Chapter

Chapter 3 Activities of the Fund

Author(s):
International Monetary Fund
Published Date:
September 1972
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The disturbances to the international monetary system that culminated in and followed the decision by the United States on August 15, 1971 to suspend the convertibility of the U.S. dollar into gold and other reserve assets had a pro-found impact on the Fund’s activities. Re-examination of the exchange rate structure was intensified, the conduct of the Fund’s financial operations required new methods and procedures, and improvement or reform of the international monetary system gained added urgency. The importance of progress on each of these three areas was emphasized in a Resolution adopted by the Governors at the Fund’s 1971 Annual Meeting.1

The Governors’ Resolution reflected the dangers of instability and disorder in currency and trade relationships in the existing situation. Inter alia, it called for collaboration in efforts to bring about a reversal of the tendency to maintain and extend restrictive trade and exchange practices. Members were called upon to collaborate with the Fund and with each other in order, as promptly as possible, to establish a satisfactory structure of exchange rates, maintained within appropriate margins, for their currencies, together with the reduction of the restrictive practices.

In the Resolution, member countries were also called upon to collaborate with the Fund and with each other in order, as promptly as possible, to facilitate resumption of the orderly conduct of the operations of the Fund. It was possible to continue these operations, although serious problems arose in their conduct as a result of the uncertainty about currency relationships and the increasing likelihood that the dollar price of gold would be raised. This affected members’ attitudes regarding transactions with the Fund. On the one hand, purchases of currencies from the Fund were less attractive because the resulting liabilities were fixed in terms of gold. On the other hand, countries felt it advantageous to repurchase outstanding drawings from the Fund with currencies, thereby reducing their liabilities expressed in terms of gold. But a number of countries with creditor positions in the Fund were reluctant to see them reduced by the use of their currencies in repurchases—as this would decrease assets valued in terms of gold and as the repurchasing member would be likely to seek to obtain the creditors’ currencies by the exchange of U. S. dollars, for which convertibility had been suspended.2 Similarly, participants in the Special Drawing Account were reluctant to reduce their holdings of special drawing rights (SDRs), the value of which is constant in terms of gold.

Part III of the Resolution of the Governors requested the Executive Directors to make reports to them without delay on the measures necessary or desirable for the improvement or reform of the international monetary system. The Executive Directors have continued their detailed examination of the various aspects of reform, and a separate initial report is being submitted to the Board of Governors.

In June 1972 the Executive Directors submitted to the Board of Governors a proposal for a Committee of the Board of Governors on Reform of the International Monetary System and Related Issues. The Resolution establishing the Committee was adopted by the Governors on July 26, 1972 and is reproduced in Appendix III. This Resolution is the result of extensive consideration on ways of providing a more effective forum for examination at a high policymaking level of the issues relating to reform of the international monetary system, with full participation by developed and developing member countries alike. The Committee’s task will be to advise and report to the Board of Governors on all aspects of reform, including proposals for amendment of the Articles of the Fund. The members of the Committee will be appointed by each of the countries or groups of countries that appoint or elect an Executive Director of the Fund, resulting in a Committee of 20 members.

Other, more normal activities, of course, occupied much of the Fund’s time in the period since the preparation of the 1971 Annual Report. As indicated above, it was possible to conduct financial transactions, which were on a relatively large scale. Consultations with member countries, technical assistance, and other work continued as in previous years. Policies were reviewed and new decisions were taken, affecting both the General Account and the Special Drawing Account. In the light of the experience gained in the operation of the Special Drawing Account and with the approach of the end of the three-year basic period for the allocation of SDRs agreed in 1969, policies in this area are receiving increasing attention.

Studies such as that on the size and structure of the Executive Board were continued during the year. Other studies were carried on in the broader context of reform. These covered work already begun on exchange rate flexibility and short-term capital movements. Examination of various proposals for a link between the issuance of SDRs and the financing of economic development also continued in the same context.

Following the realignment of exchange rates in December 1971, the Fund reviewed its accounting practices. In view of the fixed gold value of special drawing rights, their international character, and their role as an international reserve asset, the Executive Directors proposed to the Board of Governors that the Fund’s By-Laws be changed to provide that the accounts of the Fund’s General Account be summarized in SDRs, the unit of value of which is equivalent to 0.888671 gram of fine gold.3 The Board of Governors agreed to this proposal effective March 20, 1972.

Exchange Rates

The exchange rate structure was already under severe strain at the opening of the fiscal year 1971/72, and five members of the Fund took action in the exchange field on May 9, 1971. The German authorities advised the Fund that they would not, for the time being, maintain the exchange rates for the deutsche mark within the established margins, and the Netherlands authorities informed the Fund that they found it necessary to take similar action. On the same day Austria proposed an appreciation of 5.05 per cent in the par value of the schilling, and the dual foreign exchange market regulations of the Belgian-Luxembourg Economic Union were modified with a view to discouraging excessive capital inflows.4

Subsequent developments leading up to the August 15 suspension of the convertibility of the U. S. dollar into gold and other reserve assets are described in Chapter 1. The U. S. authorities notified the Fund that the United States no longer, in fact, freely bought and sold gold, for the settlement of international transactions. As a result, it was no longer assured that exchange transactions between the U. S. dollar and the currencies of other members would take place within the prescribed limits around parity in the territories of the United States.

The Fund noted the circumstances that had led the United States authorities to take this action. 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 exchange alterations. It therefore welcomed the intention of the United States authorities to act in accordance with this undertaking. The Fund stated that it would remain in close consultation with the authorities of the United States and the other members with a view to the prompt achievement of a viable structure of exchange rates on the basis of parities established and maintained in accordance with the Articles of Agreement.

In the weeks following the U. S. action, exchange rates fluctuated in the markets, and various trade and exchange measures were taken to deal with the new situation. Between August 15 and mid-December 1971, the Fund was called upon to take little formal action with respect to individual exchange rates. The only par value change was that by Israel, which with the Fund’s concurrence devalued the pound by 16.7 per cent on August 21.

As was made abundantly clear at the Annual Meeting in late September and early October, there was broad agreement on the desirability of an early return to an orderly exchange system. Intensive work was, therefore, carried out both within the Fund and outside it to determine what exchange rate relationships among major currencies would give promise of stability in the foreseeable future, without recourse to restrictions and large-scale intervention in the markets by national authorities. At the same time, various aspects of the realignment of currencies were discussed in different forums, and on December 16 a joint meeting of Executive Directors of the Fund and Deputies of the Group of Ten was held to discuss the international monetary situation.

On December 17 and 18 the Ministers and Central Bank Governors of the Group of Ten met at the Smithsonian Institution in Washington and reached agreement on the realignment of the currencies of their countries.5 The pattern of exchange rate relationships that emerged is set forth in Table 13.

Table 13.Exchange Rate Relationships Resulting from the Smithsonian Agreement, December 18, 1971
MemberPercentage

Change in Terms

of Par Value
Percentage

Change in Terms

of U. S. Dollar
Exchange Rate ActionEffective Date
Belgium+ 2.76+ 11.57central rateDec. 21, 1971
Canadafloating rate continued
France+ 8.57par value maintained
Germany+4.61+ 13.58 1central rateDec. 21, 1971
Italy-1.00+ 7.48central rateDec. 20, 1971
Japan+ 7.66+ 16.88central rateDec. 20, 1971
Netherlands+ 2.76+ 11.571central rateDec. 21, 1971
Sweden-1.00+ 7.49central rateDec. 21, 1971
United Kingdom+ 8.57par value maintained
United States-7.89new par valueMay 8, 1972

Based on par value in effect prior to May 9, 1971.

Based on par value in effect prior to May 9, 1971.

Immediately following the agreement on realignment, the Fund adopted a decision, entitled “Central Rates and Wider Margins: A Temporary Regime”, to enable members to observe the purposes of the Fund to the maximum extent possible during the temporary period preceding the resumption of effective par values with appropriate margins in accordance with the Articles.6 The decision indicated the practices that members could follow consistently with their obligations under the Articles to collaborate with the Fund to promote exchange stability, as well as with the call for collaboration in the Resolution adopted by the Board of Governors at the 1971 Annual Meeting.

The decision provided for a temporary regime under which members could permit their exchange rates against their intervention currencies to move within margins of 2¼ per cent either side of the parity relationship, calculated on the basis of par values or central rates (rates that might be communicated to the Fund under this decision by members temporarily not maintaining exchange rates for their currencies on the basis of par values). A member that maintained the rates for its currency within these margins in terms of its intervention currency could permit resulting exchange rates for its currency in relation to currencies other than its intervention currency to fluctuate within margins of 4½ per cent from parity, with further margins of 1 per cent in certain circumstances.

In the month following December 18, 1971, the Fund concurred in or noted changes in the par values of the currencies of 12 member countries and nonmetropolitan territories and formally took note of the establishment of 33 central rates. Other member countries advised the Fund that they were maintaining the par values of their currencies or that they were pegging their exchange rates to some other currency. By the end of January 1972 the Fund had noted that 51 members and nonmetropolitan territories were availing themselves of the wider margins under the decision of December 18. The 51 countries included all industrial member countries, except Canada and the United States, and most of the more developed primary producing countries, and included only members with a par value or a central rate. A listing of the exchange rates established (par values, central rates, and others)through July 31, 1972 and of the countries presently availing themselves of the wider margins is presented in Appendix Table I.1

After consultation with the Fund, the United States authorities proposed a new par value for the U. S. dollar of US$38 per troy ounce of fine gold, which became effective on May 8, 1972. The change fell within the terms of Article IV, Section 5(c) (i), of the Fund Agreement;7 accordingly, the new par value was simply noted by the Fund. Between the passage of U. S. legislation to authorize and implement the change in the par value of the dollar and May 31, 1972, the Fund concurred in or noted new par values established by 21 members. Although most of these members had previously communicated central rates to the Fund, many others with central rates—including the larger countries that had established them—did not quickly propose new par values. On July 31 central rates were maintained by 18 member countries and one nonmetropolitan territory.

On June 23, 1972, the Fund was notified by the Government of the United Kingdom that for the time being the market rate for sterling would not necessarily be confined within announced limits either in respect of the U. S. dollar or in respect of EEC currencies. The Government of the United Kingdom expressed the intention to return as soon as conditions permitted to the maintenance of normal Fund margins around a parity and participation in the special EEC currency arrangements. The Fund was also advised that exchange control was being extended to capital transactions by U. K. residents with residents of the overseas sterling area except the Irish Republic.

The Fund noted the circumstances of the situation that had led the U. K. Government to take the actions described. The Fund welcomed the intention of the U. K. authorities to collaborate with it in accordance with the Articles of Agreement, and to resume as soon as conditions permitted the observance of margins around parity consistent with decisions of the Fund. The Fund also stated that it, and in particular the Managing Director, would remain in close consultation with the authorities of the United Kingdom on their resumption of margins around parity, and the Managing Director would take appropriate initiatives for those consultations.

Between June 23 and July 31, the Fund was informed by the authorities of 17 other member countries in the sterling area that they too had decided to allow the exchange rates for their currencies to float, with all but one of the currencies maintaining their relationships with the pound sterling. (See Appendix Table I.1.) Similar notification was received from the U. K. authorities with respect to the currencies of certain nonmetropolitan territories. The Fund’s approach to the action by these countries and territories was similar to that with respect to the U. K. action on sterling, modified by special circumstances in the individual situations.

