- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1974
Central Rates and Wider Margins: A Temporary Regime—Revised Decision
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, 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) 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.
Executive Board Decision No. 3463-(71/126),
December 18, 1971, as amended by
Decision No. 4083-(73/104), November 7, 1973