II. Main Developments in Exchange Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1963
Restrictions, Discrimination, and Bilateralism
Taking a broad view of developments in the field of exchange restrictions during the past twelve months, it can be stated that it was a year of progress. The international payments system was strengthened further, and the net effect was a comparative calm in international exchange markets notwithstanding severe fluctuations on stock exchanges. This enabled industrialized countries to concentrate on further liberalization of trade, in particular the reduction of tariffs. Many of the developing countries, however, continue to make important use of restrictions on current payments or of multiple currency practices. Generally speaking, the developing countries are making progress in the liberalization of restrictions and the simplification of exchange systems; but in some countries, because of continued inflation and other causes, progress has been very slow and there has even been some retrogression.
The annual consultations provided for under Article XIV of the Fund’s Articles of Agreement have, as in previous years, provided the opportunity for reviews of restrictive systems in the context of domestic policies and an evolving world situation. In a number of instances, thoroughgoing reviews of the exchange systems and close cooperation between the Fund and the member countries resulted in important relaxations and simplifications in the restrictive systems of the countries concerned. Most of the countries were preoccupied with problems of growth, development, and related matters, as well as with long-run deterioration in the terms of trade and with commercial access to markets abroad.
Three countries, Austria, Jamaica, and Kuwait, accepted formally the full obligations of Article VIII, Sections 2, 3, and 4, of the Fund Agreement, thus demonstrating their confidence in being able to maintain the convertibility of their respective currencies in the foreseeable future. These actions brought to 24 the number of countries that have accepted the full obligations of Article VIII.
The payments position and prospects of a range of countries 2 enabled them to reduce and in some cases virtually to eliminate restrictions. Other countries which continued to experience balance of payments difficulties, such as India, Indonesia, and Ceylon, increased their import restrictions. A few Latin American countries had to delay the sale of exchange for authorized payments because of inadequate exchange resources.
As noted in last year’s Report, the need and justification for discrimination for balance of payments reasons has practically disappeared. In recent years such discrimination has been replaced by preferential treatment in favor of other member countries in newly established regional economic groups. Also, many countries which have recently attained independence remain grouped in currency areas, and maintain preferential trade and payments arrangements between each other and with their former metropolitan territory.
Discrimination against imports from Japan was reduced or abandoned by several countries. Further, Ghana, New Zealand, and the United Kingdom ceased to invoke Article XXXV of the GATT in respect of Japan, and recent agreements between Japan and Benelux and between Japan and France provide for disinvocation of this provision.
Discriminatory practices also continue to arise from bilateral payments arrangements. For several years, the Annual Reports on Exchange Restrictions have been able to point to appreciable reductions in the number of bilateral payments agreements. However, since March 1962 there has been little change in the total. In the twelve months to the end of March 1963, 9 new agreements were entered into by Fund member countries, including 2 between Fund members, while 13 agreements were terminated, including 6 between Fund members. The number of bilateral payments arrangements of Fund member countries which were actively in operation on March 31 was 280; of these, 70 were between Fund members, and were largely accounted for by the agreements of three countries.3
Multiple Currency Practices and Import Surcharges
There was some further reduction of reliance on multiple currency practices during 1962 and the early months of 1963. Both Costa Rica and the United Arab Republic completed the process of unifying their exchange rate systems. In Nicaragua, a single exchange rate became effective for all transactions in March 1963, when some capital and invisible transactions were transferred from the free market to the official market. The complex exchange rate structure of Afghanistan was greatly simplified following a devaluation of the official rate in March 1963. In Colombia and Chile, major changes were made in the level of the exchange rates to adjust to a higher level of internal costs; at the same time, the exchange rate structure was simplified in Colombia, and in Chile a single fluctuating rate was applied to all trade transactions. In Indonesia a major reclassification of import transactions in October 1962 created a more depreciated average effective rate. There was also an adjustment of the exchange rate in the Syrian Arab Republic, accompanied by the reinstatement of a free exchange market in the form it had taken prior to its suspension in February 1961. Complex exchange rate structures continued in certain countries, including Brazil, Indonesia, Korea, and Uruguay.
Surcharges on imports were maintained and in some countries, mainly in South America, were increased, owing to continuing balance of payments difficulties. However, Canada, which introduced surcharges in June 1962, eliminated them by April 1963.