Special Drawing Account

Although the period since May 1, 1971 has been one of considerable disturbance in the international monetary system, the mechanism of the Special Drawing Account has remained fully operative, and participants have at all times been able to use their SDRs to obtain needed foreign exchange and to make repurchases from and to pay charges to the Fund’s General Account. The movements of SDRs among participants and between participants and the General Account were naturally influenced by the major developments in the monetary system during this period.

In 1971/72 a relatively large number of countries experienced increases in gross reserves; as a result, fewer participants than in the previous fiscal year had balance of payments needs to use SDRs to obtain foreign exchange. Nevertheless, a small number of countries with balance of payments problems used substantial proportions of their SDR holdings to finance their deficits.

Under the Rules and Regulations of the Fund, the gold value of the special drawing right was translated into values in terms of currencies through the par value of the U. S. dollar and the market rates for other currencies against the U. S. dollar; as a consequence, an expectation of an increase in the official dollar price of gold, following the U. S. announcement of August 15, created a disincentive for participants to use their SDRs. In the absence of a change in the par value of the U. S. dollar, the amounts of currencies that could be obtained against SDRs continued to reflect the one-for-one relationship between the SDR and the dollar. This situation influenced participants to refrain from the use of SDRs, both to obtain currency and in transfers to the General Account. Following the agreement of December 18, 1971 on the general realignment of currencies, the Executive Directors took a decision in early January 1972 which enabled participants to obtain against SDRs amounts of foreign exchange that corresponded to the prospective change in the par value of the U. S. dollar.8

Another factor that affected the use of SDRs during the fiscal year was the need for participants to take account of the provisions for the reconstitution of their SDR holdings.9 However, the overall effect of the provisions for reconstitution on the use of SDRs is difficult to assess, since there was considerable variation among the actions of participants affected.

The third and final allocation of SDRs in the first basic period was made on January 1, 1972. The amount of the allocation was SDR 2,952 million and 112 participants received amounts equivalent to 10.6 per cent of their respective Fund quotas. The total value of all transfers in SDRs during the period May 1, 1971 to April 30, 1972 amounted to SDR 1,306 million, compared with SDR 1,213 million in the previous fiscal year. A large proportion—some 61 per cent—of the total transferred in 1971/72 was the result of the use of SDRs by two participants; the United States transferred SDR 355 million in exchange for balances of dollars, and the United Kingdom used SDR 438 million largely in repurchasing sterling held in the General Account. Mainly as a result of the United Kingdom’s use of SDRs, receipts by the General Account exceeded transfers by SDR 420 million during the fiscal year and the General Account’s holdings increased to SDR 910 million. Details of the various categories of transfers are shown in Appendix Table I.3.

Table I.3.Transfers of Special Drawing Rights, January 1, 1970-April 30, 1972(In millions of SDRs)
Fiscal YearsTotal
Jan. 1, 1970-May 1, 1970-May 1, 1971-Jan. 1, 1970-
Apr. 30, 1970Apr. 30, 1971Apr. 30, 1972Apr. 30, 1972
Transfers between participants
Transactions with designation155348267769
Transactions without designation20286380686
1756336471,455
General Account
Transfers from participants
Repurchases (net)1833575011,041
Charges (net)296630126
Assessments1113
Interest received on General Account holdings4712
2134295401,181
Transfers to participants
Replenishment of participants’ currencies12321145
Reconstitution4646
Remuneration181533
Restoration of participants’ holdings 12929
Distribution of net income9817
Other 211
151120271
Total use and receipts3881,2131,3062,907
General Account holdings at end of period213490910910

Under Article XXV, Sections 2(b)(ii) and 7(e).

Under Article XXVI, Section 5.

Under Article XXV, Sections 2(b)(ii) and 7(e).

Under Article XXVI, Section 5.

The Articles of Agreement provide that the Managing Director must submit to the Board of Governors, not later than six months before the end of each basic period (i.e., by June 30, 1972 in respect of the current period), a proposal with respect to the allocation of special drawing rights in the next basic period, provided that, if he ascertains that there is no proposal consistent with the Articles that has broad support among participants, he must report to the Board of Governors and to the Executive Directors. On June 26, 1972 the Managing Director, after informing the Executive Directors, reported to the Board of Governors that the progress made so far, both in determining whether there was a need to supplement existing reserve assets and in ascertaining the views of the participants in the Special Drawing Account with respect to such an allocation, was not sufficient to provide the basis for a proposal before July 1, 1972. Further discussions, including consultations with participants, would be necessary before definite conclusions could be reached on the duration of the next basic period, on the question whether an allocation should be made, and, if so, on the rate at which it should be made. For these reasons, the Managing Director concluded that it was not possible to make a proposal by June 30. The Managing Director noted that he must make a proposal whenever he was satisfied that it could be made consistently with the Articles. Further discussions would be pursued actively in order to enable him to arrive as promptly as possible at a proposal consistent with the Articles.

Transactions Between Participants

Transfers of special drawing rights between participants in 1971/72 totaled SDR 647 million, about the same as the amount of SDR 633 million transferred in the previous fiscal year. The amounts used and received by individual participants are shown in Appendix Table I.4.

Table I.4.Summary of Transactions and Operations in Special Drawing Rights, Fiscal Year Ended April 30, 1972(In thousands of SDRs)
Transactions and OperationsPositions at April 30, 1972
Between participants
Between participantsInterest,Holdings
Receivedand theCharges,as per cent
TotalThirdGeneral AccountandNetof
HoldersHoldings onAllocationThroughAssess-Totalcumulativecumulative
ParticipantsMay 1, 1971Jan. 1, 1972designationOtherUsed 1ReceivedUsedment (Net)holdingsallocationsallocations
Afghanistan5,8283,9225,184-904,47612,75335.1
Algeria28,02913,780+1841,82740,290103.8
Argentina107,40146,640154,00030,380320-1,03829,063152,52019.1
Australia164,00870,490+ 108234,606225,645104.0
Austria57,01728,620+ 12585,76276,745111.8
Barbados1,3911,3782,7682,769100.0
Belgium300,39768,900105,000+ 3,685477,981209,346228.3
Bolivia5,6073,9224,234-795,21612,75340.9
Botswana1,0395301,5691,569l00.0
Brazil110,37046,64094125+ 52157,031152,520103.0
Burma4,8876,3604,500466-2166,06620,84429.1
Burundi1,9582,014202-413,7286,56756.8
Cameroon6,8013,710-110,51010,513100.0
Canada348,795116,60025,00023,080+ 1,829465,304358,620128.8
Central African Rep.1,3871,3781,247140-321,3464,36530.8
Ceylon3210,3883,864279-34913,65633,97840.2
Chad1,4001,3781,250165-431,3204,44939.7
Chile38,72516,748448+ 255,02754,654100.7
Colombia16,44316,64212,618-38220,08554,44136.9
Congo, People’s Rep. of the1,4101,37893-262,6694,44960.0
Costa Rica633,392648-1133,98911,01636.2
Cyprus7,6482,756+ 2210,4268,898117.2
Dahomey3,0701,378-14,4484,449100.0
Denmark45,07227,560290-16472,17982,76487.2
Dominican Republic04,5584,102-16628914,5352.0
Ecuador3,5933,498311-666,71411,22959.8
Egypt8,79519,9283,8001,919-57422,43065,24434.4
El Salvador1,4203,7101,0002,327-973,70511,65531.8
Equatorial Guinea1,8638482,7112,712100.0
Fiji1,3781,3781,378100.0
Finland45,68220,1401,309+7467,20561,470109.3
France350,496159,00025,3477,804+330527,368484,980108.7
Gabon3,2001,59031-14,7584,79199.3
Gambia, The1,58974276-12,2542,33196.7
Germany, Fed. Rep. of452,602169,60011,0001,861+ 1,187636,250542,400117.3
Ghana3,2229,2222,175-2709,99930,12333.2
Greece4,48314,6285,000-39123,72046,19451.4
Guatemala5,8723,816500-1,446-1211,62311,86897.9
Guinea1,1552,5441,00065-832,5518,30430.7
Guyana2,1762,12017-384,2416,78062.6
Haiti1,0962,014-533,0576,56746.6
Honduras2,8502,650-465,4538,51764.0
Iceland1,4612,4382,500-366,3627,41985.8
India148,05199,640-1,214246,478326,22075.6
Indonesia1,08927,5608,9602,239-92834,44190,15638.2
Iran1,15620,352-61320,89661,89633.8
Iraq11,66111,554-323,21323,217100.0
Ireland26,40412,826-439,22639,213100.0
Israel55013,7804,00013,000603-25730,47042,81071.2
Italy220,681106,00010,0003,243+ 181340,105318,000107.0
Ivory Coast9,7575,512+ 1315,28214,268107.1
Jamaica13,0305,618259+ 1118,39917,673104.1
Japan276,473127,20019,0001,332+455424,460377,400112.5
Jordan5,1482,43823-17,5637,58799.7
Kenya11,9665,088+ 2017,07415,600109.5
Khmer Republic1,7302,65031-634,2858,51750.3
Korea17,6288,48076+ 5526,08822,230117.4
Laos8971,378900-331,3414,44930.2
Lesotho53153095-89581,56961.1
Liberia3,5513,0744,500-772,0489,53721.5
Luxembourg5,2232,120-17,3437,345100.0
Malagasy Republic5,9722,756-18,7278,730100.0
Malawi3,4941,590240-14,8435,08595.2
Malaysia43,31919,71622+ 3063,08760,618104.1
Mali1,3052,3321,10035-622,4407,54232.4
Malta3,3911,696-15,0875,088100.0
Mauritania1,0641,378125-312,2854,44951.4
Mauritius4,9822,332-27,3127,37499.2
Mexico87,43939,220882+ 35127,577124,170102.7
Morocco11,92511,9789,497-35714,04939,18935.9
Nepal1,0701,1452,2142,215100.0
Netherlands319,94974,200250,000+ 5,655649,803236,460274.8
New Zealand21,73321,41210,0001-33652,80969,40276.1
Nicaragua3,8412,862248-366,4188,94371.8
Niger3,0701,37811-14,4374,44999.7
Nigeria31,23614,310-545,54145,555100.0
Norway54,90725,440+ 5280,39976,320105.3
Oman742742742100.0
Pakistan14,62524,9101,797-65537,08381,63945.4
Panama5,6273,8166,596-972,75012,37222.2
Paraguay4,5522,014-16,5666,567100.0
Peru28,43613,03854+ 1041,43140,479102.4
Philippines016,430-53215,89851,49530.9
Rwanda2,4652,0143,038-461,3946,56721.2
Senegal2,7863,604300-796,01111,44252.5
Sierra Leone3,1252,650-325,7437,84573.2
Somalia2,6232,014-304,6076,56770.2
South Africa25,47833,92025,000-68533,71288,92037.9
Spain80,76641,8706,000-7128,629126,135102.0
Sudan17,6325,0001,1962,833-29170324,9122.8
Swaziland84884875086-248362,71230.8
Sweden72,60634,4503-11107,047107,025100.0
Syrian Arab Republic05,3001,700162-1746,66417,03439.1
Tanzania6,3294,4524,000-636,71714,32246.9
Thailand14,33614,204-328,53728,542100.0
Togo3,4941,590-15,0835,085100.0
Trinidad and Tobago7,2186,678-10613,79020,81166.3
Tunisia15,0883,00010-1277,95214,71354.1
Turkey116,0068,00016,0001,448-38638,17250,30775.9
Uganda9,6534,24065-213,82613,89699.5
United Kingdom482,301296,800161,46325,000438,330-2,346524,8871,006,32052.2
United States1,442,732710,200355,00011,971-6,8361,803,0682,293,98078.6
‘Upper Volta3,0701,37818-14,4294,44999.6
Uruguay07,3145,7631,197-2599523,9370.4
Venezuela82,87334,980172+73118,098112,290105.2
Viet-Nam13,1826,572-219,75219,758100.0
Western Samoa212212212100.0
Yemen Arab Republic1,0701,0602,1302,130100.0
Yemen, People’s Dem. Rep. of4,7843,074-317,8269,87379.3
Yugoslavia7,16221,94215,665-68112,75769,29118.4
Zaïre27,71211,97832,000-1947,49739,18919.1
Zambia19,0298,05626,50095-7941224,5881.7
Total Participants5,873,4372,951,549266,810380,000646,810119,718531,621-8,2068,404,8759,314,83590.2
General Account489,849531,621119,718+ 8,206909,960
Total6,363,2879,314,8359,314,835

With the exception of the amounts for Canada and the United States, the uses shown for participants in this column were made in transactions to acquire currency through designation. Canada transferred SDR 25 million to the United Kingdom against currency in a prescribed transaction under Article XXV, Sections 2(b) (ii), and 3(c). The use by the United States was under Article XXV, Section 2(b)(i), to obtain balances of its own currency from Belgium and the Netherlands; the amounts of SDRs received by these two participants were SDR 105 million and SDR 250 million, respectively.

