B. Developments in Restrictions
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1953
It is almost impossible to make any generalization which would have widespread validity and cover developments in exchange controls and restrictions throughout the world during 1952 and the early months of 1953. For a number of countries this was a period of consolidation, with changes mainly in the nature of technical simplification in the operation of their exchange systems. For other countries it was essentially a period of watching world developments to see what would take place elsewhere before taking any decisive measures to lessen their own exchange restrictions. To some extent, the results of the intensification of trade and exchange restrictions in the second half of 1951, noted in the Third Annual Report on Exchange Restrictions, could be expected to be statistically noticeable in 1952, and figures available when this Report was prepared show that the volume of world trade was smaller in 1952 than in 1951. The extent to which this reduction may have been due to intensification of international trade or exchange restrictions—as contrasted with other causes—it is not possible to say. It does, however, appear that, in world-wide terms, there was at least no significant relaxation in exchange restrictions during 1952. Some countries did, of course, lessen their restrictions, but others intensified theirs, just as some countries simplified their multiple exchange rate structures and others made them more complicated.
The intensive competitive bidding for raw materials which marked the period immediately following the outbreak of hostilities in Korea had already slowed down during 1951, as mentioned in the Third Report, and in 1952 prices for raw materials, with few exceptions, declined to approximately the levels of June 1950. While this undoubtedly helped the situation of the more industrialized countries, it tended to produce in the primary producing countries a more cautious and restrictive attitude toward the granting of exchange and the lessening of exchange restrictions. In several leading countries, there was a reduction in the amount of exchange made available for imports directly arising out of a recognition of adverse balance of payments positions and the publicly announced desire to correct them. There has been a continued general use of discrimination in the application of restrictions so that payments in hard currencies are curtailed to a greater extent than are payments in soft currencies. During the period, no additional currencies have become convertible. Multiple currency practices continued to operate in more than half of the member countries surveyed, and, while three or four of these countries may be said to have simplified slightly their multiple exchange rate structures in the sense of an arithmetical reduction in the number of rates employed, six members found it necessary to elaborate their multiple exchange rate systems. Among the countries expanding their multiple currency practices, two have introduced additional fluctuating exchange rates by the use of negotiable certificates entitling the holder to obtain exchange in payment for imports not otherwise permissible, and one country has reintroduced the method of allocating limited quantities of available exchange by means of an auction system—a means of exchange distribution not exercised for some years.
Much interest has been focused on retention quota arrangements and similar practices in the period under review. These arrangements are usually concentrated in their application on dollar export receipts and confer special privileges on those obtaining such means of payment. During 1952 such arrangements were either introduced or expanded in three countries, but they were abandoned in two others and partly eliminated in another. Two countries have introduced “free” exchange markets in which certain segments of their international trade and payments are to be handled. Exchange taxes have been increased or introduced in three other member countries. Within the framework of the European Payments Union, liberalization of trade between countries which are members of EPU has in general been maintained, and in some cases increased, although two of the leading participants were compelled to reduce their liberalization; one of these, however, has since partially restored its liberalization measures. On the other hand, two EPU countries, to counteract an abnormal creditor position in the EPU settlement, continued to resort to blocking part of their residents’ export receipts derived from trade with other EPU countries.
2. Developments in the Application of Restrictions
In Europe, during the period under review, intra-European payments executed through the European Payments Union continued to play a dominant role in influencing the economic programing of the countries participating in the Organization for European Economic Cooperation. The impression is gained, however, that crises in the position of individual members were not so severe in 1952 as they had been in 1950 and 1951, and the monthly settlements continued on a more even basis, although the various special restrictive arrangements previously introduced to adjust abnormal positions were, in general, maintained. Belgium and Luxembourg have continued, with some modifications, the special arrangements immobilizing a proportion of export proceeds received in EPU currencies or in domestic currency from nonresident accounts relating to non-EPU countries. Arrangements of a similar nature continued to operate in Portugal. Both France and the United Kingdom continued, at least in the earlier part of 1952, to run current deficits in EPU settlements and found it necessary during 1952 to reduce further the degree of trade liberalization previously adopted. In March 1953, France announced a 10 per cent reduction in imports from OEEC countries and the Sterling Area.
