Chapter

Appendix II. Principal Policy Decisions of the Executive Board

Author(s):
International Monetary Fund
Published Date:
September 1974
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A. Procedures for Reviews of External Policies

The Executive Directors concur in the statement of the Managing Director on procedures for reviews of external policies ….

Decision No. 4076-(73/101)

October 31, 1973

Managing Director’s Statement

On August 29, 1973 the Executive Directors considered a staff memorandum reviewing procedures for special consultations on exchange rate policies. At that meeting there was general agreement on the importance of Fund reviews of exchange rate policies and the need to develop appropriate procedures for such reviews. The staff had proposed that special consultations be held, in between the annual consultations, with members whose exchange rate policies have a major impact on the international monetary system. This proposal was supported by a number of Directors. Others preferred a more informal approach with ad hoc arrangements to be made by the Managing Director. An alternative suggested by one Executive Director envisaged “multicountry” consultations based on a staff report reviewing current exchange market and exchange policy matters in a number of countries. In concluding the meeting, the Acting Chairman had said that the staff would follow up suggestions made by Executive Directors and the subject would be brought back to the Board as soon as practicable after the Annual Meeting.

I have carefully considered the views expressed by the Executive Directors at the above meeting and in subsequent private discussions. I am mindful of the degree of consensus arrived at in the Committee of Twenty on the subject of special procedures in connection with adjustment in the reformed system. I strongly believe that we need to develop new procedures in the interim to ensure that exchange policies in general and exchange rate developments in particular are consistent with the general objectives of the Fund. I also believe that there are advantages at this time in following an approach that allows a measure of flexibility but that also is sufficiently broad-based to lead to a general review of exchange rate developments.

In the light of these considerations I propose, as a preliminary step, to ask senior staff members to hold, under my direction, informal discussions for two or three days with high officials of each of a number of countries that have a major impact on international currency relationships. There would not be a fixed list but in the first round of discussions I would consider including Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States. The discussions would be centered on balance of payments developments and policies having an important impact on exchange markets. Immediately upon their return to headquarters the staff would advise me of the results of these discussions and I would then consider what further action might be useful at that stage. In any event, with due care to safeguard the confidentiality of information and views on matters of a particularly sensitive nature, I would arrange for the Executive Directors to receive as soon as possible a unified account of developments and policies.

I believe that discussion of this subject by the Executive Directors should take place in the context of the review of general developments and prospects of the world economy deriving from the periodic exercise on the world economic outlook which should henceforth be undertaken three times each year, though not always on as elaborate a scale as in the past.

As a conclusion of the discussion by the Executive Directors, I envisage a statement by the Chairman summing up the views of the Directors on overall foreign exchange developments and policies.

If the Executive Directors agree with this procedure, I would propose that informal staff visits be arranged to begin in mid-November. This would allow Board discussion of the report to be scheduled before the meeting of the Deputies of the Committee of Twenty in January.

B. Exchange Rates for the SDR in Transactions Between Participants

1. In view of the development of unforeseen circumstances threatening the operations of the Fund with respect to the Special Drawing Account, the operation of Article XXV, Section 8((a)) is suspended, pursuant to Article XXIX, Section 1, with respect to transactions under Article XXV, Section 2(b) (i) for a period of 120 days starting November 6, 1973.

2. The earliest practicable date for a meeting of the Board of Governors pursuant to Article XVI, Section 1(b), is the date of the 1974 Annual Meeting of the Board of Governors of the International Monetary Fund.

Decision No. 4078-(73/102) S

November 5, 1973

C. Central Rates and Wider Margins: A Temporary Regime—Revised Decision 1

Preamble

This decision is adopted by the Executive Directors in order to indicate practices that members may wish to follow in present circumstances consistently with Article IV, Section 4(a) and Board of Governors Resolution No. 26-9,2 which called on all members to collaborate with the Fund and with each other in order to maintain a satisfactory structure of exchange rates within appropriate margins. The decision is intended 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.

Paragraph 1. Par Values and Wider Margins

(a) A member will be deemed to be acting in accordance with Article IV, Section 4(a) and Resolution No. 26-9 if it takes appropriate measures, consistent with the Articles, to permit spot exchange transactions between its currency and an intervention currency, the issuer of which operates on the basis of a par value or a central rate, only at rates within 2¼ per cent from the parity between the two currencies. If a central rate is in effect for the intervention currency, parity for the purpose of this paragraph shall be deemed to refer to the relationship between the par value of a member’s currency and such central rate.

(b) A member that avails itself of wider margins under (a) above shall notify the Fund. Paragraphs 5 and 6 of this decision shall then apply to the member.

(c) A member’s intervention currency means a currency which the member represents to the Fund that it stands ready to buy and sell in order to perform its obligations regarding exchange stability.

Paragraph 2. Central Rates

(a) A member which temporarily does not maintain rates based on a par value for its currency in accordance with Article IV, Section 3 and Decision No. 904-(59/32)3 but, by means of appropriate measures consistent with the Articles, maintains a stable rate in terms of an intervention currency as the basis for exchange transactions in its territories may communicate to the Fund a rate for its currency for the purposes of this decision. This rate or a rate subsequently communicated in accordance with this paragraph shall take effect as the central rate for the purposes of this decision unless the Fund finds it unsatisfactory.

(b) A central rate for a member’s currency may be communicated in gold, units of special drawing rights, or another member’s currency.

Paragraph 3. Central Rates with Wider Margins

A member that communicates a central rate under paragraph 2(a) and avails itself of the wider margins of paragraph 1(a) on the basis of its central rate shall notify the Fund, and if the Fund has not found the central rate unsatisfactory the member will be deemed to be acting in accordance with Article IV, Section 4(a) and Resolution No. 26-9 if it takes appropriate measures, consistent with the Articles, to permit spot exchange transactions between its currency and an intervention currency only within margins of 2¼ per cent of the central rate in terms of the intervention currency. In addition, paragraphs 5 and 6 shall apply.

Paragraph 4. Central Rates without Wider Margins

If a member that communicates a central rate under paragraph 2(a) does not notify the Fund under paragraph 3 that it avails itself of the wider margins of that paragraph, the member shall take appropriate measures to ensure that spot exchange transactions within its territories between its currency and an intervention currency shall take place only within margins of 1 per cent of the central rate in terms of the intervention currency.

Paragraph 5. Multiple Currency Practices and Discriminatory Currency Arrangements

Notwithstanding paragraphs 1 and 3 above, no member shall permit, except as approved or authorized under Article VIII, Section 3 or Article XIV, Section 2:

a difference in excess of 2 per cent between any two buying or any two selling rates for spot exchange transactions between its currency and the currencies of other members; or

a spread in excess of 2 per cent between a buying and a selling rate for spot exchange transactions between its currency and the currency of another member.

Paragraph 6. Intervention

Appropriate measures for the purposes of paragraphs 1(a), 2(a), and 3 above shall include intervention by a member’s authorities in the exchange markets within the member’s territories in order to maintain rates for spot exchange transactions in accordance with this decision. In their intervention in exchange markets members shall refrain from actions incompatible with the purposes of the Fund.

Paragraph 7. Members Maintaining Narrow Margins Against an Intervention Currency

(a) A member will be deemed to be acting in accordance with Article IV, Section 4(a) and Board of Governors Resolution No. 26-9, if (a) the rate for its currency is maintained consistently with the Articles or the member’s Membership Resolution and (b) the member permits transactions between its currency and an intervention currency only within margins of 1 per cent of the said rate in terms of the intervention currency.

(b) Subparagraph (a) shall apply to a member in respect of the separate currency of a territory under Article XX, Section 2(g) for which margins of 1 per cent are maintained for transactions between the separate currency and the metropolitan currency.

Paragraph 8. Review

This decision shall be reviewed from time to time as necessary.