With the exception of the amounts for Canada and the United States, the uses shown for participants in this column were made in transactions to acquire currency through designation. Canada transferred SDR 25 million to the United Kingdom against currency in a prescribed transaction under Article XXV, Sections 2(b) (ii), and 3(c). The use by the United States was under Article XXV, Section 2(b)(i), to obtain balances of its own currency from Belgium and the Netherlands; the amounts of SDRs received by these two participants were SDR 105 million and SDR 250 million, respectively.

As part of the arrangements under which the Fund’s holdings of pounds sterling were reduced by the equivalent of SDR 1,150 million on April 28, 1972,10 the Fund prescribed that Canada could transfer SDR 25 million to the United Kingdom in exchange for currency. This transaction was possible under Article XXV, Section 2(b)(ii), which allows the Fund to prescribe transactions in which the SDR holdings of the two countries involved are brought closer to their net cumulative allocations. Under Article XXV, Section 3(c), the Fund exempted Canada from the expectation of balance of payments need for this transaction. All other transactions between participants during the period were subject to the requirement of need.

As in the previous fiscal year, the largest user of SDRs in transfers to other participants was the United States, which, as noted, used a total of SDR 355 million in five transactions arranged prior to August 15, 1971 to redeem balances of U. S. dollars from Belgium and the Netherlands. In such transactions the transfer takes place by agreement between the participants concerned after notification to the Fund; the user of SDRs is subject to the requirement of need but the receivers are not designated by the Fund.

Other transfers between participants, amounting to SDR 267 million, were in transactions to obtain currency through the designation procedures, under which the Fund designated participants to receive the SDRs being used and to provide currency to the users. The total of transactions with designation was SDR 81 million less than in the previous fiscal year, and the use of SDRs in this way involved a substantially smaller number of transactions and a much narrower range of users (Table 14); transfers by only four participants—Argentina (SDR 154 million), South Africa (SDR 25 million), Zaire (SDR 32 million), and Zambia (SDR 26 million)—accounted for some 89 per cent of the total.

Table 14.Transfers of Special Drawing Rights Between Participants, January 1, 1970-April 30, 1972
Fiscal YearsTotal
Jan. 1, 1970-May 1, 1970-May 1, 1971-Jan. 1, 1970-
ParticularsApr. 30, 1970Apr. 30, 1971Apr. 30, 1972Apr. 30, 1972
Transactions with designation
Number of users20391548
Number of transactions26442393
Total amount (SDR millions)155348267769
Number of recipients20251440
Transactions without designation
Number of users1123
Number of transactions17614
Total amount (SDR millions)20286380686
Number of recipients1335

The balance of payments needs of a relatively small number of participants determined the timing and amount of use of SDRs to obtain currency through designation; such use did not follow a pattern that could be closely linked to major developments in the international monetary system. In the period prior to August 15, 1971 transactions with designation totaled SDR 50 million; from that date through the end of 1971, in spite of the uncertainty over the gold price, a larger amount of SDR 101 million was used through the designation system. Although the decision of the Executive Directors on January 4, 1972 removed uncertainty as to the currency value of SDRs, and participants received additional SDRs through the third allocation on January 1, 1972, transactions with designation during the first four months of 1972 totaled only SDR 116 million, compared with SDR 212 million in the comparable period of 1971.

Designation

Participants are subject to designation to provide currency against SDRs if their balance of payments and reserve positions are sufficiently strong; the quarterly plans that were approved by the Executive Directors during the fiscal year included 31 participants whose positions were considered to meet this standard. However, only 14 participants, compared with 25 in the previous fiscal year, were actually designated. This smaller number of participants receiving SDRs through designation was partly the result of the smaller volume of transactions, but to a greater extent it resulted from the concentration of designation on participants that had made previous use of the facility. The present procedures for designation—which will be reviewed by the Executive Directors before the end of 1972—aim at the restoration of a participant’s previous use of SDRs over a period of several quarters, provided that the participant’s balance of payments and reserve position continues to justify designation. The achievement of this aim is, of course, affected by the volume of transactions involving designation.

Since the first quarter of 1971, additional emphasis has been placed on the designation of participants with holdings below their net cumulative allocations in order to ensure some restoration of such holdings in periods in which the volume of designation was a small proportion of the total provided for in the quarterly plans.

Of the SDR 267 million received through designation during the fiscal year, SDR 202 million went to 10 participants that had previously made net use of SDRs, while only SDR 65 million was received by 4 participants with SDR holdings above their total allocations. The amounts for which each of the 14 participants were designated are shown in Appendix Table I.4. The United Kingdom, as the largest previous net user among participants subject to designation, was designated to receive SDR 161 million.

Transactions and Operations Between Participants and the General Account

Pursuant to a decision of the Executive Directors, participants have been able to use SDRs without limitation in repurchases other than those under Article V, Section 7(b), and in the payment of charges due to the General Account.11 These transfers of SDRs are not subject to the requirement of a balance of payments need and thus their volume is not directly affected by developments in participants’ reserves. From May 1, 1971 to April 30, 1972, participants transferred a total of SDR 540 million to the General Account, of which SDR 501 million was in repurchases. A substantial proportion of this total resulted from the use of SDR 425 million in the repurchase by the United Kingdom on April 28, 1972. In the previous fiscal year repurchases in special drawing rights amounted to SDR 357 million, this figure having been heavily influenced by the use of a total of SDR 228 million by the United Kingdom and India. In payment of charges the Fund in 1971/72 received SDR 30 million, about half of total charges paid by members in that year.

During the fiscal year the Fund transferred to participants a total of SDR 120 million from the General Account; these transfers are described in Appendix I and shown by country and category in Table I.6.

Table I.6.Transfer of Special Drawing Rights by the General Account, Fiscal Year Ended April 30, 1972(In thousands of SDRs)
Restoration of
Payment ofDistributionReplenishmentParticipants’
ParticipantReconstitutionRemunerationof Net Incomeof CurrenciesHoldings 1
Argentina30,00028595
Brazil7023
Canada3,8851,29517,900
Ceylon3,864
Costa Rica648
Finland232771,000
Germany1,861
Indonesia8,960
Israel13,000
Italy6322112,400
Japan1,332
Malaysia22
Mexico662221
Sudan1,196
Sweden3
Syrian Arab Rep.1,700
Turkey16,000
United States8,9782,993
Venezuela172
Total46,36814,746 28,306 321,30029,000
1970/7118,4039,115123,210

Transfer of SDRs under Article XXV, Sections 2(A) (ii) and 1(e).

Includes amounts of less than SDR 500 each paid to an additional nine participants.

Includes amounts of less than SDR 500 each distributed to an additional nine participants.

Transfer of SDRs under Article XXV, Sections 2(A) (ii) and 1(e).

Includes amounts of less than SDR 500 each paid to an additional nine participants.

Includes amounts of less than SDR 500 each distributed to an additional nine participants.

Reconstitution

Under the reconstitution provisions set forth in Article XXV, Section 6(a), and Schedule G, Paragraph 1(a), a participant in the Fund’s Special Drawing Account shall so use and reconstitute its holdings of SDRs that, five years after the first allocation and at the end of each calendar quarter thereafter, the average of its total daily holdings over the most recent five-year period will not be less than 30 per cent of the average of its daily net cumulative allocation of SDRs over the same period. The rules for reconstitution are subject to review before the end of 1972.

On December 31, 1971 the Fund started making monthly calculations, in accordance with Rule P-2 of the Rules and Regulations, to provide an indication of whether and to what extent each participant would need to acquire SDRs to achieve the required average of 30 per cent. In order to make the calculations, it is necessary for the Fund to make certain assumptions, in addition to those in Rule P-2, with respect to allocations or cancellations during the remainder of any reconstitution period. The Executive Directors took a decision, which will be reviewed before the end of 1972, that for the purposes of these calculations it should be assumed that no allocations or cancellations would be made after January 1, 1972.12 This assumption has application only in respect of the procedures associated with the calculations and does not in any way prejudice any future proposals or decisions on allocations or cancellations of SDRs. The same decision permitted participants with a need to reconstitute to obtain SDRs from any other participant with a balance of payments need to use SDRs. It also enabled participants to obtain SDRs from the General Account to promote reconstitution, either against gold or currency acceptable to the Fund or as part of a normal purchase in accordance with the Fund’s policies on the use of its resources.

The calculations made on December 31, 1971 showed that, under these assumptions, 16 participants had a need to reconstitute their holdings; in no case was this need sufficiently large for the participants to be obliged to take action to obtain SDRs. Nevertheless, during the first four months of 1972, 4 participants—Ceylon, Costa Rica, Indonesia, and the Sudan—voluntarily obtained a total of SDR 13.7 million from the General Account against currency; 3 participants—Argentina, the Syrian Arab Republic, and the Sudan—voluntarily acquired a total of SDR 32.7 million as part of purchases they made from the General Account. As a result of these transactions, 2 participants acquired amounts of SDRs that (under the assumptions) were sufficient to restore the average of their holdings to 30 per cent of the average of their daily net cumulative allocations. Nine participants were added to the reconstitution list on April 30, 1972 as a result of their use of SDRs during the first four months of the year.

Distribution of Holdings of Special Drawing Rights

On April 30, 1972 participants whose holdings of SDRs were below net cumulative allocations had made total net use of SDR 1,962 million, which was some 21 per cent of the SDR 9.3 billion in existence at that date; at the end of the previous fiscal year net use was just over 17 per cent of the total of SDRs then in existence.

Among the industrial countries, only three—the United States (SDR 491 million), the United Kingdom (SDR 481 million), and Denmark (SDR 11 million)—had made net use of SDRs. The fact that no other industrial country was a net user of SDRs at that date reflected the increases in reserves experienced by almost all these countries. As a group, the less developed countries had made net use of SDR 787 million.

