Chapter

Article IV, Sections 3 and 5: Par Values and Margins

Author(s):
International Monetary Fund
Published Date:
September 1962
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Foreign Exchange Dealings Based on Parity: Article IV, Section 3

Dealings in paper money and coins are deemed to be “other exchange transactions” within the meaning of Article IV, Section 3, whether or not the importation and exportation of such money and coins to and from the country of origin are subject to restrictions. The dealings are in consequence subject to the provisions of that Section. Members shall not permit transactions in such paper money and coins within their territories in a manner or to an extent which will negate the par values agreed with the Fund. Where transactions in fact have such an effect the Fund will be obliged to intervene.

Decision No. 269-2

February 11, 1948

Exchange Dealings and Margins Under Conditions of Increasing Convertibility

The Fund does not object to exchange rates which are within 2 per cent of parity for spot exchange transactions between a member’s currency and the currencies of other members taking place within the member’s territories, whenever such rates result from the maintenance of margins of no more than 1 per cent from parity for a convertible, including externally convertible, currency.

Decision No. 904-(59/32)

July 24, 1959

Interpretation of Articles of Agreement

[A member] has stated its intention to maintain full employment and has requested an interpretation of the Articles of Agreement as to whether steps necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, shall be measures necessary to correct a fundamental disequilibrium.

The Executive Directors interpret the Articles of Agreement to mean that steps which are necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, are among the measures necessary to correct a fundamental disequilibrium; and that in each instance in which a member proposes a change in the par value of its currency to correct a fundamental disequilibrium the Fund will be required to determine, in the light of all relevant circumstances, whether in its opinion the proposed change is necessary to correct the fundamental disequilibrium.

Pursuant to Decision No. 71-2

September 26, 1946

Changes in Par Values: Fundamental Disequilibrium

The Fund has authority under Article IV, Section 5 (c) (ii) or (iii), to object to a change in par value proposed by a member when the extent of the proposed change, in the judgment of the Fund, is insufficient to correct a fundamental disequilibrium. The Executive Board recognizes, however, that the extent of the change in par value, necessary to correct a fundamental disequilibrium, cannot be determined with precision and that in reaching a decision on a member’s proposal to change its par value, whether during the transitional period or thereafter, the member should be given the benefit of any reasonable doubt. In addition, due consideration should be given the views of the member regarding the political and social consequences of a change in par value greater than the one proposed.

Decision No. 278-3

March 1, 1948

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