Decision No. 4083-(73/104)

November 7, 1973

D. Gold Payments Under Article V, Section 7(b) Amounting to Less Than One Bar

If a payment due under Article V, Section 1(b) includes an amount of gold equal to less than one standard bar, such amount shall not be collected.

Decision No. 4087-(73/105)

November 9, 1973

E. Bank for International Settlements: Draft Resolution to Become Holder of SDRs

I. The Bank for International Settlements, by a letter dated September 12, 1973, applied to be permitted to accept, hold, and use special drawing rights under Article XXIII, Section 3, of the Articles of Agreement of the Fund, and pursuant to Section 25 of the By-Laws, the Executive Directors have consulted with the representatives of that Bank and have agreed upon the terms and conditions which, in the opinion of the Executive Directors, the Board of Governors may wish to prescribe for permitting that Bank to accept, hold, and use special drawing rights.

II. The Board of Governors is requested to vote without meeting pursuant to Section 13 of the By-Laws. Pursuant further to this By-Law, the Executive Directors waive the requirement that Governors shall not vote on any motion presented by the Executive Directors until seven days after the dispatch of the motion.

III. The Secretary is authorized and directed to send to each member of the Fund by rapid means of communication, on or before November 30, 1973, the Explanatory Notes and Appendix thereto together with the following communication:

The Bank for International Settlements by a letter dated September 12, 1973 applied to be permitted under Article XXIII, Section 3 to accept, hold, and use special drawing rights. The Executive Board, after consultation with representatives of the Bank for International Settlements, has taken note of the Explanatory Notes and Appendix thereto, which is sent to Governors for their information, and approved the following Resolution for submission to the Board of Governors for a vote without meeting pursuant to Section 13 of the By-Laws of the Fund. If the Resolution is adopted while the suspension under Executive Board Decision No. 4078-(73/102) S is still in effect, the Executive Directors intend to decide under paragraph 9 to permit the Bank to engage in transactions.4

The exchange rates for transactions under the Resolution would be determined under Rule 0-3.

DRAFT RESOLUTION 5

Prescription of the Bank for International Settlements as a Holder of Special Drawing Rights

Whereas the Bank for International Settlements, by a letter dated September 12, 1973, applied to be permitted under Article XXIII, Section 3, of the Articles of Agreement of the International Monetary Fund to accept, hold, and use special drawing rights in certain transactions with participants; and

Whereas pursuant to Section 25 of the By-Laws of the Fund, the Executive Directors, after consultation with the Representatives of the Bank for International Settlements, have recommended that the Bank for International Settlements be prescribed as a holder on the terms and conditions set forth in this Resolution; and

Whereas the Bank for International Settlements has indicated its concurrence in the proposed terms and conditions;

Now, Therefore, the Board of Governors, having considered the recommendations of the Executive Directors, hereby Resolves that: The Bank for International Settlements is prescribed as a holder of special drawing rights on the following terms and conditions:

  • 1. Definitions:As used in this Resolution:

    • (a) “Fund” means the International Monetary Fund.

    • (b) “Bank” means the Bank for International Settlements.

    • (c) “Participant” means a participant in the Special Drawing Account of the Fund.

    • (d) “Articles” means the Articles of Agreement of the Fund.

    • (e) “Article” refers to an identified provision of the Articles.

    • (f) “Need to use special drawing rights” means need as defined in Article XXV, Section 33(a).

  • 2. Application of General Provisions: The provisions of the Articles, By-Laws, Rules and Regulations, and decisions of the Fund that apply to all holders shall apply under this Resolution.

  • 3. Acceptance, Holding, and Use by the Bank:

    • (a) Acceptance: The Bank may accept special drawing rights and provide currency in a transaction in agreement with a participant, which agreement includes an undertaking by the Bank and participant that the Bank will use the same amount of special drawing rights to obtain currency from that participant within a period of up to six months.

    • (b) Holding: The Bank may hold special drawing rights accepted in accordance with (a) above or received from the Fund as interest on its holdings of special drawing rights.

    • (c) Use: The Bank may use special drawing rights to obtain currency in a transaction in agreement with a participant:

      • (i) to fulfill the Bank’s undertaking assumed in accordance with paragraph 3(a) above; or

      • (ii) after consultation with the Fund, to dispose of special drawing rights when the Bank finds that a participant has failed to carry out the agreement referred to in paragraph 3(a) above; and

      • (iii) to dispose of special drawing rights received from the Fund as interest on the Bank’s holdings of special drawing rights.

    The Bank shall return special drawing rights to a participant which is required to accept them in accordance with paragraph 4(a) (ii).

    • (d) Exchange rates: In all transactions under this Resolution the rules which determine the exchange rates applicable to participants under the Articles at the time of each transfer of special drawing rights shall also apply to the Bank.

  • 4. Use and Acceptance by Participants:

    • (a) Use:

      • (i) A participant that represents to the Fund that it has a need to use special drawing rights may enter into a transaction in accordance with paragraph 3(a) above by giving notice to the Fund.

      • (ii) The Fund shall not challenge the representation in (a)(i) above. The Fund, however, may require the participant to accept special drawing rights from the Bank, for currency acceptable to the Bank, to the extent the Fund later finds that the participant did not have a need to use special drawing rights.

    • (b) Acceptance: A participant may accept special drawing rights in accordance with paragraph 3(c) above. A participant shall accept special drawing rights from the Bank and provide currency as required under (a) (ii) above.

  • 5. Information and Recording: The Fund shall inform the Bank of all matters relevant to the acceptance, holding, and use of special drawing rights by the Bank. The Bank and the participant shall inform the Fund promptly of the facts necessary to record any transaction in which the Bank accepts or uses special drawing rights.

  • 6. Consultation and Review: The Bank and the Fund will remain in close consultation with respect to this Resolution. The Executive Directors shall review this Resolution at least once every three years and submit any recommendation that they consider appropriate to the Board of Governors.

  • 7. General Undertaking of Bank: The Bank undertakes, in its acceptance, holding, and use of special drawing rights, to collaborate with the Fund in order to facilitate the effective functioning of the Special Drawing Account and the proper use of special drawing rights in accordance with the Articles and this Resolution.

  • 8. Annual Report: The Executive Directors shall discuss the operation of this Resolution in their annual report as part of their review of the operation of the Special Drawing Account.

  • 9. Suspension: During any period in which a suspension under Article XXIX, Section 1, is in effect, transactions under this Resolution shall be suspended unless the Executive Directors decide otherwise.

  • 10. Termination: The prescription hereunder may be terminated either by the Bank, or by the Fund on the decision of the Executive Directors, by transmitting a notice in writing to the Fund or the Bank at its principal office. Termination shall become effective on the date the notice is received. After termination the Bank may hold, receive, and use special drawing rights only in accordance with paragraphs 3(b), (c), and (d), above, and participants may accept special drawing rights from the Bank under paragraph 4(b) above.

  • 11. Adherence to Terms and Conditions:

    • (a) The Bank may adhere to this Resolution 6 within six months of the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors.

    • (b) Adherence hereunder shall be in the form of a letter to the Fund, acknowledging these terms and conditions and bearing signatures which legally commit the Bank.

Decision No. 4096-(73/110) S

November 26, 1973

F. Consultations on Members’ Policies in Present Circumstances

1. The Committee on Reform of the International Monetary System and Related Issues on January 18, 1974 reviewed important recent developments and agreed that, in the present difficult circumstances, all members, in managing their international payments, must avoid the adoption of policies which would merely aggravate the problems of other members. Accordingly, the Committee stressed the importance of avoiding competitive depreciation and the escalation of restrictions on trade and payments; and emphasized the importance of pursuing policies that would sustain appropriate levels of economic activity and employment, while minimizing inflation. It was also recognized that recent developments would create serious payments difficulties for many developing countries. The Committee agreed that there should be the closest international cooperation and consultation in pursuit of these objectives.