The positions of groups of participants in the Special Drawing Account on April 30, 1972 are shown in Table 15. The main changes in the distribution of SDRs that took place over the year were a net shift of some SDR 250 million from the less developed areas to the industrial countries, a significant readjustment of holdings among the industrial countries, and the transfer of SDRs by the United Kingdom to the General Account.

Table 15.Summary of Positions of Participants in the Special Drawing Account, April 30, 1972(In millions of SDRs)
NetCol. 3 asNetUse (-)
Number ofCumulativeHoldingsPer CentNet Use (-)Net Receipt (+)
ParticipantsAllocationsApril 30, 1972of Col. 2Net Receipt (+)April 30, 1971
(1)(2)(3)(4)(5)(6)
Industrial countries
Net users33,3832,40070.9-983-378
Net receivers102,7883,795136.1+ 1,007+ 576
Nonusers 117799.9
146.1786.202100.4+24+ 198
Primary producing countries
More developed areas
Net users633216850.6-164-164
Net receivers4452469103.8+ 17+ 13
Nonusers 115599.9
1178964281.4-147-151
Less developed areas
Net users581,51870446.4-814-568
Net receivers12664691104.1+ 27+ 32
Nonusers 1,21816616699.9
882,3481,56166.5-787-537
Total, all participants1139,3158,40590.2-910 3-490

Nonusers are defined as participants that have neither received nor used special drawing rights except in payment of their shares in the annual assessment.

Includes one participant that elected not to receive allocations.

Holdings of the General Account on April 30, 1972.

Nonusers are defined as participants that have neither received nor used special drawing rights except in payment of their shares in the annual assessment.

Includes one participant that elected not to receive allocations.

Holdings of the General Account on April 30, 1972.

General Account

Although the disruption of the international monetary system created serious difficulties for the functioning of the General Account in the course of 1971/72, aggregate amounts of purchases and repurchases by member countries exceeded those of the previous year—reflecting large purchases by the United States and repurchases by France and the United Kingdom. Repurchases equivalent to SDR 3.1 billion were almost double those of any previous year. Total purchases of currencies and special drawing rights from the Fund amounted to the equivalent of SDR 2.0 billion, and for the second year in succession repurchases exceeded purchases. This brought about a reduction of members’ outstanding drawings from SDR 4.1 billion on April 30, 1971 to SDR 2.9 billion on April 30, 1972, the lowest level in seven years. Moreover, purchases were concentrated in the gold tranche, and on April 30, 1972 only 28 per cent of members’ indebtedness to the Fund was the result of purchases in the credit tranches. Members’ creditor positions in the Fund decreased slightly, from the equivalent of SDR 1.7 billion on April 30, 1971 to SDR 1.6 billion on April 30, 1972.

Until August 15, 1971 the currencies used in Fund transactions were selected on the basis of the principles set forth in the statement on currencies to be drawn and to be used in repurchases approved by the Executive Directors in a decision adopted in July 1962.13 The Fund’s financial transactions were conducted on the basis of par values or provisionally agreed rates. Certain fluctuating currencies were valued at their market rates, including the Canadian dollar, from May 1970, and the deutsche mark and the Netherlands guilder, from May 1971.14

After August 15, 1971, as was noted earlier, the expectations that gold might increase in U.S.dollar value had an effect on members’ attitudes toward their positions in the Fund. Certain members with super gold tranche positions became reluctant to have this primary reserve asset diminished through the use of their currency in repurchase, while members with liabilities to the Fund saw advantage in their discharge.

The normal currency policy of the Fund, based on the 1962 statement, was suspended for the time being. Transactions did not promote harmonization between members’ reserve positions in the Fund and their holdings of gold and foreign exchange, the ratio between which the Fund had in practice taken into account.15 Arrangements were made with three members—Canada, France, and Germany—for their currencies to be used in transactions with the Fund. Under these arrangements the three currencies might be used for repurchases to the extent of their prior use in drawings since August 15, 1971, provided that consultation with the member preceded each transaction—a so-called turnstile arrangement. Appropriate exchange rates for transactions in these currencies were determined by the Fund in accordance with the Articles of Agreement and under existing Executive Board decisions.16 Repurchases were thus made that might otherwise have had to be postponed at the request of the member and by decision of the Executive Directors.

The realignment of December 18, 1971 did not resolve the operational problems of the Fund. While the new exchange rates of major currencies in the exchange markets expressed in terms of the U. S. dollar reflected the latter’s prospective gold value, this was not so in the Fund because a new par value for the U. S. dollar had not been established. It became necessary to establish appropriate exchange rates in the Fund to permit transactions in currencies, other than the U. S. dollar, that reflected the realigned exchange rates in the market. Further, in accordance with the Fund’s decision of December 18, 1971, exchange rates could fluctuate within 2¼ per cent of the parity relationships, based on par values or central rates, and in order to avoid difficulties in the Fund’s operations with members it was necessary that transactions with the Fund be undertaken at rates derived from market exchange rates rather than on the basis of par values, as formerly, or central rates. Members’ transactions with the Fund would not then be influenced by differences between the par value or the central rate of a currency and the exchange value of that currency in the market.

On January 4, 1972 the Executive Directors adopted a decision as a temporary measure to facilitate the resumption of the orderly conduct of the operations of the Fund.17 That decision enabled the Fund to adjust its holdings of a currency used in a transaction on the basis of the ratio of the representative rate for the member’s currency in the exchange market to the effective parity relationship between that currency and the member’s intervention currency.

In the period following the realignment of exchange rates, Fund operations continued to be conducted on the basis of the turnstile arrangement in view of the inconvertibility of the U. S. dollar into gold and other reserve assets. As a means of further facilitating the resumption of Fund operations, the number of currencies included in the turnstile arrangement was increased in March 1972; Austrian schillings, Italian lire, and Japanese yen could be used in drawings and repurchases (in addition to Canadian dollars, deutsche mark, and French francs), while pounds sterling could be used in drawings. During the period August 15, 1971 to April 30, 1972, transactions under the turnstile arrangement resulted in a net cumulative excess of drawings equivalent to SDR 111 million, which was available for repurchase.

However, the repurchase by the United Kingdom on April 28, 1972 was effected by special arrangements which were outside the turnstile arrangement. These arrangements covered a gold tranche purchase of the equivalent of SDR 200 million in sterling by the United States; a sale by Canada to the United Kingdom of SDR 25 million in gold and of SDR 25 million in special drawing rights, both of which were paid by the United Kingdom to the Fund; the transfer to the Fund of slightly more than SDR 400 million from the U. K. holdings of special drawing rights;and the payment of the equivalent of SDR 500 million in eight currencies that the Fund could accept.

On May 8, 1972, following the change in the par value of the U. S. dollar, the Executive Directors adopted a new decision regarding rates for computations and adjustments of the Fund’s holdings of currencies.18 This decision applied to all currencies for which rates were not maintained within the margins prescribed by the Articles or by Executive Board Decision No. 904- (59/32) and terminated the decision taken on January 4, 1972.

Three decisions adopted by the Executive Directors during the year provided for wider use of SDRs held by the General Account. In September 1971 it was decided that participants in the Special Drawing Account could purchase SDRs held in the General Account for immediate use to acquire currencies through designated transactions.19 It was also decided that any such purchases of SDRs would be subject to the same service charge as that levied on purchases of currencies from the General Account.20 As has already been noted, the Executive Directors decided in December 1971 to permit participants in the Special Drawing Account to acquire SDRs from the General Account for purposes of reconstitution.

Borrowing by the Fund

During the past fiscal year the Fund repaid in full its outstanding indebtedness. (See Appendix Table I.15.) This was the first time since the initial activation of the General Arrangements to Borrow (GAB) in December 1964 that no borrowings were outstanding. The GAB had been activated seven times with borrowings totaling the equivalent of SDR 2,155 million.

Table I.15.Fund Borrowing and Repayment, October 24, 1962-April 30, 1972(In millions of SDRs)
Under the General Arrangements to BorrowOther
RepaymentTransferTransfer
Borrowingof claimsBorrowingof claimRepayment
Dec. 1964May 1967
totoMayAug.June 1968Aug.June-Apr.Apr.
Feb. 1970Apr. 197119711971and Dec. 19691966July 197019711971
Belgium137.5147.5+ 10.0
Canada140.0111.06.053.0+ 30.0
France240.0100.0-140.0
Germany897.5767.5-130.0
Italy335.0440.0+ 105.0250.0-250.0
Japan150.045.0114.076.0+ 85.0+250.0125.0125.0
Netherlands177.5192.52.023.0+40.0
Sweden77.577.5
United Kingdom
United States
2,155.01,881.0122.0152.0250.0125.0125.0

The repayments in May 1971 were made following the discharge by France of its repurchase obligation incurred under Article V, Section 7(b), as of April 30, 1970. The repayment in August 1971 became possible because of the increase in the Fund’s holdings of currencies of the GAB creditors beyond its working requirements. At the same time the Fund repaid to Japan the second half of the SDR 250 million claim on the Fund under the bilateral borrowing arrangement concluded with Italy in August 1966, which claim had been acquired by Japan from Italy in 1970.

Use of Fund Resources

During the fiscal year 1971/72 purchases of currencies and special drawing rights by 30 members amounted to the equivalent of SDR 2,028 million (Appendix Table I.7), a substantial increase over SDR 1,167 million purchased by 44 members in 1970/71. The largest amount, equivalent to SDR 1,312 million, was purchased by the United States in three gold tranche transactions. All other purchases were by primary producing countries. Argentina purchased the second largest amount, equivalent to SDR 179 million, in two gold tranche transactions and a purchase under the Compensatory Financing Decision. In value terms, purchases were concentrated in the period prior to August 15, 1971, when SDR 1,251 million or 62 per cent of the year’s total occurred. This, however, largely reflected SDR 1,112 million purchased by the United States. In terms of the number of purchase transactions, 41 of the 59 (almost 70 per cent of the year’s total) took place in the period after August 15. In 1971/72 a number of members (China, Guyana, the Khmer Republic, Malaysia, Thailand, Uganda, and Zambia) used the Fund’s resources for the first time.

Table I.7.Purchases of Currencies and Special Drawing Rights from the Fund, Fiscal Year Ended April 30, 1972(In millions of SDRs)
Within Credit
Tranches
WithinUnderUnder DecisionUnder Decision
Goldstand-byon Compensatoryon Buffer Stock
Member PurchasingTranchearrangementsOther 1FinancingFinancingTotal
Argentina115.2464.00179.24
Bolivia6.016.01
Burma6.506.50
Ceylon17.5014.7532.25
Chile38.0039.5077.50
China59.8659.86
Colombia30.0030.00
Costa Rica6.006.00
Egypt32.0032.00
Guyana1.812.194.00
Indonesia3.813.81
Jordan4.504.50
Khmer Republic6.25 26.2512.50
Korea7.50 27.50
Liberia1.001.00
Malaysia4.377.29 311.66
Mali4.504.50
Morocco8.258.25
Nicaragua4.004.00
Nigeria0.79 30.79
Philippines15.0015.00
Sudan15.0015.00
Syrian Arab Republic12.5012.5025.00
Thailand2.15 32.15
Turkey15.0015.00
Uganda6.4710.0016.47
United States1,312.001,312.00
Uruguay9.509.50
Yugoslavia88.5088.50
Zambia19.0019.0038.00
Total1,576.50220.4444.50167.0020.052,028.49

In accordance with Executive Board Decision No. 102-(52/ll), adopted February 13, 1952. (See Selected Decisions of the Executive Directors and Selected Documents (Fifth Issue, Washington, 1971), pp. 20-24.)