The United Kingdom, on March 12, 1952, in fulfillment of the policy of reducing its external expenditures announced on January 20, 1952, considerably reduced the list of commodities which could be imported without limitation from most non-dollar countries. These reductions were not, however, as far-reaching as those introduced at the end of 1951 and noted in the Third Annual Report on Exchange Restrictions (p. 23). Subsequently, import quota figures in respect of the commodities thus affected were published and applications for individual import licenses invited. For certain of these commodities, increased import quotas have since been announced for the first and second halves of 1953. In March 1953, liberalization measures were partially restored by increasing the range of goods which could be imported without limitation from most non-dollar countries.
Another development in the United Kingdom’s exchange system was the extension of the special arrangements granting trading facilities to dealers in commodities (already available to the rubber, cocoa, coffee, tin, and grain markets) to dealers in zinc, lead, and raw sugar. These facilities were extended to these markets during 1952 and the first week of 1953, with an indication that similar arrangements might be extended to other commodity markets in the not-too-distant future. These arrangements give a certain degree of facility to the dealers in such markets, in the sense that they are given a general license permitting them to pay for goods in certain currencies and to sell them for the same and, in some cases, for other currencies or for sterling from another nonresident account.
In connection with the United Kingdom’s debtor position in EPU, a brief operation in the interests of U.K. merchanting trade was undertaken in August 1952. Under the terms of settlement in the EPU, the United Kingdom was at that time obligated to make payments in gold or U.S. dollars for all of its monthly deficits. Since, therefore, a loss of convertible reserves was to be experienced anyway, the U.K. authorities announced that they would be willing to consider the granting of U.S. dollars to U.K. merchants for the purchase of dollar goods for resale to other EPU countries against sterling from an account related to the final importing country. Within about ten days, applications in principle to the order of $350 million were approved, and these applications subsequently resulted in actual business of rather more than $150 million, a figure equivalent to that part of the debtor position in EPU which was recoverable 100 per cent in gold and dollars. The scheme was then suspended for one month and later withdrawn.
During the period under review, most EPU countries, with the exception of France and the United Kingdom, were able to increase the allowances of exchange for their residents traveling in other EPU countries. On the other hand, France and the United Kingdom, as part of the measures taken to reverse their debtor positions mentioned above, reduced the amount of exchange made available in this way for tourists. However, more recently, in March 1953, the United Kingdom has increased the tourist exchange allowance.
Another development in the period under review was that a certain limited degree of freedom was granted to authorized banks in most Western European countries, permitting them to conduct foreign exchange dealings, in cover of authorized transactions, within exchange rate limits set by their central bank or exchange stabilization fund authorities. These limits do not exceed the 1 per cent either side of parity representing the limits permissible under Article IV, Section 3, of the Fund Agreement. At these limits the central bank or exchange stabilization fund stands ready to deal, but between these limits authorized banks in these countries are free to determine their own rates of exchange. Such covering exchange transactions may be concluded only by authorized banks with other authorized banks in the same country or monetary area or in the country of the currency concerned.1 In all such cases, the central authorities supervise the exchange holdings of their authorized banks. Arrangements of this nature were developed in 1952 in Belgium-Luxembourg, France, the Netherlands, Sweden, and the United Kingdom, and, in some cases, extended to transactions in Swiss francs with authorized banks in Switzerland. Similar arrangements enabling authorized banks to deal in the currencies of these countries were also developed in 1952 in Ceylon, India, and Pakistan. These measures help to free the authorized banks from the inflexibility of the fixed official rates which had previously been in operation and enable them to re-establish some degree of their prewar experience in foreign exchange dealings.
Among EPU countries, both Belgium-Luxembourg and Italy were able to maintain a high degree of freedom in importation from all sources. Denmark was able to liberalize further the importation of goods from other EPU countries and to increase the amount of foreign exchange granted to residents for tourist travel in other EPU countries. In August 1952, Denmark introduced arrangements by which exporters of commodities receiving payment in U.S. or Canadian dollars could obtain, against surrender of those dollar proceeds, in addition to Danish kroner at the official rate, negotiable import rights equivalent to 10 per cent of their export proceeds. These rights enabled otherwise restricted goods to be imported from EPU countries. The Federal Republic of Germany was able during 1952 to expand the liberalization of imports from EPU countries. Germany also continued the special arrangement of import rights introduced effective April 1, 1952 (for description, see Third Annual Report on Exchange Restrictions, p. 22), and on July 30, 1952 considerably expanded the list of commodities which could be imported from the dollar area under these special arrangements. On September 4, 1952, Germany permitted exporters to sell their “Brazilian accounting dollars” at free market rates to authorized importers of goods and services from Brazil to the extent of 80 per cent of their payments.
