchange practices of Fund members, other than those recorded above, are noted in the following paragraphs.

The multiple rate structure of Afghanistan involves a number of fixed effective rates in the official market and a free market rate. Four additional buying rates introduced in 1956 and 1957 raised the number of effective rates in the official market to eight buying rates and four selling rates, ranging from Afg 20.0 to Afg 48.8 per U.S. dollar. In recent years, the free market rate has depreciated, but it improved after May 1956, when the rate exceeded Afg 57.0 per U.S. dollar, and in late 1957 was quoted at around Afg 52.0 per U.S. dollar. This improvement was in part the result of increased exports, but inflationary pressures were also reduced considerably. The rate of monetary expansion, which in the year ended March 1955 had been about 40 per cent and in the previous year 30 per cent, was limited in the year ended March 1957 to about 9 per cent. The reduction was achieved by limiting the government deficit to the amount which could be financed from external borrowing and curtailing the rate of credit expansion for other purposes.

The basic structure of Argentina’s exchange system remained unchanged during the past year. However, under the impact of continuing internal inflation, some important changes were made which had the general effect of depreciating the effective exchange rates. The proportion of total import and export transactions which took place in the free market increased by about 10 per cent in 1957; this increase was the result in part of a reclassification of some commodities and in part of wider margins between world prices and the official valuations of commodities subject to the official rate. In addition, the taxes levied on exports through the exchange system were substantially reduced, some surcharges were imposed on imports in the official market, and mixing arrangements were introduced for a few imports. The free market exchange rate for the peso depreciated from M$N 38.40 per U.S. dollar at the end of April 1957 to an average of M$N 45.10 in September. The Central Bank then entered the market with support operations, and the rate appreciated to about M$N 36. In March and April 1958, the rate again tended to depreciate, falling to M$N 42.25 per U.S. dollar at the end of April.

On October 18, 1957, Belgium-Luxembourg took a number of measures to increase the supply of EPU currencies in the official market. Under the new regulations, export proceeds in EPU currencies can no longer be sold in the free market and must be sold in the official market, while outward capital movements in EPU currencies must now go through the free market. These measures have the effect of excluding receipts from commercial transactions in EPU currencies from the free market and outgoing capital transfers in those currencies from the official market, so that in this sense transactions in EPU currencies are now treated in the same way as those in dollars.

Brazil made several important changes in its exchange system in the past year. The most significant change was made in August 1957 in connection with a reform of the customs tariff, which put the tariff on an ad valorem basis and raised the average rate of duty from 3 per cent to 30 per cent. The new rates in part achieved the differentiation between commodities which had previously been effected through the exchange system, and this made it possible to reduce the number of categories in the exchange auctions from five to two. At the same time, preferential imports not subject to the auction system were to receive exchange at a rate not lower than the average cost of exchange to the monetary authorities. The 10 per cent remittance tax previously applied to most payments was eliminated. Export rates were affected when in June 1957 a sliding premium on proceeds from coffee exports was adopted to encourage improvement in the quality of coffee exports. To facilitate the movement of exports, special ad hoc promotional arrangements were extended in early 1958 to all products other than coffee and cocoa.

Steady internal inflation arising from a growing government deficit together with substantial increases in private credit brought a large depreciation in Brazil’s market exchange rates for the cruzeiro in the course of the year. Up to July 1957 the auction premium for the U.S. dollar averaged about Cr$66. When, after being suspended for nearly a month, auctions were reopened in September with the new classification, this premium was not significantly reduced, despite the addition of the new and higher tariff rates to the effective cost of imports. In early 1958, however, the depreciation was accelerated when the amounts of exchange offered in the auctions were reduced by 20 per cent. By the end of April, the premium for U.S. dollars had risen to Cr$120 for general category imports. The premium for special category imports, which at the time of the establishment of the simplified auction classification had been about Cr$160 per U.S. dollar, increased to Cr$270 at the end of April 1958.

There was also a depreciation in the free market exchange rate, which moved from Cr$68.30 per U.S. dollar at the end of April 1957 to Cr$120.75 at the end of April 1958.

China (Taiwan) simplified its multiple exchange rate structure on April 12, 1958 by abolishing the 20 per cent defense tax, which had been previously incorporated in three of its exchange rates, and establishing two effective rates for both purchases and sales of foreign exchange, compared with five and two rates, respectively, before the revision of the exchange rate. An official selling rate of NT$24.78 per U.S. dollar was established for payments for essential imports and for outgoing remittances by the Government (except invisibles connected with trade). A corresponding buying rate of NT$24.58 was established for exports of sugar, rice, and salt, and for remittances received by government agencies. A second selling rate, consisting of the official rate plus the value of an exchange certificate, is applied to payments for all other imports and to all other invisibles. The corresponding buying rate, consisting of the official buying rate plus the value of an exchange certificate, is applied to receipts from other exports and to private remittances. The value of the exchange certificate on April 30, 1958 was NT$11.50 buying and NT$11.60 selling per U.S. dollar.