Transaction prior to the establishment of an initial par value in accordance with Executive Board Decision No. 1687-(64/22), adopted April 22, 1964. (See Selected Decisions of the Executive Directors and Selected Documents (Fifth Issue, Washington, 1971), p. 54.)

Gold tranche purchase to be regarded as a purchase made under paragraph 1 of the Decision on the Problem of Stabilization of Prices of Primary Products.

In accordance with Executive Board Decision No. 102-(52/ll), adopted February 13, 1952. (See Selected Decisions of the Executive Directors and Selected Documents (Fifth Issue, Washington, 1971), pp. 20-24.)

Transaction prior to the establishment of an initial par value in accordance with Executive Board Decision No. 1687-(64/22), adopted April 22, 1964. (See Selected Decisions of the Executive Directors and Selected Documents (Fifth Issue, Washington, 1971), p. 54.)

Gold tranche purchase to be regarded as a purchase made under paragraph 1 of the Decision on the Problem of Stabilization of Prices of Primary Products.

Over three fourths of the total amount purchased during the fiscal year, SDR 1,576 million, consisted of gold tranche purchases 21 by 11 members. Purchases under stand-by arrangements totaled only SDR 220 million by 13 member countries, the smallest amount in 11 years. Similarly, the total amount of stand-by arrangements approved in 1971/72 was the smallest in any fiscal year since 1955/56. (See Appendix Tables I.8 and Table I.9.) Since September 15, 1969, however, amounts that might be drawn in the gold tranche have been excluded from stand-by arrangements.22

Table I.8.Fund StandBy Arrangements for Members, Fiscal Year Ended April 30, 1972(In millions of SDRs)
Total
Number of
Stand-Bys
ApprovedAmountAmount NotAmountAmount
forDate ofDate ofApprovedPurchased atApprovedNot Purchased
MemberMemberInceptionExpiration1970/71Expiration1971/72April 30, 1972
Brazil10Feb. 4, 1971Feb. 3, 197250.0050.00
Mar. 3, 1972Mar. 2, 197350.0050.00
Burundi6June 8, 1970June 7, 19711.50
Ceylon5Mar. 18, 1971Mar. 17, 197224.504.70 1
Colombia13Apr. 21, 1971Apr. 20, 197238.008.00
Ecuador8Sep. 14, 1970Sep. 13, 197122.0012.00
El Salvador10Dec. 22, 1970Dec. 21, 197114.005.00
Guatemala8Dec. 28, 1970Dec. 27, 197114.0014.00
Mar. 29, 1972Mar. 28, 19739.009.00
Guyana5May 3, 1971May 2, 19724.001.81
Haiti11June 29, 1970June 28, 19712.202.20
June 29, 1971June 28, 19723.003.00
Honduras11June 1,1971May 31, 197215.0015.00
Indonesia7Apr. 22, 1971Apr. 21, 197250.0050.00
Apr. 17, 1972Apr. 16, 197350.0050.00
Korea8Jan. 1, 1971Dec. 31, 197125.0025.00
Jan. 1, 1972Dec. 31, 197230.0030.00
Liberia9June 1, 1970May 31, 19712.00
Mar. 1, 1972Feb. 28, 19734.004.00
Mali5July 29, 1971July 28, 19724.50
Morocco7Mar. 18, 1971Mar. 17, 197230.0021.75
Nicaragua10Aug. 12, 1970Aug. 11, 197114.001.00
Feb. 9, 1972Feb. 8, 197310.756.75
Panama5Mar. 23, 1971Mar. 22, 197214.0014.00
Philippines9Mar. 16, 1971Mar. 15, 197245.0010.00
Sudan4Mar. 29, 1972Mar. 28, 197340.0025.00
Turkey10Aug. 17, 1970Aug. 16, 197190.00
Uganda1July 22, 1971July 21, 197210.00
Uruguay5May 28, 1970May 27, 197113.75 2
Yugoslavia5Feb. 22, 1971Feb. 21, 1972351.7521.75
July 30, 1971July 29, 197283.5015.00
Total501.70239.40313.75209.56

The stand-by was fully utilized, but SDR 4.7 million was reclassified under the compensatory financing facility.

The stand-by, after being fully utilized, was augmented by SDR 6.75 million because of repurchase on October 30, 1970 and by SDR 7 million because of repurchase on November 2, 1970. The full amount of these augmentations was also utilized, and the stand-by was again augmented effective May 1, 1971 in respect of SDR 6.5 million repurchased on April 30 and by SDR 3 million on May 3, 1971. The reconstituted amount of SDR 9.5 million was purchased on May 13, 1971.

Canceled by Yugoslavia on July 29, 1971.

The stand-by was fully utilized, but SDR 4.7 million was reclassified under the compensatory financing facility.

The stand-by, after being fully utilized, was augmented by SDR 6.75 million because of repurchase on October 30, 1970 and by SDR 7 million because of repurchase on November 2, 1970. The full amount of these augmentations was also utilized, and the stand-by was again augmented effective May 1, 1971 in respect of SDR 6.5 million repurchased on April 30 and by SDR 3 million on May 3, 1971. The reconstituted amount of SDR 9.5 million was purchased on May 13, 1971.

Canceled by Yugoslavia on July 29, 1971.

Table I.9.Summary of Stand-By Arrangements That Became Effective During the Fiscal Years Ended April 30, 1953-72 1(In millions of SDRs)
NumberAmount
1953255.00
1954262.50
1955240.00
1956247.50
195791,162.28
1958111,043.78
1959151,056.63
196014363.88
196115459.88
1962241,633.13
1963191,531.10
1964192,159.85
1965242,159.05
196624575.35
196725591.15
1968322,352.36
196926541.15
1970232,381.28
197118501.70
197213313.75
Total31919,031.32

Includes renewals and extensions for one year or less, except the renewals each six months of the stand-by arrangement for Belgium granted in June 1952 until that member purchased the full amount of the equivalent of SDR 50 million in April 1957.

Includes renewals and extensions for one year or less, except the renewals each six months of the stand-by arrangement for Belgium granted in June 1952 until that member purchased the full amount of the equivalent of SDR 50 million in April 1957.

All stand-by arrangements in effect in 1971/72 were for primary producing countries. While purchases under these arrangements declined by SDR 85 million from the previous year, this group of countries increased purchases under the compensatory financing facility by SDR 164 million to a total of SDR 167 million in 1971/72. In addition, the Fund agreed to Ceylon’s request for a reclassification of SDR 4.7 million under the provision, representing part of a purchase made in July 1971 under a stand-by arrangement.23 The fiscal year also brought the first use of the Fund’s buffer stock facility approved in June 1969. Five tin producing members purchased the equivalent of SDR 20 million under this facility in connection with their contributions to the Fourth International Tin Agreement.24 Of this amount the equivalent of SDR 10 million was purchased in the gold tranche by three members who requested that these purchases be regarded as purchases under the buffer stock financing facility.25 Two primary producing countries made the only credit tranche purchases not under stand-by arrangements, to a total of SDR 44.5 million.

Repurchases

During the past year repurchases amounted to SDR 3,122 million, by far the largest sum in any fiscal year since the beginning of the Fund’s operations. Repurchases totaling the equivalent of SDR 984 million by France and SDR 1,564 million by the United Kingdom accounted for 82 per cent of the total. (See Appendix Table I.11.)

Table I.11.Repurchases of Currencies from the Fund, Fiscal Year Ended April 30, 1972(In millions of SDRs)
Repurchases in Respect of
PurchasesSchedules
Memberunder stand-byapprovedArticle V,VoluntaryOther
Repurchasingarrangementsby FundSection 1(b)RepurchasesRepurchasesTotal
Afghanistan4.84.8
Bolivia4.04.0
Burma5.05.0
Burundi4.50.50.15.1
Central African Republic0.10.1
Ceylon23.21.024.2
Chad0.10.1
Chile39.5 139.5
Colombia13.220.3 133.5
Congo, People’s Rep. of the0.10.1
Costa Rica0.30.3
Denmark26.112.738.8
Dominican Republic1.72.04.07.7
Ecuador8.2 18.2
Egypt27.00.227.2
El Salvador1.31.72.05.0
France983.8 1983.8
Gabon22
Gambia, The0.10.1
Ghana24.90.725.6
Guatemala3.03.0
Guyana0.10.1
Haiti2.70.33.0
Indonesia20.01.021.0
Iran13.213.2
Jamaica3.73.7
Korea20.1
Lesotho0.10.1
Liberia3.90.44.3
Luxembourg0.70.7
Malawi0.20.2
Mali5.00.25.2
Mauritania0.10.1
Mauritius0.6 10.6
Morocco43.62.245.8
Nepal22
Niger22
Nigeria3.13.1
Pakistan0.90.9
Panama5.21.46.6
Peru30.7 130.7
Philippines28.528.5
Rwanda5.05.0
Senegal0.30.3
Somalia22
Sudan15.00.615.6
Swaziland0.10.1
Syrian Arab Republic4.84.8
Tunisia4.54.5
Turkey28.688.6117.3
United Kingdom749.9614.1200.41,564.4
Upper Volta1.11.1
Uruguay3.02.25.2
Yugoslavia20.020.0
Total863.1814.21,215.0 1215.914.23,122.3
Note. Included in repurchases shown in the table are the following amounts related to purchases under the decision on compensatory financing of export fluctuations (amounts in millions of SDRs):

Total includes SDR 714.1 million relating to Article V, Section 1(b), repurchase obligations incurred as of April 30, 1970 as follows: SDR 39.5 million by Chile, SDR 20.3 million by Colombia, SDR 1.9 million by Ecuador, SDR 629.1 million by France, SDR 0.6 million by Mauritius, and SDR 22.6 million by Peru.

Less than SDR 50,000.

Note. Included in repurchases shown in the table are the following amounts related to purchases under the decision on compensatory financing of export fluctuations (amounts in millions of SDRs):

Total includes SDR 714.1 million relating to Article V, Section 1(b), repurchase obligations incurred as of April 30, 1970 as follows: SDR 39.5 million by Chile, SDR 20.3 million by Colombia, SDR 1.9 million by Ecuador, SDR 629.1 million by France, SDR 0.6 million by Mauritius, and SDR 22.6 million by Peru.

Less than SDR 50,000.

Afghanistan4.8El Salvador2.0
Burma5.0Ghana16.5
Burundi0.5Haiti1.3
Ceylon17.0Syrian Arab Republic4.8
Dominican Republic1.7Uruguay2.2
Ecuador3.2Total58.9

Repurchases included a record equivalent to SDR 1,215 million, or 39 per cent of total repurchases, in discharge of obligations incurred under Article V, Section 7(b) of the Fund Agreement. Of this amount, SDR 714 million related to obligations incurred as of April 30, 1970, which, due to the limitation of Article V, Section 7(c) (iv), fell to be discharged in subsequent financial years. The remainder, SDR 501 million, was in discharge of obligations incurred as of April 30, 1971.26

The sum of SDR 814 million, or 26 per cent of the total, was repurchased in accordance with schedules approved by the Fund, which provided for repurchase within five years from the date of purchase.