Greece, in October 1952, abolished a system of compensation import rights and substituted a system of export subsidies and exchange taxes on imports. In April 1953, in association with a revision in the official rate of the drachma, existing subsidies and taxes were abolished, and a unitary exchange rate system was established. Austria, in May 1953, also established a unitary exchange rate system applicable to all transactions, and agreed with the Fund on an initial par value for the schilling. Prior to this, Austria had maintained separate exchange rate levels for trade and nontrade transactions. Iceland, which reached a difficult position in the EPU settlement, found it necessary on August 29, 1952 to place severe restrictions on the import of certain goods from other EPU countries, although these items could still be imported from those countries with which Iceland has strictly bilateral trade and payments arrangements.
In the Netherlands, it was also found possible during 1952 to increase the degree of liberalization applied to imports from other EPU countries and to increase the amount of exchange granted for tourist travel and other invisible payments in those and some other countries. The Netherlands, during this period, also maintained its retention quota arrangements with the objective of encouraging its export trade. In addition, the Netherlands, in order to overcome foreign exchange difficulties in trade with Argentina, Brazil, and Egypt, made special arrangements in regard to settlements in respect of those countries.
Both Norway and Sweden were also able to extend the degree of liberalization applied to imports from other EPU countries. Norway was able to increase the amount of foreign exchange annually allocated to tourists traveling to other EPU countries. During 1952, Norway canceled the arrangement under which provision was made for exporters to receive a license for dollar imports of raw materials and equipment needed for their own business up to 10 per cent of their dollar export proceeds surrendered. Sweden, effective September 30, 1952, abolished a retention quota arrangement applicable to exporters of dairy products to dollar countries by which the dollar proceeds of such exports could be sold through authorized banks at unofficial rates to Swedish importers of essential goods. Switzerland, during the course of 1952, further extended its control over exports. Finland, which operated a retention quota arrangement during 1952 by granting special import rights to certain exporters, canceled this arrangement at the end of the year. During that same year, in connection with the influx of visitors to the Olympic Games, the Finnish authorities permitted their authorized banks to operate a system establishing separate and higher rates for travelers’ exchange applicable both to foreigners visiting the country and to Finnish residents going abroad. Effective February 1,1953, however, the general scope of these arrangements was curtailed, and the amounts of local currency which could be taken in or out of Finland were considerably reduced.
Portugal completely liberalized imports from other EPU countries at the beginning of 1952, but toward the middle of the year reduced this liberalization to 75 per cent of 1948 import values. Portugal also introduced an arrangement somewhat similar to that introduced in Belgium-Luxembourg in September 1951, by which the proceeds of certain exports to other EPU countries were blocked to the extent of 30 per cent, pending a decline in Portugal’s credit position in the EPU settlement below a specified level.
Several changes took place in Yugoslavia during the period under review. In the first part of 1952, a system of export and import surcharges and export subsidies was gradually introduced. Effective July 1, 1952, radical changes were made in the exchange system: import and export licensing was formally abolished although the importation of specific items could be (and was later) prohibited; institutions authorized to conduct foreign trade transactions were permitted to retain 45 per cent of their exchange receipts and to use them for specified payments or for sale in the newly established foreign exchange market, access to which was limited to the National Bank and other authorized institutions. Later, the system of export and import surcharges and export subsidies was further expanded by increasing the number of coefficients used as multiplying factors to modify the official rate. In October 1952, a severe drought having made the exchange position somewhat difficult, the importation of approximately 100 items was prohibited for a six-month period. The percentage of retained exchange (see above) was decreased from 45 to 20 per cent of export proceeds.