2. The Executive Directors call on all members to collaborate with the Fund in accordance with Article IV, Section 4(a), with a view to attaining these objectives. The consultations of the Fund on the policies that members are following in present circumstances will be conducted with a view to the attainment of these objectives.

Decision No. 4134-(74/4)

January 23, 1974

G. Exchange Rates for the SDR in Transactions Between Participants: Extension of Suspension of Article XXV, Section 8(a)

I. The Board of Governors is requested to vote without meeting pursuant to Section 13 of the By-Laws of the Fund upon a draft resolution extending the period of the suspension of the operation of Article XXV, Section 8(a) with respect to transactions under Article XXV, Section 2(6) (i).

II. The Secretary is authorized and directed to send a communication substantially as follows to each member of the Fund, by airmail or other rapid means of communication, on or before February 5, 1974:

  • 1. In view of the development of unforeseen circumstances threatening the operations of the Fund with respect to the Special Drawing Account, the Executive Directors of the Fund decided on November 5, 1973 to suspend the operation of Article XXV, Section 8(a), with respect to transactions between participants conducted pursuant to Article XXV, Section 2(6) (i), for the maximum period of 120 days for which the Executive Directors can adopt a suspension. This period will end on March 5, 1974. As this threat to the operations of the Fund with respect to the Special Drawing Account continues to exist and the period of suspension may be extended beyond March 5, 1974 only by the Board of Governors, the Executive Directors have concluded that they should recommend to the Board of Governors the extension of the suspension.

  • 2. Accordingly, the Executive Directors of the Fund have approved the submission of the following draft resolution to the Board of Governors of the Fund for a vote without meeting pursuant to Section 13 of the By-Laws, and waive the requirement that Governors shall not vote on any motion presented by the Executive Directors until seven days after the dispatch of the motion:

DRAFT RESOLUTION 7

Extension of Suspension of Operation of Article XXV, Section 8(a)

Resolved:

That the suspension of the operation of Article XXV, Section 8(a) with respect to transactions under Article XXV, Section 2(6) (i), which was decided by the Executive Directors on November 5, 1973 for a period of 120 days ending on March 5, 1974, shall be extended for an additional period of 240 days ending on October 31, 1974.

Decision No. 4145-(74/6) S

February 1, 1974

H. Bank for International Settlements: Adherence to Resolution No. 29-1 and Termination of Suspension

I. In accordance with Paragraph 9 of Board of Governors Resolution No. 29-1, the Executive Directors decide that, during any period in which the operation of Article XXV, Section 8(a) is suspended pursuant to Article XXIX, Section 1 with respect to transactions under Article XXV, Section 2(6) (i), transactions under Resolution No. 29-1 shall not be suspended.

II. The Secretary is authorized to transmit to the Bank for International Settlements decisions of the Fund that apply to all holders and affect the acceptance, holding, and use of special drawing rights by the Bank.

Decision No. 4159-(74/10) S

February 19, 1974

I. Draft Resolution on Establishment of an Interim Committee of the Board of Governors on the International Monetary System

The Executive Board approves for submission to the Board of Governors at the 1974 Annual Meeting the following draft Resolution on Establishment of an Interim Committee of the Board of Governors.

Decision No. 4231-(74/67)

June 13, 1974

DRAFT RESOLUTION

Whereas the Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues has recommended that it would be desirable to establish by amendment of the Articles of Agreement a permanent and representative Council with appropriate powers; and

Whereas it is desirable, pending the establishment of the Council, to establish an Interim Committee of the Board of Governors on the International Monetary System with an advisory role, and with a composition similar to that of the Council; and

Whereas it is desirable that the Interim Committee shall come into existence when the Committee on Reform of the International Monetary System and Related Issues ceases to exist;

Now, Therefore, the Board of Governors hereby Resolves that:

1. Composition of the Interim Committee

(a) There shall be established an Interim Committee of the Board of Governors on the International Monetary System. The members of the Committee shall be governors of the Fund, ministers, or others of comparable rank. Each member of the Fund that appoints an executive director and each group of members of the Fund that elected an executive director on or after the date on which the last regular election took place shall appoint

  • (i) one member of the Committee, and not more than

  • (ii) seven associates.

Each member of the Committee and each associate shall serve until a new appointment is made.

(b) Members of the Committee, associates, and executive directors or in their absence their alternates, shall be entitled to attend meetings of the Committee, unless the Committee decides to hold a more restricted session. Each member of the Fund that appoints an executive director and each group of members of the Fund referred to in (a) above may designate an alternate to participate in the place of the member of the Committee at any meeting when he is not present. Participation in respect of each item on the agenda of a meeting shall be limited to one person, who shall be a member of the Committee, an associate, or an executive director.

(c) The Committee shall select a Chairman, who shall serve for such period as the Committee determines. The Chairman of the Board of Governors, or a governor designated by him, shall convene the first meeting of the Committee and shall preside over it until a Chairman has been selected.

(d) The Managing Director shall be entitled to participate in all meetings of the Committee, and may designate a representative to participate in his place at any meeting when he is not present. The Managing Director or his representative may be accompanied normally by not more than two members of the staff, unless the Committee decides to hold a restricted session.

2. Representation of members not entitled to appoint a member of the Committee

A member of the Fund not entitled to appoint a member of the Committee may send a representative to participate in any meeting of the Committee when a request made by, or a matter particularly affecting, that member is under consideration. The Committee shall determine, upon request by the member, whether a matter under consideration particularly affects the member.

3. Terms of reference

The Committee shall advise and report to the Board of Governors with respect to the functions of the Board of Governors in:

  • (i) supervising the management and adaptation of the international monetary system, including the continuing operation of the adjustment process, and in this connection reviewing developments in global liquidity and the transfer of real resources to developing countries;

  • (ii) considering proposals by the Executive Directors to amend the Articles of Agreement; and

  • (iii) dealing with sudden disturbances that might threaten the system.

In addition, the Committee shall advise and report to the Board of Governors on any other matters on which the Board of Governors may seek the advice of the Committee.

In performing its duties, the Committee shall take account of the work of other bodies having specialized responsibilities in related fields.

4. Procedures

(a) The Committee shall meet ordinarily three or four times a year. The Chairman may call meetings after consulting the members of the Committee, and shall consult the members of the Committee on calling a meeting if so requested by any member of the Committee.

(b) A quorum for any meeting of the Committee shall be two thirds of the members of the Committee.

(c) Meetings of the Committee shall be held within the metropolitan area in which the Fund has its principal office, or at such other places as the Committee may provide or, in the absence of such provision, as the Chairman shall determine after consulting the members of the Committee.

(d) Appropriate arrangements shall be made for the effective coordination of the work of the Committee and of the Executive Directors. The Secretary of the Fund shall serve as the Secretary of the Committee.

(e) In reporting any recommendations or views of the Committee, the Chairman shall seek to establish a sense of the meeting. In the event of a failure to reach a unanimous view, all views shall be reported, and the members holding such views shall be identified. Reports of the Committee shall be made available to the Executive Directors.

(f) The Committee may invite observers to attend during the discussion of an item on the agenda of a meeting, and may determine any aspect of its procedure that is not established by this Resolution.

J. Guidelines for the Management of Floating Exchange Rates

The Executive Directors have discussed the attached memorandum entitled “Guidelines for the Management of Floating Exchange Rates.” They recommend, pursuant to Article IV, Section 4(a), that, in present circumstances, members should use their best endeavors to observe the guidelines set forth and explained in the memorandum. Consultations with members with floating currencies will be based on the memorandum. These guidelines will be reviewed from time to time in order to make any adjustments that may be appropriate.

Decision No. 4232-(74/67)

June 13, 1974

Guidelines for the Management of Floating Exchange Rates

Introduction

There is widespread agreement that the behavior of governments with respect to exchange rates is a matter of international concern and a matter for consultation and surveillance in the Fund. This is no less true when rates are floating than when they are contained within fixed margins and are changed by par value and central rate adjustments.