Repurchases under stand-by arrangements were SDR 863 million, 28 per cent of the total, and voluntary repurchases were SDR 216 million (7 per cent). Other repurchases amounting to SDR 14 million included SDR 7 million relating to currency payments in excess of 75 per cent of the increase in quotas in accordance with paragraph 5 of Board of Governors Resolution No. 25-3.27

The Executive Directors agreed to the requests of 12 members to schedule their repurchases for payment over periods up to five years from the date of purchase.

During the fiscal year member countries used gold aggregating the equivalent of SDR 506 million and a total of SDR 501 million in special drawing rights in repurchases. Almost all of this use of gold was in discharge of repurchase obligations incurred under Article V, Section 7(b), and Schedule B. (See Appendix Table I.13)

Table I.13.Currencies and Special Drawing Rights Obtained from the Fund by Members in Purchases for Their Own Currencies and for Gold; Currencies, Gold, and Special Drawing Rights Used by Members in Repurchases, Fiscal Year Ended April 30, 1972(In millions of SDRs)
Currencies, Gold, and SDRs,Used by Members
Currencies and SDRs Obtained by Membersin Repurchases
Not under Article V,Under Article V,
PurchasesSection 1(b)Section 1(b)
UnitedOtherSales ofUnitedOtherOther
MediumStatescountriesgoldTotalKingdomcountriesFrancecountriesTotal
SDRs32.732.7425.269.16.10.9 1501.3
Gold25.0473.0 18.2 1506.2
Argentine pesos22
Australian dollars37.14.75.0 146.8
Austrian schillings13.05.018.020.09.12.631.7
Belgian francs565.0565.0202.03.3222.8 131.5 1459.6
Canadian dollars125.9125.9209.065.321.2 137.2332.7
Deutsche mark239.070.0309.0150.065.62.0 182.0 1299.6
Finnish markkaa
French francs141.55.0146.520.089.410.5120.0
Irish pounds5.05.0
Italian lire49.420.069.450.00.1 15.0 155.0
Japanese yen35.035.0195.08.037.6 115.1 1255.7
Kuwaiti dinars5.05.05.05.0
Mexican pesos3.910.03.5 117.5
Netherlands guilders547.0547.0201.030.6186.4 128.8 1446.8
Norwegian kroner25.01.90.1227.0
Pounds sterling200.065.05.0270.0
Spanish pesetas5.05.0
Swedish kronor1.28.1 11.010.2
U.S. dollars7.3 17.3
Total1,312.0716.5105.02,133.51,564.4343.0983.8 1231.2 13,122.3

Totals include SDR 714.1 million relating to Article V, Section 1(b), repurchase obligations incurred as of April 30, 1970 as follows: SDR 0.3 million in SDRs, SDR 477.5 million in gold, SDR 5 million in Australian dollars, SDR 115.4 million in Belgian francs, SDR 21.2 million in Canadian dollars, SDR 11.5 million in deutsche mark, SDR 0.3 million in Italian lire, SDR 52.6 million in Japanese yen, SDR 3.5 million in Mexican pesos, SDR 19.3 million in Netherlands guilders, SDR 0.1 million in Swedish kronor, and SDR 7.3 million in U.S. dollars.

Less than SDR 50,000.

Totals include SDR 714.1 million relating to Article V, Section 1(b), repurchase obligations incurred as of April 30, 1970 as follows: SDR 0.3 million in SDRs, SDR 477.5 million in gold, SDR 5 million in Australian dollars, SDR 115.4 million in Belgian francs, SDR 21.2 million in Canadian dollars, SDR 11.5 million in deutsche mark, SDR 0.3 million in Italian lire, SDR 52.6 million in Japanese yen, SDR 3.5 million in Mexican pesos, SDR 19.3 million in Netherlands guilders, SDR 0.1 million in Swedish kronor, and SDR 7.3 million in U.S. dollars.

Less than SDR 50,000.

Transactions and Operations in Gold

During the fiscal year 1971/72 the Fund received gold in a gross amount equivalent to SDR 1,139 million and disbursed gold to members in an amount equivalent to SDR 147 million, of which amount SDR 121 million was sold in replenishment of its currency holdings. (See Appendix Table I.16.) On April 30, 1972 the Fund’s gold with depositories was equivalent to SDR 5,331 million, compared with SDR 4,338 million a year earlier.

The transactions and operations during 1971/72 were in large measure a consequence of repurchase obligations incurred by members under Article V, Section 7(b), and termination of the Fund’s investment in U. S. Government securities.

In February 1972 the Fund, at the request of the U. S. Government, terminated its investment in U. S. Government securities and reacquired the equivalent of SDR 400 million of gold from the United States. At the same time, the Fund liquidated the general deposits of gold, equivalent to SDR 143.9 million of gold held with the Federal Reserve Bank of New York and equivalent to SDR 25.8 million of gold held with the Bank of England.28 The items “Investments” and “General deposits” under the general heading “Gold Account” were eliminated from the balance sheet of the Fund, with a consequential increase in bar gold held with depositories.

During the fiscal year 1971/72, the Fund purchased the equivalent of SDR 105 million of gold from South Africa under the decision adopted on December 30, 1969,29 following the purchase of gold equivalent to SDR 32.6 million in January 1971. The Fund decided in July 1971 to sell SDR 135 million of gold to 14 members in replenishment of its holdings of their currencies;however, 3 members exercised an option to receive special drawing rights instead, and SDR 21.3 million was transferred to them. With this operation the Fund sold gold and SDRs equivalent to virtually all the gold it had acquired from South Africa under Article V, Section 6(a), during 1971.

During 1971/72, one member bought gold from Germany for the purpose of paying its increased gold subscription to the Fund equivalent to SDR 7.5 million, and the Fund, in accordance with Board of Governors Resolution No. 25-3 on “Increases in Quotas of Members—Fifth General Review” and Article VII, Section 2(ii),30 replenished its holdings of deutsche mark by an equivalent sale of gold. By April 30, 1972, 76 members had bought gold from other members for this purpose equivalent to SDR 571.5 million, and the Fund had sold the same amount of gold in replenishment.

Income, Expenditures, and Reserves

Most of the income of the Fund is derived from charges paid by members. These are payable in gold or SDRs, but, at the member’s option, the stand-by charge may be paid in U. S. dollars. However, the provisions of Article V, Section 8(f), of the Fund Agreement permit total or partial payment in a member’s own currency, if that member’s monetary reserves equal less than one half of its quota.

The present schedule of charges on the Fund’s holdings of members’ currencies in excess of their quotas, set forth in Appendix Table I.18, has been in effect since May 1, 1963. The annual review of this schedule took place in April 1972, and the Executive Directors concluded that it should remain unchanged. Charges on balances of members’ currencies held by the Fund in excess of their respective quotas during the fiscal year 1971/72 amounted to SDR 62 million, compared with SDR 128 million during the preceding fiscal year.

The remainder of the Fund’s income (SDR 10 million in 1971/72) stemmed mainly from service charges on credit tranche purchases from the Fund and from interest payments received on holdings of SDRs by the General Account. Assessments to cover the expenses of the Special Drawing Account amounted to SDR 1 million.

Interest payments in gold, in accordance with paragraph 9(b) of the General Arrangements to Borrow and paragraph 3(b) of the bilateral borrowing arrangement, amounted to a total of SDR 1.2 million in 1971/72, much smaller than the amount of SDR 12 million for the preceding year as a result of the repayment of all Fund borrowing by August 1971. Since July 1969 operational expenditures have also included payments of remuneration to creditor members as specified in Article V, Section 9, of the Fund Agreement; in the past fiscal year these payments totaled SDR 30.5 million, compared with SDR 37.4 million in 1970/71.31

A summary of income and expenditure over the past ten fiscal years is given in Appendix Table I.17. These data exclude income from the Fund’s investments in U. S. Government securities. From May 1, 1971 to February 15, 1972, the date of termination of these investments, this income totaled the equivalent of SDR 17.5 million, which was added to the Special Reserve, increasing it to SDR 424 million.

Table I.17.Gold Transactions and Operations by the Fund, Fiscal Years Ended April 30, 1970-72(In millions of SDRs)
1963196419651966196719681969197019711972
Operational income
Service and stand-by charges, etc.6.64.811.815.67.17.414.613.03.23.0
Charges on balances in excess of
quotas24.431.535.965.782.582.0107.4124.7128.162.0
Interest on holdings of special
drawing rights0.44.37.2
Total operational income 131.036.347.781.389.689.4122.0138.1135.672.2
Deduct: operational expenditure
Remuneration27.237.430.5
Other4.616.117.811.922.319.111.81.2
Net operational income31.036.343.165.271.877.599.791.886.340.5
Budgetary expenditure9.410.913.015.018.121.324.428.633.237.1
Deduct: expenses assessed participants
for cost of operating the Special Draw-
ing Account0.90.91.0
Fixed property expenditure0.12.24.65.73.30.54.56.57.517.7
Total budgetary and fixed property expenditure9.513.117.620.721.421.828.934.239.953.7
Net income or expenditure (—) 221.523.225.544.550.455.770.857.646.4-13.3

Excludes income from investments transferred to the Special Reserve.

Net income was transferred to the General Reserve until the fiscal year ended April 30, 1968. Of the SDR 55.7 million,SDR 70.8 million, SDR 57.6 million, and SDR 46.4 million net income in 1968, 1969, 1970, and 1971, respectively, SDR 18.3 million, SDR 38.9 million, SDR 40.0 million, and SDR 33.9 million were transferred to the General Reserve and SDR 37.5 million, SDR 31.9 million, SDR 17.5 million, and SDR 12.5 million were distributed under the provisions of Article XII, Section 6(a) and (b), of the Fund Agreement. The net expenditure for the fiscal year ended April 30 1972 has been deducted from the Special Reserve.

Excludes income from investments transferred to the Special Reserve.

Net income was transferred to the General Reserve until the fiscal year ended April 30, 1968. Of the SDR 55.7 million,SDR 70.8 million, SDR 57.6 million, and SDR 46.4 million net income in 1968, 1969, 1970, and 1971, respectively, SDR 18.3 million, SDR 38.9 million, SDR 40.0 million, and SDR 33.9 million were transferred to the General Reserve and SDR 37.5 million, SDR 31.9 million, SDR 17.5 million, and SDR 12.5 million were distributed under the provisions of Article XII, Section 6(a) and (b), of the Fund Agreement. The net expenditure for the fiscal year ended April 30 1972 has been deducted from the Special Reserve.

For the fiscal year 1971/72 the Fund’s net operational income was SDR 40.5 million, sharply down from 1970/71 as a result of reduced income from charges following heavy repurchases, and budgetary and fixed property expenditures were SDR 53.7 million. The net expenditure of SDR 13.3 million was provisionally charged to the Special Reserve, reducing that balance to SDR 410.6 million as of April 30, 1972.