During the period under review there has been considerable interest in the Sterling Area and the convertibility of sterling. The statement made at the close of the Commonwealth Finance Ministers Conference in January 1952, which was summarized in the Third Annual Report on Exchange Restrictions (pp. 23-24), showed the intention of the countries concerned to bring the Sterling Area as a whole “into balance with the rest of the world, including at least a balance with the dollar area”. From the figures available at the time this Report was written, it would appear that these objectives have been attained. A Commonwealth Economic Conference was held in London in December 1952, and at its conclusion a published statement, issued on December 13, stated that the following principles had been agreed: (1) appropriate internal economic policies designed to curb inflation and rises in the cost of living; (2) encouragement of sound economic development; and (3) the extension over the widest possible area of a multilateral trade and payments system. In connection with this last principle, the Conference agreed on the importance of sterling resuming its role as a medium of world trade and exchange. The statement mentioned that an integral part of any multilateral system would be the restoration of the convertibility of sterling, to be reached only by progressive stages. The achievement of this convertibility would depend upon these conditions: (1) continuing success of the action of sterling Commonwealth countries; (2) the prospect that trading nations would adopt trade policies conducive to the expansion of world trade; and (3) the availability of adequate financial support through the International Monetary Fund or otherwise. It was emphasized that the Commonwealth countries in pursuance of these objectives would seek cooperation with other countries and organizations, and in this connection informal discussions on economic and financial conditions were held in Washington, D.C. in March 1953 between representatives of the United States and of the United Kingdom. Discussions with European countries also took place in Paris in March.
Following the agreement reached at the Commonwealth Finance Ministers Conference of January 1952, Australia, Ceylon, New Zealand, Pakistan, and the Union of South Africa have all extended the effect of their import licensing to make it restrictive on imports from all sources. As restrictions were already severe against hard currency imports, this meant mainly an intensification of restrictions against soft currency imports. In addition, these countries also reduced the amount of foreign exchange granted to their residents for tourist travel in other countries. Australia has, however, announced that, effective April 1, 1953, there will be some degree of relaxation for imports originating outside the dollar area and Japan.
There have also been certain exchange developments in the countries of the Middle and Far East, but it is not possible to discern any general tendency among them. Egypt, which had certain balance of payments difficulties during 1952, found it necessary during the year gradually to extend individual import licensing to all imports. A tax of 10 per cent on funds transferred abroad in payment of specified invisible transactions was also introduced in the middle of the year. In December 1952 and January 1953, the use of special accounts held by nonresidents in Egyptian currency for payments for Egyptian exports and receipts from Egyptian imports was considerably extended, so that Egypt’s foreign trade is now increasingly being financed through such arrangements. Ethiopia has enjoyed more favorable balance of payments conditions and found it possible during 1952 to increase the proportion of exchange licenses permitting payments in U.S. dollars. Israel, which had introduced on February 14, 1952 a multiple rate structure consisting of three rates applicable to specified categories of transactions, continued this arrangement but later found it appropriate to move purchases of exchange in respect of most export proceeds, and from tourists and diplomats, from the intermediate rate to the most advantageous rate.
During the year, Iran discontinued the sale of exchange certificates at fixed rates by the central bank. Exports and permissible imports were each classified into two categories. Exporters of Category 1 exports were granted exchange certificates which could be sold in a free market to importers of Category 1 imports; similarly, exporters of Category 2 exports received exchange certificates which could be transferred in a second free market to importers of Category 1 or 2 imports. On November 11, 1952, it was announced that the exchange certificates would be issued only to exporters in respect of 95 per cent of their surrendered export proceeds, thus introducing two “mixing” rates on the buying side of the Iranian multiple exchange rate structure. The exchange rate for the purchase of U.S. dollar invisibles and capital earnings was raised from around the par value to a level more favorable to the seller.
Lebanon eliminated its remaining “mixing” rate, so that, apart from a few government payments effected at the official rate, all exchange transactions in Lebanon can be conducted without control or restriction in a fluctuating free market. By contrast, Syria in April 1952 introduced new legislation to make its existing exchange control system more effective by requiring Syrian residents to pass all their exchange transactions through authorized banks in Syria, the exchange rate, however, being left open to fluctuating market forces. The Syrian and Lebanese pounds which had been in close relationship for some time developed an increased divergence toward the end of the year, and in the opening months of 1953 the Syrian currency was at about a 3 per cent discount on Lebanese currency.