The Fund cannot legally authorize floating but it can exercise surveillance over the manner in which members fulfill their undertaking, under Article IV, Section 4(a), “to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.” The following guidelines, though not exhausting the possibilities of action by the Fund under this Article, are intended to provide criteria that members would observe in performing their undertaking and that the Fund would observe in exercising surveillance in present circumstances.

These guidelines are based on the assumption that in any situation of floating it may be desirable (a) to smooth out very short-run fluctuations in market rates and (b) to offer a measure of resistance to market tendencies in the slightly longer run, particularly when they are leading to unduly rapid movements in the rate, and (c) to the extent that it is possible to form a reasonable estimate of the medium-term norm for a country’s exchange rate, to resist movements in market rates that appear to be deviating substantially from that norm. Guidelines of this kind are necessary, inter alia, in order to arrive at a clear conception of what competitive exchange alteration is, and to provide safeguards against it.

The guidelines also take into account:

(a) that national policies, including those relating to domestic stabilization, should not be subjected to greater constraints than are clearly necessary in the international interest;

(b) that a degree of uncertainty necessarily attaches to any estimate of a medium-term normal exchange rate, that this uncertainty is particularly great in present circumstances, and that on occasion the market view may be more realistic than any official view whether of the country primarily concerned or of an international body; and

(c) that in view of the strength of short-term market forces it may at times be unavoidable to forego or curtail official intervention that would be desirable from the standpoint of exchange stability if such intervention should involve an excessive drain on reserves or an impact on the money supply which it is difficult to neutralize.

The guidelines are intended to provide the basis for a meaningful dialogue between the Fund and member countries with a view to promoting international consistency during a period of widespread floating. They are termed guidelines rather than rules to indicate their tentative and experimental character. They should be adaptable to changing circumstances. No attempt is here made to indicate the precise procedures through which they would be implemented. These will be considered later, but they must essentially rest on an intensification of the confidential interchange between the member and the Fund.

In the application of the guidelines it is to be expected that, in view of the emphasis laid by the Committee of Twenty at their fifth (Rome) meeting on the importance in present circumstances of avoiding competitive depreciation, particular attention would be attached to departures from the guidelines in the direction of depreciation. Special consideration will also be given to the manner in which the guidelines should be applied by developing countries, taking account of the stage of evolution of their exchange markets and intervention practices.

The guidelines should be understood in the light of the commentary which follows.

The Guidelines

(1) A member with a floating exchange rate should intervene on the foreign exchange market as necessary to prevent or moderate sharp and disruptive fluctuations from day to day and from week to week in the exchange value of its currency.

(2) Subject to (3)(b), a member with a floating rate may act, through intervention or otherwise, to moderate movements in the exchange value of its currency from month to month and quarter to quarter, and is encouraged to do so, if necessary, where factors recognized to be temporary are at work. Subject to (1) and (3) (a), the member should not normally act aggressively with respect to the exchange value of its currency (i.e., should not so act as to depress that value when it is falling, or to enhance that value when it is rising).

(3) (a) If a member with a floating rate should desire to act otherwise than in accordance with (1) and (2) above in order to bring its exchange rate within, or closer to, some target zone of rates, it should consult with the Fund about this target and its adaptation to changing circumstances. If the Fund considers the target to be within the range of reasonable estimates of the medium-term norm for the exchange rate in question, the member would be free, subject to (5), to act aggressively to move its rate towards the target zone, though within that zone (2) would continue to apply.

(b) If the exchange rate of a member with a floating rate has moved outside what the Fund considers to be the range of reasonable estimates of the medium-term norm for that exchange rate to an extent the Fund considers likely to be harmful to the interests of members, the Fund will consult with the member, and in the light of such consultation may encourage the member, despite 2 above, (i) not to act to moderate movements toward this range, or (ii) to take action to moderate further divergence from the range. A member would not be asked to hold any particular rate against strong market pressure.

(4) A member with a floating exchange rate would be encouraged to indicate to the Fund its broad objective for the development of its reserves over a period ahead and to discuss this objective with the Fund. If the Fund, taking account of the world reserve situation, considered this objective to be reasonable and if the member’s reserves were relatively low by this standard, the member would be encouraged to intervene more strongly under Guideline (2) to moderate a movement in its rate when the rate was rising than when it was falling. If the member’s reserves were relatively high by this standard it would be encouraged to intervene more strongly to moderate a movement in its rate when the rate was falling than when it was rising. In considering target exchange rate zones under (3), also, the Fund would pay due regard to the desirability of avoiding an increase over the medium term of reserves that were recognized by this standard to be relatively high, and the reduction of reserves that were recognized to be relatively low.

(5) A member with a floating rate, like other members, should refrain from introducing restrictions for balance of payments purposes on current account transactions or payments and should endeavor progressively to remove such restrictions of this kind as may exist.

(6) Members with a floating rate will bear in mind, in intervention, the interests of other members including those of the issuing countries in whose currencies they intervene. Mutually satisfactory arrangements might usefully be agreed between the issuers and users of intervention currencies, with respect to the use of such currencies in intervention. Any such arrangements should be compatible with the purposes of the foregoing guidelines. The Fund will stand ready to assist members in dealing with any problems that may arise in connection with them.

Commentary

General

Certain of the terms used in the guidelines may be defined as follows: (i) “A member with a floating exchange rate” means a member whose currency is floating independently in the sense that it is not pegged, within relatively narrow margins, to any other currency or composite of currencies. Members whose currencies are pegged to particular floating currencies, or to composites of such currencies, within these margins would be exempt from these guidelines, though not from any general principles relating to adjustment. Members which, though their currencies are pegged to another currency, change the peg frequently in the light of some formula relating, e.g., to price indices, would be expected to discuss this formula and any changes therein with the Fund. Members whose currencies are pegged to a composite of other currencies (e.g., members whose effective rates are fixed) would likewise be expected to discuss with the Fund the composite in question and any changes therein. Members whose currencies are floating jointly under mutual intervention arrangements with relatively narrow margins would be exempted from the intervention guidelines so far as intervention in each other’s currencies is concerned, but would be held responsible to the Fund for their exchange market intervention vis-a-vis the rest of the world. As regards capital controls, official financing, and other measures to influence capital flows, each member belonging to such a group would be responsible for its measures judged in relation to its overall balance of payments situation.

(ii) “Exchange market intervention” would normally be measured by the movement of reserves, adjusted as appropriate for compensatory official borrowing. Consideration might also be given to including in the concept of intervention changes in official foreign exchange positions other than reserves.

(iii) “Action to influence an exchange rate” includes, besides exchange market intervention, other policies that exercise a temporary effect on the balance of payments and hence on exchange rates, and that have been adopted for that purpose. Such policies may take the form of official forward exchange market intervention, official foreign borrowing or lending, capital restrictions, separate capital exchange markets, various types of fiscal intervention, and also monetary or interest rate policies. Monetary or interest rate policies adopted for demand management purposes or other policies adopted for purposes other than balance of payments purposes would not be regarded as action to influence the exchange rate.

(iv) Where the terms “exchange rate” or “exchange value” are employed with respect to any currency it is assumed that these would normally be expressed in terms of effective rates, i.e., the value of the currency would be measured relative to a representative set of currencies rather than relative to its intervention currency alone. The set chosen for this purpose should, in principle, vary from country to country, and the currencies in the set should be weighted according to their importance to the country in question. The composition of the set might be based on trade and financial relationships or on trade relationships alone. If trade-weighted, it might be derived from the Multilateral Exchange Rate Model, or based on bilateral trade relationships. In some cases the basket used for the valuation of the SDR might be satisfactory for this purpose also. In some cases, finally, the rate vis-à-vis a single currency might provide a satisfactory approximation to an effective rate.

