I. Introduction1

International Monetary Fund. External Relations Dept.
Published Date:
September 1970
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The year 1969 witnessed some major developments in the international monetary system and a continued rapid expansion in world trade of about 13-14 per cent compared with about 12 per cent in 1968. For the industrial countries as a group, both exports and imports rose by 15 per cent, while for primary producing countries the increase in trade was about 10 per cent. The pressures on the international monetary system that had persisted in both 1967 and 1968 eased with the readjustment of two major currencies, in conjunction with signs of improvements in certain other important trading countries. France devalued its currency on August 10, and followed this action by additional fiscal and monetary measures designed to redress its balance of payments. Germany announced that, with effect from September 30, it would not ensure that the rates for exchange transactions involving the deutsche mark would be confined to the limits hitherto observed; it revalued the deutsche mark on October 26 (October 27, Central European Time). Throughout the year the United States continued to apply corrective measures to contain inflationary pressures, and in the United Kingdom the economy responded favorably to the stabilization program, and the balance of payments moved into substantial surplus.

Altogether, the above developments resulted in a substantial reduction in the last quarter of 1969 in the intensity of speculative capital movements and a lessening of pressures on the free gold markets. The average monthly price of gold on the London market, which had ranged from US$40.5 to US$43.5 a fine ounce during the first ten months of 1969, dropped to US$37.4 in November and continued to decline in December to near the official U.S. price of $35 a fine ounce for dealings among monetary authorities. In addition, developing countries as a group were able to increase their international reserves, thus further strengthening the international monetary system. For the future, the activation of special drawing rights (SDR’s), at the beginning of 1970, should make an important contribution to the sound growth of world trade and payments, not only by contributing to the expansion of world reserves to meet global liquidity needs but also by facilitating the liberalization of restrictions on payments for current international transactions.

Prior to the establishment of new par values for the French franc and the deutsche mark, the trend toward influencing capital movements, which had received impetus in 1968, was continued, with Belgium, France, Germany, Italy, the Netherlands, and the United States introducing or adapting a variety of measures to limit the foreign operations of commercial banks and to moderate capital flows. After a new par value was established for the deutsche mark, Germany eliminated existing minimum reserve requirements on additions to foreign deposits held by commercial banks, and capital controls were also eased in the Netherlands late in the year. Apart from the reintroduction of a “security dollar,” France made little further change in its capital control regime following the establishment of a new par value. In the United States, Euro-dollar transactions were made subject to some regulation, but relatively minor measures to relax controls on direct investment were introduced on several occasions during 1969. With growing international reserves, Japan slightly eased various capital controls. On the other hand, Italy introduced measures to prevent unauthorized capital outflows at various times in the period under review; it tightened regulations affecting the extension of credit abroad and, after the par value changes by France and Germany, took steps to reduce leads and lags associated with import and export transactions.

Although restrictions on current payments continued to receive less emphasis than capital controls, there was no general trend. Where measures affecting current transactions were taken, they frequently related to trade rather than to the making of current payments. On balance, the use of import surcharges and import deposit schemes increased further. Several developing countries either introduced new surcharges or raised the rates of existing ones. Similarly, a number of countries introduced import deposits, raised the rates of those being applied, or extended the duration of existing schemes: El Salvador reintroduced and Israel and Spain both introduced advance import deposit schemes, while Greece and, with some reduction in the applicable rate, the United Kingdom, extended the life of existing schemes. On the other hand, Chile reduced its reliance on advance deposits significantly.

With regard to other exchange practices, developments have been mixed. Important actions taken regarding multiple currency practices included the creation of a free market in the Philippines and the unification of the dual exchange market in Costa Rica. During the period under review there was a continuing reduction in the number of operative bilateral payments agreements between Fund members. The extent of control over exchange for travel expenditure, partly to prevent unauthorized capital transfers, remained substantially unchanged; of the two industrial Article VIII countries that had in recent years introduced restrictions on travel allowances, the United Kingdom abolished these measures while France maintained them.

Measures to promote exports received further emphasis, and there was an increase in the number of countries making use of such measures; the devices applied included tax rebates, interest rate subsidies, and special credit insurance schemes. In certain cases, special institutions for promoting exports were established.

Four countries—Cambodia, Equatorial Guinea, Swaziland, and Southern Yemen—became members of the Fund in 1969, raising the total membership to 115 countries as at the end of the year. Of this total, 34 countries have assumed the obligations of Article VIII, and in 1969 these countries accounted for about three fourths of world trade. No additional member countries accepted these obligations during the period under review.

This Report, and in particular the following sections, centers on exchange restrictions, but it also covers other measures and intergovernmental arrangements that may have direct balance of payments implications.

The period under review in this Report covers 1969 and the early part of 1970.

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