Indonesia has continued its multiple exchange rate structure, employing dollar export certificates. The premium for dollar export certificates, which is fixed by the authorities, has remained at the low figure of 0.25 rupiah per U.S. dollar (approximately 2 per cent) since August 26, 1952. The “inducement” certificates were replaced by “TPI” certificates as from January 23, 1953; in August 1952 and January 1953, the categories of merchandise to which the certificates apply were increased. Thailand has taken measures to introduce limited controls on exchange transactions. Certain remittances now require official approval and all export proceeds must be repatriated through recognized channels. On September 15, 1952, Thailand abolished one of the “mixing” rates (on the buying side) in its multiple exchange rate structure. China (Taiwan) in January 1953 also found it possible to abolish one of its “mixing” rates and to move most exchange transactions, to an existing higher rate which had previously been used only for exceptional receipts and on the outgoing side for less essential payments. The Philippine Republic found it necessary in 1952 to reduce the amount of exchange made available for imports and for foreign travel. In July 1952, a new law extended through June 30, 1953 the existing 17 per cent tax on sales of foreign exchange for most items; and in June 1953, the tax was extended to June 30, 1954.
In Latin America also, no general tendencies in the field of exchange restrictions have been noticed, although there have been distinctive changes in individual countries. Argentina during 1952 added two additional buying rates by the introduction of new “mixing” rates. In Bolivia, the Central Bank began quoting in August 1952 a “free” market rate for payments and receipts in respect of invisibles and nonregistered capital, making an additional rate in the multiple exchange rate structure.2 In December of that year, a “gold certificate” arrangement was established by which the Banco Minero issued a dollar certificate in respect of its purchases from the local gold producers which they could freely sell to importers to be used in payment for specified nonessential imports, the Central Bank redeeming the certificate by making the exchange remittance. The Central Bank ceased quoting a “free” market rate in February 1953.
In Brazil, where the tax on foreign remittances was increased from 5 to 8 per cent at the beginning of 1952, much consideration was given during the year to a bill designed to establish a free market for certain transactions. This bill was finally signed on January 7, 1953, and the free market was legally established on February 21, 1953, with the approval of the Fund. The market opened at a rate of 38-40 cruzeiros to the U.S. dollar. In addition to establishing a free market, the law exempts exchange transactions in that market from exchange licensing and from the 8 per cent tax on foreign remittances mentioned above. The new law also enables the authorities to determine whether all or part of the proceeds of certain exports within specified limitations must be surrendered or may be sold in the free market. The Fund has stressed that effective monetary and credit policies will be indispensable to the success of the new exchange system, and it is understood that Brazil will remain in close consultation with the Fund. At the time this Report was written, three lists had been issued of commodities subject to different percentage surrender requirements, thus adding three new “mixing” rates to Brazil’s multiple exchange rate structure. The considerable delays in providing exchange in satisfaction of outstanding exchange licenses continued during the period under review. The new law mentioned above provides for closer coordination between the import and exchange licensing authorities with a view to establishing a system of prompt payments on foreign claims.
In Colombia, in August 1952, export certificates were introduced by means of which exporters of specified minor products acquired the right to import commodities otherwise prohibited and were able to sell these rights to others. On November 7, 1952, a decree was issued changing the procedure for collecting an existing 3 per cent stamp tax. This tax was previously collected by the banks at the time the foreign remittance was effected, but under this decree the tax, when applied in respect of imports, has to be paid at the time import registration is effected. The tax continues to be collectible by the banks in other cases. Costa Rica introduced a new “mixing” rate applicable to the exchange proceeds of certain exports. Under a law promulgated in June 1952, the Central Bank was authorized to grant a special temporary authorization in this respect and has exercised this power in relation to certain commodities. Ecuador, which in February 1952 had simplified its multiple exchange rate structure to two levels, reintroduced in April a “mixing” rate in respect of the exchange proceeds derived from the export of so-called Panama hats.
Paraguay made numerous alterations in its exchange rate structure by changing the exchange rates and the commodities to which they apply, and by introducing surcharges and subsidies on certain imports. In addition, export taxes and subsidies were applied to certain export proceeds. At the end of 1952, the arrangements for the 1953 exchange program were announced in Paraguay. The changes included reclassification of imports and the creation of a fourth category of nonessential imports to which exchange would be allocated by means of an auction system, a device which had not been used in Paraguay in recent years. Exchange subsidies for imports were eliminated, the maximum permissible subsidy for minor exports was increased, and control of the surrender of export proceeds was revised and the scope of the controlled free market was expanded.
Effective May 18, 1953, Belgium, Denmark, France, the Federal Republic of Germany, the Netherlands, Sweden, Switzerland, and the United Kingdom extended these arrangements for spot transactions so that their authorized banks could conduct arbitrage operations among themselves in the currencies of any of these countries at or between the official rates.
In May 1953, however, the exchange system in Bolivia was simplified—see footnote 1 to the country survey on Bolivia.