The measures which in February and March 1958 established an “export pound” in Egypt resulted in an effective depreciation of the Egyptian pound by 21 per cent for most transactions except those with certain countries in the Middle East and the Soviet area. Transactions may be conducted through nonresident “export pound accounts,” which are credited for outgoing payments, and may be used for incoming payments on Egyptian goods and services. For a nonresident who is unwilling to hold “export pounds,” payment in foreign exchange may be arranged by an Egyptian importer upon payment in local currency at the par value rate of exchange plus a surcharge of 27 per cent to the credit of an “export pound account” held in the name of an Egyptian commercial bank. Incoming foreign exchange payments are treated similarly, with Egyptian exporters being paid, upon surrender of foreign exchange proceeds, at the par value rate of exchange plus a premium of 26.5 per cent. The new system applies to transactions with countries with which Egypt does not have bilateral agreements stipulating payments in Egyptian pounds. Nonresident “export pound accounts” are transferable among these countries and may be used for all transactions except exports of Egyptian rice, transactions made through shipping accounts, and payment of Suez Canal tolls.

Indonesia introduced in June 1957 a new exchange system, the Export Certificate System (Bukti Expor or BE System), which sought to correct the overvaluation of the rupiah so that exports might be promoted and barter trade and smuggling discouraged, and to provide an automatic adjustment between the supply of and demand for foreign exchange. A free exchange certificate market was established for all exchange transactions, except those of the oil companies that are governed by special agreements. In return for all exchange surrendered to them, the exchange control authorities issue exchange certificates, denominated in rupiah and with face value equal to 100 per cent of the foreign exchange surrendered converted at the official rate. The certificates are freely negotiable in the market, through the intermediary of authorized foreign exchange banks, within a prescribed period, which was originally two months but was changed to six weeks in October 1957. All exchange payments have to be financed by BE certificates bought in the market. The purchasers of certificates receive foreign exchange from exchange banks upon the surrender of the certificates, payment of the appropriate taxes, and the presentation of valid licenses for making the exchange payments.

The basic official rate of Rp 11.4 per U.S. dollar which is maintained under the BE System is nominal and does not in practice apply to any transaction except those of oil companies. There are in fact eight effective rates determined by the exchange certificate rate in the BE market. All exports and the proceeds from current invisibles not directly related to exports receive a uniform rate, equal to the certificate rate less an ad valorem tax of 20 per cent calculated at the certificate rate. Inflow of capital takes place at the certificate rate and is not subject to this tax. For imports there are six rates, corresponding to the classification of imports in six import-surcharge categories. There is no surcharge on imports of rice and other so-called essential commodities, or on most payments for invisibles; surcharges on other imports range from 20 per cent to 175 per cent. For certain invisibles, such as travelers checks, a special rate has been prescribed from time to time which is also determined with reference to the certificate rate.

The export certificate rate averaged about 230 per cent of the official rate from the time when the BE System was established through September 1957. In the first half of October, the rate depreciated to about 260 per cent, and thereafter remained fairly steady, fluctuating between 246 per cent and 251 per cent until the third week of December. Declining exports then kept the supply of BE certificates short, and the rate depreciated steadily; at the end of April 1958 it was 332 per cent.

During the past financial year, premiums over the official exchange rate were introduced in Israel on capital transferred by some categories of immigrants and on receipts of foreign exchange resulting from certain transactions in invisibles. The number of countries to which the system of export premiums on the locally “added value” of industrial exports applies was increased, but the differences between these premiums according to currency received were reduced. Export premiums were introduced in respect of the cost of air freight for exports carried by the Israeli national airline. Import subsidies on foodstuffs and medicines and the special buying rate below the official rate for the proceeds of appeals and charitable donations were abolished.

Uruguay modified its multiple exchange rate structure in 1957 and made some progress in simplifying its complex system of export rates. A depreciation of both export and import rates was effected toward the end of the year by changing the commodity classification and establishing requirements for the surrender of export proceeds from wool and wool products at prices less than the international prices.

A sharp decline of exports and an increase of import demand resulted in a pronounced disequilibrium in external payments in 1957, and led to the re-establishment of quantitative restrictions on imports. Domestic prices rose markedly, and the expansion of credit of the previous year continued. These trends are reflected in the sharp depreciation of the exchange rate in the free financial market, from Ur$4.01 pesos per U.S. dollar in April 1957 to Ur$6.80 in April 1958.

On May 20, 1957, Yugoslavia revised its settlement rates and thus reduced the number of groups of broken cross rates from 13 to 6. The disparity between the settlement rates for most OEEC currencies and the settlement rate for the U.S. dollar (632 dinars) was reduced to about 1 per cent. Exchange rates for individual transactions have been determined by coefficients (or multipliers) applied as a rule to the settlement rate, though until the end of 1957 coefficients for some official imports were applied to the official exchange rate of 300 dinars per U.S. dollar. On May 22, 1957, the number of these coefficients was reduced. The number of export coefficients was reduced from 35 to 16, and those higher than 2.0 were abolished. The import coefficients above 3.0, which had been inoperative for some time, were formally eliminated, and the lowest coefficient was increased from 0.5 to 0.6. Effective January 1, 1958, the special rate for imports by government institutions was eliminated and replaced by the settlement rate for this category of import. Furthermore, the exchange rate for sales of foreign exchange to these institutions for noncommercial payments abroad was increased by 100 per cent, so that for noncommercial payments the same rate now applies to all buyers. Thus the number of multiple rates was further reduced. On January 10, 1958, the number of broken settlement rates was further limited; disparities in settlement rates that are larger than 1 per cent exist only in relation to transactions with Egypt, Israel, Turkey, and certain Eastern European countries. Effective March 1, 1958, changes were made in the percentages of foreign exchange earnings that certain groups of enterprises may retain at their free disposal; retention quotas play only a minor part in the Yugoslav exchange system.

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