On Guideline (1)

Known large once-for-all or reversible transactions would be largely offset and their effects spread over time. In addition, intervention would be undertaken to moderate large day-to-day or week-to-week movements in rates due to speculative or other factors. Such intervention, if properly conducted, should tend to net out over time.

It is unlikely to be necessary for the issuer of the principal intervention currency itself to intervene from day to day in the manner described in this guideline.

On Guideline (3)

(i) The concept of a medium-term norm for an exchange rate is employed explicitly in (a) and implicitly in (b) of Guideline (3). By this is meant a rate that would tend to bring about equilibrium in the “underlying” balance of payments, i.e., in the overall balance in the absence of cyclical and other short-term factors affecting the balance of payments, including government policies which are, or, on internationally accepted principles, ought to be temporary. If the member concerned so proposes and the Fund agrees, “equilibrium” could allow for an internationally appropriate rate of increase or decrease in the member’s reserves. The “medium-term” might be considered to refer to a period of about four years. Seasonal, speculative, and cyclical factors whose effects were reversible over such a period would be ignored.

(ii) An advantage of conceiving medium-term norms or target zones in terms of effective rates is that so long as the effective rate remains constant the balance of trade or currency payments of the floating country would not be greatly affected by changes in the relative exchange rates of the currencies of other countries. This should reduce the frequency with which it would be necessary to change zone boundaries, or the magnitude of the changes involved. It would be open to a member if it so desired to express its target rate or zone not as one that is constant over time but as one that is rising or falling at a certain rate or at a rate dependent, for example, on an index of relative price or cost levels.

(iii) Under Guideline (3)(b) the Fund would be authorized to take the initiative in situations where it considered that a member’s rate was likely to become harmful to the interests of members whether as a result of market forces or of action by the member. Recommendations to a member under this provision would be made by the Executive Directors, on a proposal by the Managing Director, but the Managing Director would not make such a proposal except after consultation with the member.

(iv) The greater the degree of uncertainty regarding the balance of payments situation and prospects of a country the wider would be the range of reasonable estimates of the medium-term norm for its exchange rate, and the wider would be the deviation beyond this range which would occur before the Fund would make any suggestions under Guideline (3) (b). The Fund’s right to make suggestions under this guideline will, in any case, be exercised with restraint.

(v) In any suggestions the Fund might make under Guideline (3)(b), it would give a preference to liberalizing as opposed to restricting ways of exercising a given effect on exchange rates, but would bear in mind the distinction between capital controls applied for temporary balance of payments reasons and those applied for other economic and social reasons.

On Guideline (6)

This guideline would imply that in their use of their customary reserve currencies members with a floating rate, while recognizing the need of issuing countries for reasonable freedom of exchange rate movement, should not be precluded from intervening in a manner conformable with the guidelines. Among the problems that might arise regarding the use of intervention currencies, in the resolution of which the Fund might be of service, are those regarding the circumstances in which a member might intervene in a currency other than its customary reserve currency, the problem of interventions that move the value of the currency of intervention in an undesirable direction, and the problem of mutually offsetting interventions.

K. Interim Valuation of the SDR: New Rule 0-3 and Method of Determining and Collecting Exchange Rates

(a) New Rule 0-3

1. Effective July 1, 1974, and subject to the addition of the amount of each currency listed in paragraph (a), which will be calculated in the manner set out in SM/74/142, dated June 13, 1974, on the last business day before this decision becomes effective, Rule 0-3 of the Fund’s Rules and Regulations entitled “Exchange Rates” shall be amended to read as follows:

  • (a) For the purpose of determining the exchange rate in terms of special drawing rights for a currency provided in a transaction between participants or involved in a conversion associated with such a transaction one special drawing right shall be deemed to be equal to the sum of:

U. S. dollar0.40
Deutsche mark0.38
Pound sterling0.045
French franc0.44
Japanese yen26
Canadian dollar0.071
Italian lira47
Netherlands guilder0.14
Belgian franc1.6
Swedish krona0.13
Australian dollar0.012
Danish krone0.11
Norwegian krone0.099
Spanish peseta1.1
Austrian schilling0.22
South African rand0.0082
  • (b) One special drawing right in terms of the United States dollar shall be equal to the sum of the equivalents in United States dollars of the amounts of the currencies specified in (a) above, calculated on the basis of exchange rates established in accordance with procedures decided from time to time by the Fund.

  • (c) One special drawing right in terms of a currency other than the United States dollar shall be determined on the basis of the rate of the special drawing right in terms of the United States dollar as established in accordance with (b) above and an exchange rate for that currency determined as follows:

    • (i) for the currency of a member having an exchange market in which the Fund finds that a representative rate for spot delivery for the United States dollar can be readily ascertained, that representative rate;

    • (ii) for the currency of a member having an exchange market in which the Fund finds that a representative rate for spot delivery for the United States dollar cannot be readily ascertained but in which a representative rate can be readily ascertained for spot delivery for a currency as described in (i), the rate calculated by reference to the representative rate for spot delivery for that currency and the rate ascertained pursuant to (i) above for the United States dollar in terms of that currency;

    • (iii) for any other currency, a rate determined by the Fund.

2. Rule 0-3 as amended by this decision shall be reviewed two years from the date of this decision.

Decision No. 4233-(74/67) S

June 13, 1974, as amended by

Decision No. 4261-(74/78) S

July 1, 1974

(b) Method of Determining and Collecting Exchange Rates for the Purposes of Rule 0-3

1. The determination under Rule 0-3(b) of the equivalents in United States dollars of the amounts of currencies listed in Rule 0-3(a) shall be based on the following spot exchange rates for the United States dollar: against the yen, the representative rate under Rule 0-3(c); against other currencies, the middle rates between buying and selling rates quoted at noon in the London exchange market.

2. If, for any reason, the rate for any currency cannot be obtained in accordance with 1. above, the rate shall be the rate quoted at noon in the New York exchange market or, if not available there, the rates at the fixing in the Frankfurt exchange market. If rates against the United States dollar cannot be obtained directly in any market, the rates shall be calculated by use of appropriate cross rates.

3. If on any day the rate for a currency cannot be obtained in accordance with 1. or 2. above, calculations shall be made on the basis of the rate for the previous business day unless the Fund decides otherwise.

Decision No. 4234-(74/67) S

June 13,1974

L. Remuneration and Interest Rate on Special Drawing Rights

(a) Remuneration

The following shall be adopted as Rule 1-10:

  • (a) For the six-month period July 1 to December 31, 1974, the rate of remuneration shall be 5 per cent per annum.

  • (b) Unless the Executive Board, after review in accordance with (e) below, decides otherwise, the rate of remuneration for each subsequent six-month period shall be 5 per cent per annum minus three fifths of the amount by which 9 per cent exceeds, or plus three fifths of the amount by which 11 per cent is exceeded by, the combined market interest rate as determined in (d) below. The rates of remuneration calculated under this (b) shall be rounded to the nearest ¼ per cent.

  • (c) Notwithstanding (a) and (b) above, for the six-month period ending December 31, 1974, and for any of the three subsequent six-month periods in which the rate of remuneration under (b) above is more than 3¼ per cent per annum, the rate of remuneration on the amount by which the Fund’s holdings of a member’s currency are less than 75 per cent but more than 50 per cent of the member’s quota shall be the higher of 2½ per cent per annum or one-half of the rate in effect under (a) or (b) above; provided, however, that the rate for any six-month period under this (c) shall be increased to the nearest ¼ per cent to the extent that this would have been possible with the net income recorded by the Fund for the previous six-month period on the basis of the amount by which 75 per cent of members’ quotas exceeded the Fund’s average daily holdings of the currencies of these members, up to a maximum equal to the rate in effect under (a) or (b) above. The provisions in this (c) shall be reviewed not later than two years after the adoption of this decision.

