- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1969
The period under review was characterized by an unusually rapid increase in world trade and stresses on the international payments system. After a downturn in the rate of expansion of world trade in 1967, there was a sharp rise in the rate of growth in 1968. The pressures on the payments system which had been evidenced during 1967 increased during 1968. The devaluation of sterling in November 1967, along with a number of other currencies, had raised doubts about the durability of exchange relationships. The slow rate of progress of the United States and the United Kingdom in programs of internal adjustment in order to strengthen their balance of payments reinforced this uncertainty. One effect of these developments has been large speculative capital movements. These led, in the first instance, to heavy losses of official gold stocks as a result of intervention in gold markets and, in March 1968, to the termination of the gold pool arrangements under which official gold reserves had been made available to meet demand in the markets for nonmonetary purposes. Since then a two-tier price system has been in operation with an official price based on US$35 per fine ounce for dealings among monetary authorities, and a free market price for other transactions. Although the free market price of gold has ranged from US$37 to US$44 per ounce, the main focus for speculative activity since March 1968 has been in foreign exchange markets. In these circumstances the trend toward a strengthening of capital controls has received further impetus; the United States and the United Kingdom each maintained their system of capital controls and, during the period under review, France imposed controls on outward capital movements; in Canada voluntary guidelines were established for certain capital outflows. In April 1969, however, the United States relaxed its controls somewhat. The deutsche mark was the currency which particularly attracted speculative funds and, in November 1968, Germany introduced controls to discourage this type of capital inflow. Having served their immediate purpose, these measures were rescinded early in 1969. A number of other countries took steps to regulate movements of banking funds and some subjected certain types of foreign investment to approval procedures.
There was less emphasis on restrictions on current transactions, the main reliance being placed on capital controls in the efforts of the major trading countries to restore their balance of payments position. The area in which certain countries felt obliged to exercise control over current payments was the provision of exchange for travel expenditure, partly to prevent evasion of the capital controls. The United Kingdom’s restrictions remained in effect and France also imposed a limitation on the amount of foreign exchange that might be used for this purpose, as did a number of developing countries. The use of travel taxes continued to grow.
The stress to which the international monetary system was subjected precluded any possibility of a resumption of the trend toward liberalization of current payments. In most cases, however, where balance of payments problems arose, the measures taken with regard to current transactions were generally in the field of trade, rather than on the making of payments. There was a marked increase in the use of import surcharges and deposits in connection with imports, and export subsidies were applied in many forms. In March 1969 Germany announced that additional import opportunities were to be created by quota increases for industrial goods, including the products of Eastern European countries, and volume increases under agreements on voluntary restraint of exports to Germany.
In certain countries there was progress toward more realistic exchange rates and better-conceived financial policies. Three countries—Argentina (May 14), Singapore (November 9), and Malaysia (November 11)—assumed the obligations of Article VIII, Sections 2, 3, and 4. Out of a total membership of 111, 34 Fund members, which in 1968 accounted for about three fourths of world trade, have assumed these obligations.
This Report, and in particular the following sections, covers not only developments in the field of exchange restrictions, but also other measures and intergovernmental arrangements that may have direct balance of payments implications.