The Fund’s net income earned in any month is transferred to the General Reserve at the end of that month on a provisional basis, pending action by the Board of Governors at the Annual Meeting. In October 1971 the Board of Governors approved the recommendations of the Executive Directors that, of the net income equivalent to SDR 46.4 million for the fiscal year 1970/71, (1) the equivalent of SDR 12.5 million be distributed to members in such amounts that the total of remuneration and net income received by each member would be equivalent to 2 per cent on the amount by which 75 per cent of a member’s quota exceeded the average of the Fund’s holdings of its currency during the fiscal year ended April 30, 1971, and (2) the remainder be allocated to the General Reserve. Payments were made to 18 members in their own currencies in accordance with the provisions of Article XII, Section 6(b), and to 21 members in SDRs in accordance with an option granted in August 1971.32

Consultations with Member Countries

In 1971/72 the Fund completed 77 regular consultations with member countries, 53 of which were under Article XIV and 24 with Article VIII countries. Consultations are required each year for any member country under Article XIV maintaining restrictions on current international payments. In these consultations such restrictions are viewed in the context of the overall economic situation and policies of the member country and the state of the world economy. Apart from assisting in the establishment and maintenance of a multilateral system of current payments substantially free from restrictions and promoting international monetary cooperation, the consultations facilitate quick action by the Fund on proposed changes in par values or exchange practices or on requests for the use of Fund resources by members. Because of these advantages, the consultation procedure has, for many years now, been extended by voluntary agreement to member countries that have accepted the obligations of Article VIII, Sections 2, 3, and 4, i.e., those that have undertaken to maintain the convertibility of their currencies and generally to avoid restrictions on current payments and transfers.

Although consultations are basically concerned with the problems and policies of the consulting member country, the authorities of the member can raise with the Fund any special difficulties stemming from the actions or policies of other members, and the discussion of the Executive Directors that concludes each consultation places increasing emphasis on the international repercussions of domestic economic and financial policies. As an outgrowth of its consultation experience, the Fund is now devoting attention to a number of problems affecting different groups of member countries, such as aid and credit practices, debt problems, and commodity policies.

During the year no additional member country accepted the obligations of Article VIII, Sections 2, 3, and 4. The 35 member countries that have notified the Fund that they have accepted such obligations are listed on page 156 of the 1971 Annual Report.

Training and Technical Assistance

Much of the advice and assistance provided by the Fund is made available to members through the consultation procedures described above and through the regular work of the Fund in helping members in their formulation and execution of general economic policies. In addition, in response to requests from members—particularly from the less developed countries—the Fund has in recent years expanded its training and technical assistance facilities in specific areas of economic management.

In this field, the training of member country officials by the IMF Institute has been of growing importance. During 1971/72 a total of 180 participants from 80 countries attended the 8 courses conducted by the Institute. The Institute plans to conduct the same number of courses in the current year, but an expansion of its facilities will permit 3 courses to be undertaken simultaneously for the first time in March 1973.

From its inception in 1964 to April 30, 1972, the Institute has conducted 40 courses, attended by 765 participants from 108 countries. The main course undertaken by the Institute is its 20-week course on Financial Analysis and Policy, which is offered each year in English, French, and Spanish. The principal aims of this course are to consider the modern tools of economic analysis and their application to policy problems, to present a survey of the instruments of monetary, fiscal, and balance of payments policies, and to discuss their effectiveness under different conditions and with reference to different policy objectives. In this context, special efforts are made to explore the relevance of the discussions to the problems of less developed countries, in the light of the Fund’s experience with these problems. Another important aspect of this course is that it sets forth the positions taken by the Fund in respect of the matters discussed and explains the Fund’s policies and procedures, thus contributing to an understanding of the Fund’s operations and to the continued improvement of collaboration between the Fund and its member countries.

Two other shorter courses are provided by the Institute. One, an 8-week course on Balance of Payments Methodology, has been conducted in English, French, and Spanish in collaboration with the Balance of Payments Division of the Research Department. The other, a 10-week course on Public Finance, prepared with special emphasis on the fiscal problems of less developed countries, has been undertaken in English and French in collaboration with the Fiscal Affairs Department.

The Central Banking Service has continued to provide technical assistance on virtually all aspects of the organization, administration, and operation of central banks. Over the years such services, made available through the assignment of outside experts or visits by Fund staff members, have ranged from broad conceptual and institutional aspects of central banking to specific administrative and operational problems. Requests met in the past year covered evaluation and reform of financial systems, the establishment of new central banks and the reform of existing institutions, the development and strengthening of research services, reviews of money and capital markets, improvement of managerial and administrative structure, development of training and recruiting facilities, preparation of accounts and computerization, and development of bank inspection units.

Advisory services were made available through staff missions to 19 countries, including 9 of those in which experts were assigned. In addition, during the past year 85 executive or advisory positions in 27 countries and one regional organization were filled by experts assigned under the technical assistance activities of the Central Banking Service. As in previous years, the Fund has been dependent on the cooperation of the more experienced central banks to fill requests for the services of experts made by younger institutions. It has continued to be difficult to find suitably qualified experts to meet all the needs of member countries, but in recent years there has been an encouraging increase in the number of central banks and countries supplying experts.

Improved performance in the field of public finance is now widely recognized as being an essential complement to more effective monetary policies. Although the total effort in terms of man-years has leveled off, there has been a sharp increase in the number of advisory and technical assistance commitments undertaken by the Fiscal Affairs Department. During the fiscal year, 30 countries received advice and assistance, including 3 countries assisted at Fund headquarters. A group of experts continued to operate in Indonesia throughout the year, teams of 2 advisors undertook tax surveys in several other countries, and 8 countries requested and received assistance in more than one fiscal area.

The advice and assistance provided by the Fiscal Affairs Department during the year continued to cover all aspects of public finance. About the same number of countries were provided assistance in the fields of tax policy, tax administration (including training), and budget preparation and expenditure control; other major areas included government accounting and general financial administration. One notable development was the growth in long-term technical activities and a corresponding increase in the number of fiscal panel experts employed. There is every indication that this growth will continue in 1972/73.

Since 1969 the Bureau of Statistics has provided technical assistance to help member countries establish or improve central bank bulletins. The technical work is implemented by Bureau staff members and focuses on the development, improvement, and current publication of data relevant to the analysis of countries’ monetary and payments problems. During the year the Bureau assisted 19 countries and, as an adjunct of the bulletin project, conducted a seminar in West Africa for the staff of the Central Bank of the West African States and for selected officials of the member states of the West African Monetary Union. In addition to assistance for central bank bulletins, the Bureau provided technical assistance to 3 countries in specialized areas of financial statistics.

In the three years of the central bank bulletin project, the Bureau has assisted 48 member countries. In 10 of these countries new bulletins have been established, and in 13 others major improvements in coverage and presentation have already been accomplished. Commitments for the current year cover 20 countries and will reflect the increased attention that is now being devoted to the assembly and publication of government financial statistics.

Relations with Other International Organizations

The Fund maintains close association both with the International Bank for Reconstruction and Development (IBRD) and with the United Nations (UN) and many of its organs, collaborating both generally and in areas of particular Fund interest and expertise. Relationships are reflected in attendance at meetings on various levels, exchange of documents and information, and informal staff contacts on matters of common concern. The Managing Director made his annual address to the UN Economic and Social Council in presenting the Fund’s Annual Report and participated, with heads of other UN agencies, in meetings of the Administrative Committee on Coordination. Other Fund staff attended meetings of the General Assembly and UN bodies and working groups in the economic field. The joint Annual Meetings of the Boards of Governors of the Fund and the IBRD were, in turn, attended by representatives of the UN and other organizations with which the Fund and IBRD have common interests.

The Fund’s work also brings it into active contact, formal and informal, with other related organizations—global, regional, and subregional. The Fund’s competence in areas where it has primary concern or jurisdiction can help to serve the broader information needs of those organizations, and the Fund can gain a more balanced view of members’ interests and problems from different perspectives. This cooperation also seeks to avoid duplication of effort by the organizations and the member countries alike. Thus, the Fund staff participates on a continuing basis in meetings and in the exchange of pertinent information with relevant bodies of the Organization for Economic Cooperation and Development (OECD); the Contracting Parties to the General Agreement on Tariffs and Trade, with which the Fund cooperates in consultations on import restrictions and import surcharges imposed for balance of payments reasons; the Organization of American States and its Inter-American Committee on the Alliance for Progress (CIAP); and the Bank for International Settlements. In 1972 arrangements for the exchange of information and appropriate contacts were concluded with the European Economic Community.

The staff attended annual meetings of the regional development banks (African, Asian, Inter-American, and Caribbean) and regional meetings of central bank officials. The Conference of Governors of Central Banks in South East Asia, held in Kuala Lumpur, was addressed by the Deputy Managing Director.

Discussions of the international monetary system by the Group of 10, the United Nations Conference on Trade and Development (UNCTAD)and its Trade and Development Board and other bodies, the Group of 77, and the Intergovernmental Group on Monetary Matters (Group of 24) took place in the same period as the discussions within the Fund. The Managing Director participated in Ministerial Meetings of the Group of 10 in London, Rome, and Washington and in the Ministerial Meeting of the Group of 24 in Caracas, April 6 and 7, 1972; he addressed the Third UNCTAD Conference in Santiago on April 25, 1972. As already noted, there was a joint meeting between Executive Directors and Deputies of the Group of 10 on December 16, 1971.

The Fund’s concern with the economic positions of its members also requires its participation in intergovernmental meetings to coordinate the flow of aid, and during 1971/72 staff participated in meetings of the IBRD Consultative Groups and the India Consortium, the OECD-sponsored Turkey Consortium, the meetings of the Inter-Governmental Group on Indonesia held in Amsterdam under the chairmanship of the Netherlands Government, and the multilateral aid conference convened by the Government of the Khmer Republic on the establishment of an exchange support program for that country.

Parallel concern with debt servicing problems involved Fund participation in discussions on debt rescheduling held under the auspices of the French Government on Chile and Peru and on consolidation of the external debt of the Khmer Republic and in a meeting of creditor countries of Ghana convened by the United Kingdom. The Fund provided background information on the member’s economic situation for many of these aid and debt meetings, and the Fund’s series of studies on members’ experience in multilateral debt negotiations was made available to the CIAP and to the Development Assistance Committee of OECD.

At the request of the African Development Bank, the Fund staff prepared a study on payments arrangements and the expansion of trade between Ghana and the members of the Conseil de l’Entente (Dahomey, Ivory Coast, Niger, Togo, and Upper Volta).

The Fund’s attention to the problems of primary producing countries continued to bring the staff into working relationships with various intergovernmental commodity groups under the auspices of the Committee on Commodity Problems of the Food and Agriculture Organization of the United Nations; the commodity activities of the UNCTAD, including those relative to drafting an international cocoa agreement; and intergovernmental commodity agencies, including the International Tin Council, with which the Fund maintains close contacts in connection with the use of its buffer stock facility by tin producing members, and the International Coffee Organization, for which the Fund supplies information on exchange rates in connection with the Coffee Diversification Fund.

Membership, Quotas, and Participation in the Special Drawing Account

Since May 1, 1971, 3 countries joined the Fund and simultaneously became participants in the Special Drawing Account, bringing the total membership to 120 and the number of participants to 113.33 Fiji joined the Fund and became a participant on May 28, 1971, with a quota of SDR 13 million; Oman, on December 23, 1971, with a quota of SDR 7 million; and Western Samoa, on December 28, 1971, with a quota of SDR 2 million. At the request of these members that they be included in the next allocation of special drawing rights, the Fund decided, pursuant to Article XXIV, Section 2(d), of the Articles of Agreement, that they would start to receive SDRs beginning with the allocation on January 1, 1972.

Applications for membership in the Fund have been received from 4 additional countries. The Board of Governors approved membership Resolutions for Bahrain, Qatar, Bangladesh, and the United Arab Emirates, on May 3, May 11, June 13, and July 24, 1972, respectively.