  • (d) The combined market interest rate shall be the average of the daily interest rates for the obligations, combined in accordance with the weights listed below, for the three-month period ending on the fifteenth day of the last month before the six-month period for which the rate of remuneration is determined:

Per cent
Market yields for three-month U. S. Treasury bills47
Three-month interbank deposits rate in Germany18
Market yields for three-month U. K. Treasury bills13
Three-month interbank money rate against private paper in France11
Call money market rate (unconditional) in Japan11
100
  • (e) The Fund will review the rates of remuneration during each six-month period beginning on July 1 and January 1 of each year.

  • (f) Net income of the Fund, for the purposes of (c) above, shall mean the excess of the Fund’s total income over all expenditures by the Fund during the review period.

Decision No. 4235-(74/67)

June 13, 1974

(b) Interest Rate on Special Drawing Rights

1. Rule Q-l shall be amended as follows:

  • (a) Interest and charges in respect of special drawing rights shall accrue daily at the rate referred to in (b) below and shall be paid promptly as of the end of each financial year of the Fund. The accounts of participants shall be credited with the excess of interest due over charges or debited with the excess of charges over the interest due. The accounts of holders that are not participants shall be credited with the interest due.

2. There shall be added Rule Q-l (b) as follows:

  • (b) The interest rate on holdings of special drawing rights shall be equal to the rate of remuneration in effect pursuant to Rule I-10(a) or (b).

Decision No. 4236-(74/67) S

June 13,1974

(c) Review

Executive Board Decisions No. 4235-(74/67) and No. 4236-(74/67) S, adopted June 13, 1974, shall be reviewed not later than two years after their adoption.

Decision No. 4237-(74/67) G/S

June 13, 1974

M. Charges

(a) Charges—Schedules

1. The following shall be adopted as Rule 1-4(h):

(h) The calculations under (b)(i) and (c) of Rule 1-4 shall be made separately in respect of the part of the Fund’s holdings of a member’s currency subject to (f)(3)(i) and (f)(3)(ii) below.

2. Rule 1-4(f) is amended by the addition of:

(3) With respect to each segment of the holdings of a member’s currency to the extent that it represents the acquisition of that currency by the Fund from July 1, 1974:

  • (i) The charge to be levied on each segment that is in excess of 100 per cent of quota and is not subject to (ii) below shall be 4 per cent per annum for the first 12 months, and an additional ½ per cent per annum for each subsequent 12 months.

  • (ii) The charge to be levied on each segment that is in excess of 100 per cent of quota and represents currency acquired by the Fund pursuant to Executive Board Decision No. 4241-(74/67),8 adopted June 13, 1974 shall be 6% per cent per annum for the first three years, and an additional Vs per cent per annum for each subsequent 12 months.

3. Rule 1-4(g) shall be amended as follows:

The Fund and the member shall consider means by which the Fund’s holdings of the currency can be reduced whenever the Fund’s holdings of a member’s currency are such that

(1) the charge under (f)(2) above applicable to any segment for any period has reached the rate of 4 per cent per annum. Thereafter, the charges shall rise in accordance with (f)(2) above, provided that the rate shall not increase beyond 5 per cent per annum when agreement is reached under this provision for repurchase within three to five years after a drawing in accordance with Executive Board Decision No. 102-(52/11).9 In the case of agreements on means to reduce the Fund’s holdings beyond five years, the Fund may adopt higher maximum rates. In the absence of agreement on means to reduce the Fund’s holdings, the Fund may impose such charges as it deems appropriate after the rate of 5 per cent is reached. When an agreement for repurchase within three to five years after a drawing is not reached or observed, the charges to be imposed shall rise in accordance with (f)(2) above, provided that when the charges payable on any segment have reached 6 per cent, the Fund will review the charges to be imposed thereafter. In the case of nonobservance, if 5 per cent is payable on any segment at the date of nonobservance, it shall continue to be payable only for that part of a period of six months for which it has not yet been payable; and when the repurchases to which the nonobservance relates are made or a new agreement for repurchase not later than five years after the drawing is made all charges in excess of 5 per cent shall be reduced to 5 per cent;

(2) the charge under (f)(3)(i) above applicable to any segment for any period has reached the rate of 5.5 per cent per annum. Thereafter the charges shall rise in accordance with (f)(3)(i) above, provided that the rates shall not increase beyond 6 per cent per annum when agreement is reached under this provision for repurchase within three to five years after a drawing in accordance with Executive Board Decision No. 102-(52/ll). In the case of agreements on means to reduce the Fund’s holdings beyond five years, the Fund may adopt higher maximum rates. In the absence of agreement on means to reduce the Fund’s holdings, the Fund may impose such charges as it deems appropriate after the rate of 6 per cent per annum is reached. When an agreement for repurchase within three to five years after a drawing is not reached or observed, the charges to be imposed shall rise in accordance with (f)(3)(i) above provided that when the charges payable on any segment have reached 6.5 per cent per annum, the Fund will review the charges to be imposed thereafter. In the case of nonobservance, if 6 per cent is payable on any segment at the date of nonobservance, it shall continue to be payable only for that part of a period of 12 months for which it has not yet been payable; and when the repurchases to which the nonobservance relates are made, or a new agreement for repurchase not later than five years after the drawing is made, the charges under (f)(3)(i) in excess of 6 per cent shall be reduced to 6 per cent;

(3) the charge under (f)(3)(ii) above applicable to any segment for any period has reached the rate of 7 per cent per annum. Thereafter, the charges shall rise in accordance with (f)(3)(ii) above, provided that the rate shall not increase beyond 7⅛ per cent per annum when agreement is reached under this provision for repurchase within seven years after a drawing in accordance with Executive Board Decision No. 4241-(74/67), adopted June 13, 1974. In the absence of agreement on means to reduce the Fund’s holdings, the Fund may impose such charges as it deems appropriate after the rate of 7⅛ per cent is reached. When an agreement for repurchase within seven years after a drawing is not reached or observed, the charges to be imposed shall rise in accordance with (f) (3) (ii) above; provided that when the charges payable on any segment have reached 7¼ per cent, the Fund will review the charges to be imposed thereafter. In the case of nonobservance, if 7⅛ per cent is payable on any segment at the date of nonobservance, it shall continue to be payable only for that part of a period of 12 months for which it has not yet been payable; and when the repurchases to which the nonobservance relates are made, or a new agreement for repurchase not later than seven years after the drawing is made, all charges in excess of 7⅛ per cent shall be reduced to 7⅛ per cent.

Decision No. 4238-(74/67)

June 13, 1974

(b) Future Changes in Charges on Fund’s Holdings of Members’ Currencies in Excess of Quota

Changes in any schedule of charges levied under Article V, Section 8(c), (d), and (e) shall apply to all holdings subject to the schedule that are obtained by the Fund after the date of this decision.

Decision No. 4239-(74/67)

June 13,1974

(c) Timing of Changes in Schedules of Charges The following shall be adopted as Rule 1-4(i):

Changes in any schedule of charges levied under Article V, Section 8(c), (d), and (e) shall apply from the first day of the month following the month during which a change is made.

Decision No. 4240-(74/67)

June 13,1974

N. Facility to Assist Members in Payments Difficulties Resulting from Initial Impact of Increased Costs of Imports of Petroleum and Petroleum Products

1. For a period ending on December 31, 1975, the Fund will be prepared to make resources available to members in accordance with this decision in order to assist them to meet the impact on their balances of payments of increases in the prices of petroleum and petroleum products. Resources made available under this decision will be supplementary to any assistance that members may obtain under other policies on the use of the Fund’s resources.

2. (a) Requests for purchases under this decision by a member will be met by the Fund, subject to the limits in (b) and (c) below, if the Fund is satisfied (i) that the member needs assistance because of increases in the cost of its imports of petroleum and petroleum products in 1974 and because it has a balance of payments need, and (ii) that the member is following policies not inconsistent with the understandings set forth in Paragraph 2 of the Rome Communique of the ad hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Issues and in Executive Board Decision No. 4134-(74/4).10 The Fund shall assess each request in order to determine whether, and the extent to which, the member has such a balance of payments need. In making this assessment the Fund shall take into account the ability of the member to reduce this need, particularly through an inflow of capital, including an increase in aid on concessionary terms, or by increased exports to oil exporting countries, or to meet this need by some use of its reserves. For the purposes of this decision, any assistance made available to a member other than under this decision shall be deemed to finance first the part of the member’s deficit that is not attributable to the increased cost of imports of petroleum and petroleum products.

