Chapter

Chapter One. Scope and Structure of Report

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1950
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1. Scope of Report

The present Report, which is the International Monetary Fund’s first annual Report on Exchange Restrictions, is presented in accordance with Article XIV, Section 4 of the Articles of Agreement, which provides: “Not later than three years after the date on which the Fund begins operations and in each year thereafter, the Fund shall report on the restrictions still in force under Section 2 of this Article. . .”

Many members of the Fund have availed themselves of the transitional arrangements under Article XIV, Section 2 of the Articles of Agreement, which permit considerable freedom in the application of exchange restrictions. This Report deals primarily with these restrictions, but since the effects of the transitional arrangements and of other restrictions are not distinguishable in practice, and to complete the presentation, it also covers restrictions which are applied in accordance with Article VIII of the Articles of Agreement.

The Fund’s interest is focused on exchange restrictions, including multiple currency practices, but it is extremely difficult to discuss them without referring to trade restrictions with which they are closely linked in many restrictive systems. Accordingly, this Report deals also with trade restrictions insofar as they are closely integrated with exchange restrictions. As import duties do not form an integral part of systems of exchange restrictions, they have not been covered, even though their economic effects are similar to those of certain multiple currency practices.

There are obvious technical difficulties in the way of measuring statistically the restrictive effects of any particular exchange system on the demand for foreign exchange for current transactions. Instead of such measurement, this Report deals with the forms and the application of restrictions. Such an account, combined with a study of the development of exchange policies and practices in each country, should permit an appraisal in subsequent Reports of significant variations in the exchange restrictions of members.

With this objective in mind, the present Report examines some of the external and internal factors which have a significant bearing on the balance of payments difficulties currently experienced by most member countries, and presents, in connection with that analysis, a few general considerations on which proposals for the attainment of a sound external financial position can be based.

2. Structure of Report

The present Report is in two parts. Part I, consisting of three chapters, is a general account of the forms of restrictions, their rise and the conditions for their removal. Part II presents a brief country-by-country description of the exchange restrictions maintained by member countries.

Restrictions are classified in Chapter 2 of Part I (“Forms of Exchange Restrictions”) in three groups, quantitative, cost and composite restrictions, according to the nature of the processes which determine how much of the demand for foreign transactions is to be satisfied and how much is to be eliminated. This chapter indicates how quantitative, cost and composite exchange restrictions can be identified on the basis of verifiable characteristics. Various forms of quantitative, cost and composite exchange restrictions are discussed in this chapter, and differences in the application of the various forms are examined. Finally, the chapter describes a few patterns of restrictions which are typical of various parts of the world.

Chapter 3 of Part I (“Current Situation and Problems”) describes briefly, without attempting any detailed historical survey, the spread of restrictions in international economic relations during the last few decades, with emphasis on the influence in widening their scope and increasing their severity exercised by policy objectives, such as fiscal considerations, protectionism, redress of serious balance of payments disequilibria, and economic planning in its various forms. This chapter reviews the role of exchange restrictions under the Articles of Agreement and explains, in terms of prevailing economic conditions, why only very few members have so far assumed the obligations of convertibility. It appraises the major forces of external and of internal origin, which have had a significant bearing on the serious balance of payments disequilibria faced by most countries of the world. On the basis of this analysis and in the light of the Fund’s experience, this chapter presents a few general considerations which should guide the efforts of member countries to overcome their foreign exchange problems, with the ultimate objective of attaining full convertibility of their currencies.

Part II of the Report surveys the existing exchange restrictions of the member countries which have availed themselves of the transitional arrangements under Article XIV, Section 2 of the Articles of Agreement. In some cases the available information would have permitted more detailed descriptions, but it was deemed more in keeping with the purposes of this Report to give an over-all survey of the existing exchange systems by focusing on their salient features rather than by submerging the significant elements in a mass of detail.

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