The Board of Governors Resolution No. 25-3 on “Increases in Quotas of Members—Fifth General Review” provided that members might consent to increases in their quotas up to the maximum amount listed in the Annex to the Resolution not later than November 15, 1971, unless the date was extended by the Executive Directors.34 The Executive Directors extended the period for consent for increases in quotas under the Resolution, first, to June 30, 1972 and, then, to December 31, 1972.

During the fiscal year 1971/72, 7 members consented to increases in their quotas making a total of 114 members whose quotas have been increased under the Board of Governors Resolution, as amended. Only one member—Lebanon —has not consented to all or part of the increase. With the exception of Kuwait, the Libyan Arab Republic, Luxembourg, and Singapore, which consented to smaller increases, all increases were for the maximum quotas listed in the Annex to the Resolution.35 The increases during the fiscal year are shown in Appendix Table I.2. The aggregate of quotas of Fund members on April 30, 1972, including those of the new members and increases during the year, was SDR 28,809 million, compared with SDR 28,478 million a year earlier.

Table I.2.Increases in Quotas Under Board of Governors Resolution No. 25-3, as Amended, Fiscal Year Ended April 30, 1972(In millions of SDRs)
Quota on
May 1,NewEffective Date
1971Quotaof Change
Austria175270September 24, 1971
Korea5080December 17, 1971
Luxembourg1920 1November 29, 1971
Nepal10.811.6 2March 29, 1972
Portugal75117August 16, 1971
Singapore3037 1September 30, 1971
South Africa200320July 15, 1971
Tunisia3548December 7, 1971

Luxembourg and Singapore consented to less than the permitted maximums, namely SDR 24 million and SDR 62 million, respectively, under Board of Governors Resolution No. 25-3.

Nepal has consented to an increase in its quota to SDR 14 million, to be paid in five annual installments. The increase to SDR 11.6 million reflects payment of the second installment.

Luxembourg and Singapore consented to less than the permitted maximums, namely SDR 24 million and SDR 62 million, respectively, under Board of Governors Resolution No. 25-3.

Nepal has consented to an increase in its quota to SDR 14 million, to be paid in five annual installments. The increase to SDR 11.6 million reflects payment of the second installment.

Executive Directors, Management, and Staff

A list of Executive Directors and their voting power on April 30, 1972 is given in Appendix IV. Changes in membership of the Executive Board during 1971/72 are shown in Appendix V.

During the year under review, the Fund noted with sorrow the deaths of its first and second Managing Directors: Mr. Camille Gutt of Belgium, who served from May 1, 1946 to April 30, 1951, and Mr. Ivar Rooth of Sweden, who served from August 3, 1951 to October 3, 1956.

In May 1972, the term of Mr. Frank A. Southard, Jr., as Deputy Managing Director of the Fund, was extended for a period of four years from November 1, 1972.

In the year ended April 30, 1972, there were 156 appointments to the Fund’s regular staff and 87 separations. At the end of the fiscal year, the staff numbered 1,175, not including Advisors and assistants to Executive Directors numbering 70. Staff members at the end of the year were drawn from 84 countries.

Resolution No. 26-9, International Monetary System, adopted by the Board of Governors on October 1, 1971, reads as follows:

Whereas the present international monetary situa-tion contains the dangers of instability and disorderin currency and trade relationships but also offers the opportunity for constructive changes in the interna-tional monetary system; and

Whereas it is of the utmost importance to avoid the aforesaid dangers and assure continuance of the pro-gress made in national and international well being in the past quarter of a century; and

Whereas prompt action is necessary to resume the movement toward a free and multilateral system in which trade and capital flows can contribute to the integration of the world economy and the rational allocation of resources throughout the world; and

Whereas consideration should be given to the improvement of the international monetary system and the adjustment process; and

Whereas the orderly conduct of the operations of the International Monetary Fund should be resumed as promptly as possible in the interest of all members; and

Whereas all members of the Fund should partici-pate in seeking solutions of the aforesaid problems;

Now, Therefore, the Board of Governors here by Resolves that:

  • I. Members of the Fund are called upon to collab-orate with the Fund and with each other inorder, as promptly as possible, to

    • (a) establish a satisfactory structure of exchange rates, maintained within appropriate margins, for the currencies of members, together with the reduction of restrictive trade and ex-change practices, and

    • (b) facilitate resumption of the orderly conduct of the operations of the Fund.

  • II. Members are called upon to collaborate with the Fund and with each other in efforts to bring about

    • (a) a reversal of the tendency in present circum-stances to maintain and extend restrictive trade and exchange practices, and

    • (b) satisfactory arrangements for the settlement of international transactions which will con-tribute to the solution of the problems involved in the present international monetary situation.

  • III. The Executive Directors are requested:

    • (a) to make reports to the Board of Governors without delay on the measures that are nec-essary or desirable for the improvement or reform of the international monetary sys-tem; and

    • (b) for the purpose of (a), to study all aspects of the international monetary system, includ-ing the role of reserve currencies, gold, andspecial drawing rights, convertibility, the provisions of the Articles with respect to exchange rates, and the problems caused by destabilizing capital movements; and

    • (c) when reporting, to include, if possible, the texts of any amendments of the Articles of Agreement which they consider necessary to give effect to their recommendations.

The U. S. dollar could not itself be used in repur-chase as the Fund’s holdings of that currency were in excess of 75 per cent of the U. S. quota following pur-chases by the United States in June and August 1971;these purchases raised the Fund’s holdings to 91.5 percent of the U. S. quota.

Executive Board Decisions Nos. 3577-(72/16) and 3578-(72/16), adopted February 25, 1972 and repro-duced in Appendix II.

For details see AnnualReport, 1971, pages 37-38. Switzerland announced a change in the parity of the Swiss franc on May 9, 1971.

Other aspects of the Smithsonian Agreement are described in Chapter 1.

Executive Board Decision No. 3463-(71/126), adopted December 18, 1971 and reproduced in Appendix II.

Article IV, Section 5(c) (i), of the Articles of Agree-ment is as follows: (c) When a change is proposed, the Fund shall first take into account the changes, if any, which have already taken place in the initial par value of the member’s currency as determined under Article XX, Section 4. If the proposed change, together with all previous changes, whether increases or decreases, (i) does not exceed ten percent of the initial par value, the Fund shall raise no objection.

Executive Board Decision No. 3537-(72/3) G/S, adopted January 4, 1972 and reproduced in Appendix II. This decision was terminated on May 8, 1972, when the United States established a new par value.

See discussion of reconstitution, page 43.

See page 46.

Executive Board Decision No. 2901-(69/122) G/S, adopted December 18, 1969. See AnnualReport, 1970,pages 176-77. This decision was reviewed in 1970 and is subject to further review before the end of 1972. SDRs can be used in discharge of Article V, Section 7(b), repurchase obligations only to the extent that the obligation accrues in SDRs; they cannot be used in sub-stitution of other media. During 1971/72, SDR 6.9 mil-lion was used to discharge repurchase obligations thataccrued in special drawing rights. SDRs can be used to discharge voluntary repurchases only by Executive Boarddecision.

See Executive Board Decision No. 3457-C71 /121)G/S, adopted December 3, 1971, and reproduced inAppendix II.

See AnnualReport, 1962, pages 36-41.

See AnnualReport, 1971, pages 165 and 167.

See AnnualReport, 1969, pages 150 and 153.

Executive Board Decision No. 321-(54/32), adopted June 15, 1954, as amended by Executive Board DecisionNo. 3337-(71/44), adopted May 19, 1971.

Executive Board Decision No. 3537-(72/3) G/S, adopted January 4, 1972 and reproduced in Appendix II.

Executive Board Decision No. 3637-(72/41) G/S, adopted May 8, 1972 and reproduced in Appendix II.

Executive Board Decision No. 3414-(71/98) G/S, adopted September 10, 1971 and reproduced in Appen-dix II.

Executive Board Decision No. 3415-(71/98) G/S, adopted September 10, 1971 and reproduced in Appen-dix II.

The Articles of Agreement define a gold tranche purchase as “a purchase by a member of the currency of another member in exchange for its own currency which does not cause the Fund’s holdings of the member’s currency to exceed one hundred percent of its quota, pro-vided that for the purposes of this definition the Fund may exclude purchases and holdings under policies on the use of its resources for compensatory financing of export fluctuations.” A super gold tranche position is that part of a gold tranche position that is the difference between the Fund’s holdings of a member’s currency and 75 per cent of the member’s quota when the holdings are less than 75 percent. Argentina made a super gold tranche purchase equivalent to SDR 5.2 million and part of Malaysia’s1971/72 purchases, equivalent to SDR 4.4 million, fell within that member’s super gold tranche; such purchases are not subject to repurchase.

See AnnualReport, 1970, pages 138 and 175-76.

Total purchases and repurchases under the decision on compensatory financing of export fluctuations since the facility was introduced on February 27, 1963 are shown in Appendix Table I.10. During 1971/72, 11 members repurchased SDR 59 million in respect of drawings made under the facility. This included SDR 4.3 million repurchased following recommendations made under paragraph (7) of the decision, as a result of export excesses in years following the shortfall year on whichtheoriginal need for compensatoryfinancing was based.

See Executive Board Decision No. 3179-(70/102), adopted November 25, 1970 and reproduced on page 210 of the 1971 Annual Report, and Executive Board Deci-sion No. 3351-(71/51), adopted June 21, 1971 andreproduced in Appendix II.

See Executive Board Decision No. 3386-(71/83), adopted August 6, 1971 and reproduced in Appendix II.

Article V, Section 7(b), provides that, subject to certain limitations, a member shall repurchase an amount of the Fund’s holdings of its currency equivalent to one half of any increase in the Fund’s holdings of its currency that has occurred during the Fund’s financial year, plus one half of any increase, or minus one half of any decrease, in the member’s monetary reserves during the same period, or, if the Fund’s holdings of the member’s currency have decreased, one half of any increase in the member’s monetary reserves minus one half of the decrease in the Fund’s holdings of the member’s currency. While 14 members incurred obligations as of April 30, 1971 totaling the equivalent of SDR 565 mil-lion, Article V, Section 7(c) (iv), limited the amount to be discharged forth with to SDR 99.6million. (SeeTable1.12 and further information in Appendix I.)

See AnnualReport, 1970, pages 31-34 and 177-84.

See AnnualReport, 1971, pages 45-46, and Execu-tive Board Decision No. 3573-(72/13), adopted Feb-ruary 14, 1972 and reproduced in Appendix II.

See AnnualReport, 1970, pages 34-35 and 184-89.

See AnnualReport, 1971, page 43.

In accordance with Rule 1-9 of the Fund’s Rules and Regulations and Executive Board Decision No. 3033-(70/38), adopted April 29, 1970, remunerationis paid as of the end of the Fund’s fiscal year in gold, special drawing rights, or the member’s own currency atthe member’s option.

Executive Board Decision No. 3383-(71/81) G/S, adopted August 2, 1971 and reproduced in Appendix II.

The 7 members of the Fund that have not deposited instruments of participation in the Special Drawing Account are Ethiopia, Kuwait, Lebanon, the Libyan Arab Republic, Portugal, Saudi Arabia, and Singapore.

See AnnualReport, 1970, pages 177-84.

Nepal has consented to an increase in its quota to SDR 14 million, to be paid in five installments; payments of the first and second installments have been made.

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