(b) The total of a member’s purchases outstanding under Paragraph 2 of this decision shall not exceed the smaller of (i) the increase in the cost of the member’s net imports of petroleum and petroleum products over the cost of its imports of these commodities in 1972, calculated in accordance with Paragraph 1 of the Attachment to this decision, minus an amount equivalent to 10 per cent of the member’s reserves at the end of 1973, adjusted for variability of exports in accordance with Paragraph 2 of the Attachment to this decision, and (ii) 75 per cent of the member’s quota.

(c) The total of a member’s purchases outstanding under Paragraph 2 of this decision shall not exceed 35 per cent of the amount referred to in (b) above prior to any decision that the Fund may take under Paragraph 8.

3. On the request of a member, the Fund may make an appropriate adjustment in the total amount of outstanding purchases that a member may make under Paragraph 2(b) above if the Fund is satisfied that this amount should be higher because the member’s imports of petroleum and petroleum products in 1972 were abnormally low because of exceptional circumstances.

4. In order to carry out the purposes of this decision, the Fund will be prepared to grant any waiver of the conditions of Article V, Section 3(a) (iii) when necessary to permit purchases under this decision or to permit purchases under other policies that would raise the Fund’s holdings of a member’s currency above the limits referred to in that provision because of purchases outstanding under this decision. In addition, the Fund will apply its tranche policies to requests by a member for purchases other than gold tranche purchases as if the Fund’s holdings of the member’s currency did not include holdings resulting from any purchases outstanding under this decision.

5. (a) A member that has made a purchase under this decision will be expected to cooperate with the Fund in order to find appropriate solutions for its balance of payments problem. For this purpose the member will consult with the Fund during the year and subsequently during the period in which it has purchases outstanding under this decision, thereby affording the Fund an opportunity to ascertain whether the member’s policies are conducive to balance of payments adjustment and to repurchase in accordance with (d) below.

(b) Before submitting a request for a purchase under this decision for 1975, a member will be expected to consult the Fund on its balance of payments prospects and policies, including the effect on the balance of payments of the policies it has adopted or intends to adopt in relation to the oil problem.

(c) A member requesting a purchase under this decision will be expected to represent that it is following policies consistent with the understandings set forth in Paragraph 2 of the Rome Communique of the ad hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Issues and that, while the purchase is outstanding, it will refrain (i) from imposing new, and from intensifying existing, restrictions on current international payments inconsistently with its obligations under the Fund’s Articles of Agreement and (ii) from imposing new, or intensifying existing, restrictions on current international transactions without prior consultation with the Fund.

(d) A member requesting a purchase under this decision will be expected to represent that it will make a repurchase corresponding to the purchase, to the extent that it is still outstanding, as soon as the balance of payments problem for which the purchase was made has been overcome and, in any event, in sixteen equal quarterly installments to be completed not later than seven years after the purchase, and that it will make repurchases under this decision, other than those accruing under Article V, Section 7(b), in the media specified by the Fund at the time of the repurchase. The Fund will specify the media of repurchase consistently with the Articles and after consultation with members. The Fund will pay due regard to these consultations and will be guided by a policy of specifying for repurchase the media in which it will make repayments in accordance with the terms of borrowing agreements.

6. The Fund will indicate in an appropriate manner which purchases by a member are made pursuant to this decision.

7. The Fund will levy charges on holdings of a member’s currency resulting from purchases outstanding under this decision in accordance with Executive Board Decision No. 4238-(74/67)11 of June 13, 1974.

8. Not later than September 15, 1974, the Executive Directors will review developments since the adoption of this decision in order to decide, in the light of the Fund’s existing and prospective liquidity, (i) whether purchases under the decision in excess of the limit specified in 2(c) above shall be permitted and (ii) on any adaptations that should be made in the provisions of this decision, including changes in the period that is taken as the basis for calculating the amount of imports of petroleum and petroleum products and in the amount representing the increase in the cost of these products. A further review will be conducted not later than December 31, 1974 in order to decide whether and on what terms to permit purchases with respect to the impact on the balance of payments of the increased cost of imports of petroleum and petroleum products in 1975. The Executive Directors will review this decision at any other time if they consider it appropriate to do so.

Decision No. 4241-(74/67)

June 13, 1974

Attachment

1. The increase in the cost of a member’s net imports of petroleum and petroleum products referred to in Paragraph 2(b) (i) of the decision will be taken to be equal to the SDR equivalent of US$5.50 (at 1 SDR equals US$1.20635) multiplied by the volume in barrels of the member’s net imports (i.e., imports less exports) of these commodities in 1972.

2. The adjustment for variability of exports referred to in Paragraph 2(b) (i) of the decision will be made by deducting from the member’s reserves at the end of 1973 an amount equal to twice the root mean squared proportional deviation of export values from a centered five-year moving average (using export series generally covering the period 1955-71), multiplied by the SDR value of exports in 1972. If the deduction results in a negative figure, the maximum amount that the member could purchase under Paragraph 2(b) (i) of the decision would equal the increase in the cost of its imports of petroleum and petroleum products, calculated in accordance with paragraph 1 of this attachment.

O. Borrowing in Connection with Oil Facility

1. The International Monetary Fund deems it appropriate in accordance with Article VII, Section 2(i) to replenish its holdings of currencies by borrowing to the extent that resources are needed in respect of purchases under the facility established by Executive Board Decision No. 4241-(74/67),12 adopted June 13, 1974.

2. A number of members, or institutions within their territories, have indicated their intention to lend to the Fund for the purposes of the facility. In order to enable the Fund to borrow in accordance with these intentions, the draft letter set out in the Annex to this Decision is adopted as the basis for terms and conditions to be incorporated in the agreement with each lender under Article VII, Section 2(i) of the Articles of Agreement. The terms and conditions may be adapted for good reason, such as domestic legal requirements or the character of the lending institution. Each letter setting forth the terms and conditions to be proposed shall be submitted to the Executive Directors for their approval.

3. In determining the amounts to be called, the Fund will take into account the proportion of the unutilized balance of each lender’s commitment to the total of unutilized balances under the agreements and the balance of payments and reserve position and prospects of a lender or of the member country in which it is situated.

4. If the Fund decides to make repayments in accordance with Paragraph 5(b) (i) (B) of the draft letter set out in the Annex to this Decision, repayments will be made to lenders in proportion to the amounts the Fund is committed to repay to each lender.

5. The Fund shall use its best efforts to ensure that currencies borrowed in accordance with this Decision will be transferred on the same day to purchasers under the facility referred to in Paragraph 1 above and that amounts corresponding to repurchases identified in accordance with Paragraph 5(b) (i) (A) of the draft letter set out in the Annex to this Decision will be repaid to lenders on the same day as the repurchase.

Decision No. 4242-(74/67)

June 13, 1974

Annex

[Your Excellency] [Dear Sir]

In accordance with Article VII, Section 2(i) of the Articles of Agreement of the International Monetary Fund, hereinafter referred to as “the Articles,” and pursuant to Executive Board Decision No. 4241-(74/67), adopted June 13, 1974, Executive Board Decision No. 4242-(74/67), adopted June 13, 1974, and Executive Board Decision

No. [borrowing-individual lender], adopted––––––––, I have been authorized to propose on behalf of the International Monetary Fund, hereinafter referred to as “the Fund,” that [the lender] agree to lend to the Fund at call during the period ending December 31, 1975 [currency of the lender] [United States dollars] in amounts that in total do not exceed the equivalent of––––––––million special drawing rights (SDR––––) on the following terms and conditions:

1. All amounts under this agreement shall be expressed in terms of special drawing rights. For all the purposes of this agreement, the value of a currency in terms of special drawing rights shall be calculated at the rate for the currency as determined by the Fund in accordance with Rule 0-3 of the Fund’s Rules and Regulations in effect when the calculation is made, unless Paragraph 7 applies.

2. (a) Calls under this agreement shall be made only (i) in respect of purchases under the facility established by Executive Board Decision No. 4241-(74/67), adopted June 13, 1974, hereinafter referred to as “the facility,” or (ii) in order to repay a borrowing by the Fund from another lender in connection with the facility when repayment is requested by that lender because of a balance of payments need.

(b) When a call is made, [the lender] shall transfer to the Fund’s account with [the lender] [the depository for the currency of the lender] [the Federal Reserve Bank of New York] within two business days after the call an amount of [its currency] [United States dollars] equivalent to the amount of the call at the rate for the currency as determined by the Fund in accordance with Rule 0-3 of the Fund’s Rules and Regulations. [On request, [the lender] shall convert its currency when sold by the Fund into United States dollars at the rates for the two currencies as determined by the Fund in accordance with Rule 0-3 of the Fund’s Rules and Regulations.]

3. The Fund shall issue to [the lender] on its request a nonnegotiable instrument evidencing the amount, expressed in special drawing rights, that the Fund is committed to repay under this agreement. Upon repayment of the amount of any instrument and all accrued interest, the instrument shall be returned to the Fund for cancellation. If less than the amount of any such instrument is repaid, the instrument shall be returned to the Fund and a new instrument for the remainder of the amount shall be substituted with the same maturity date as in the old instrument.

4. The Fund shall pay interest quarterly at an annual rate of seven per cent on the amount it is committed to repay under this agreement.

5. (a) Subject to the other provisions of this Paragraph 5, the Fund shall repay [the lender] an amount equivalent to any transfer pursuant to a call under Paragraph 2(b) in eight equal semi-annual installments to commence after three years and to be completed not later than seven years after the date of the transfer.

(b) The Fund may repay [the lender] in advance of the repayments required by Paragraph 5(a): (i) to the extent that (A) a repurchase is identified as made in respect of a purchase under the facility for which the Fund has borrowed from [the lender], or (B) repayment is necessary in the opinion of the Fund in order to enable repurchases to be made by members with currency, or (C) [the lender] agrees to receive repayment; or (ii) before a decision to make uniform proportionate changes in the par values of the currencies of all members becomes effective.

(c) If at any time [the lender] represents that there is a balance of payments need for repayment of part or all of the amount the Fund is committed to repay under this agreement and requests such repayment, the Fund, in deciding whether to make repayment, shall give the overwhelming benefit of any doubt to the representation.

(d) Repayments under Paragraph 5(b) and (c) shall discharge the installments prescribed by Paragraph 5(a) in the order in which they become due.

6. The Fund shall consult [the lender] in order to agree the means in which payment of interest and repayment will be made, but, if agreement is not reached, the Fund shall have the option to make payment or repayment in the currency of the lender, the currency borrowed, or [special drawing rights or United States dollars, or both].

7. If the Fund decides to make a change in the way in which the value of the unit of special drawing rights is determined, (i) [the lender] shall have the option to have the unit of value of the special drawing right in effect under Rule 0-3 before the change continue to apply for the purposes of this agreement; (ii) the Fund shall have the option to repay any amounts it is committed to repay, and to make repayment on the basis of the unit of value of the special drawing right in effect under Rule 0-3 before the change.

8. [The lender] may transfer all or part of its claim to repayment under this agreement with the prior consent of the Fund and on terms and conditions acceptable to the Fund.

9. [If [the lender] withdraws from the Fund, [the lender’s] agreement to lend shall terminate and the amount that the Fund is committed to repay under this agreement shall be repaid in accordance with the terms of this agreement, provided that repayment shall be made, at the option of the Fund, in the currency of [the lender] or in United States dollars, or in such other currency as may be agreed with [the lender].] [If the member country in which [the lender] is situated withdraws from the Fund, [the lender’s] agreement to lend shall terminate, and the amount that the Fund is committed to repay under this agreement shall be repaid in accordance with the terms of this agreement, provided that repayment shall be made, at the option of the Fund, in the currency of that member or in United States dollars, or in such other currency as may be agreed with [the lender].]

10. In the event of liquidation of the Fund the amounts the Fund is committed to repay to [the lender] shall be immediately due and payable as liabilities of the Fund under Paragraph 1 of Schedule E of the Articles. For the purpose of Paragraph 1(a) of Schedule E the currency in which the liability is payable shall be, at the option of the Fund, [the currency borrowed] [the currency of the lender if it differs from that currency] or United States dollars or any other currency agreed with [the lender].

11. Any question of interpretation of this agreement that does not fall within the purview of Article XVIII of the Articles shall be settled to the mutual satisfaction of [the lender] and the Fund.

If the foregoing proposal is acceptable to [the lender], this communication and your reply shall constitute an agreement between [the lender] and the Fund, which shall enter into force on the date on which the Fund receives your reply.

Very truly yours,

H. Johannes Witteveen

Managing Director

P. Voluntary Declaration on Trade and Other Current Account Measures

1. The ad hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Issues, in the detailed statement issued at the end of its sixth and final meeting in Washington on June 12-13, 1974, stressed the importance of avoiding the escalation of restrictions on trade and payments for balance of payments purposes and invited members to subscribe on a voluntary basis to the Declaration concerning trade and other current account measures for balance of payments purposes annexed to its statement. The Executive Directors associate themselves with this invitation.

2. The letter from the Managing Director to members requesting them to inform the Fund whether they subscribe to the Declaration concerning trade and other current account measures for balance of payments purposes, as set forth [below], shall be sent without delay to all members.

Decision No. 4254-(74/75)

June 26, 1974

Letter to Members

Sir:

The ad hoc Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues, in a statement issued at the end of its sixth and final meeting in Washington on June 12-13, 1974, has stressed the importance of avoiding the escalation of restrictions on trade and payments for balance of payments purposes and has invited members of the Fund “to subscribe on a voluntary basis to the Declaration concerning trade and other current account measures for balance of payments purposes” annexed to the Committee’s statement.

The Executive Directors of the Fund associate themselves with the invitation of the ad hoc Committee and have asked that I send the text of the Declaration for consideration by the authorities of all members.

The text of the Declaration is enclosed with this letter.

I shall be grateful if members will consider subscribing to this Declaration and will inform me whether they do subscribe to it.

Very truly yours,

H. Johannes Witteveen

Managing Director

Declaration

A. A member of the Fund that subscribes to this Declaration represents thereby that, in addition to observing its obligations with respect to payments restrictions under the Articles of Agreement of the Fund, it will not on its own discretionary authority introduce or intensify trade or other current account measures for balance of payments purposes that are subject to the jurisdiction of the GATT, or recommend them to its legislature, without a prior finding by the Fund that there is balance of payments justification for trade or other current account measures.

B. A member that subscribes to this Declaration will notify the Fund as far in advance as possible of its intention to impose such measures. If circumstances preclude the Fund from making the finding referred to in A above promptly after such notification, the member may nevertheless impose such measures, but will withdraw the measures, within such a period as may be fixed by the Fund in consultation with the member concerned, if the Fund finds that there is no balance of payments justification for trade or other current account measures.

C. In arriving at the findings referred to above, the Executive Directors are requested to take into account the special circumstances of developing countries.

D. In connection with this Declaration arrangements will be made for continuing close coordination between the Fund and the GATT.

E. This Declaration shall become effective among subscribing members when members having 65 per cent of the total voting power of members of the Fund have accepted it, and shall expire two years from the date on which it becomes effective unless it is renewed.

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