Part I: Introduction
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1976
In the Report to the Board of Governors by the ad hoc Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty), dated June 14, 1974, to which an Outline of Reform was attached, it was noted that in the conditions that had developed it had been recognized that priority should be given to certain aspects of reform. The Committee regarded it as of the highest importance that immediate steps should be taken to begin an evolutionary process of reform. Part II of the Outline sets out the immediate steps on which the Committee was agreed. Among them was the preparation of draft amendments of the Articles of Agreement of the International Monetary Fund.
In the Fourth Resolution (No. 29-10) of the Composite Resolution of the Board of Governors on the Work of the ad hoc Committee on Reform of the International Monetary System and Related Issues and on a Program of Immediate Action, Paragraph 9 requested that the consideration of possible amendments to the Articles of Agreement should be pursued with a view to the presentation of draft amendments to the Board of Governors in due course.
The Executive Directors began to consider possible draft amendments in mid-summer 1974 and have continued to work on them since that time. They have submitted reports on the progress of this work to the Interim Committee of the Board of Governors on the International Monetary System and have received guidance on a number of topics. As stated in the Communiqué issued by the Committee on January 8, 1976 after its fifth meeting, in Kingston, Jamaica, the Committee had considered and reached agreement on the remaining issues on which the Executive Directors had sought guidance. The Committee requested the Executive Directors to complete their work on amendment in the light of the guidance given by the Committee, and to submit a Comprehensive Draft Amendment for the approval of the Board of Governors, together with a Report. The numerous changes in the Proposed Amendment will make it necessary for the Executive Directors to review the By-Laws, Rules and Regulations, and general decisions of the Fund to ensure that they are compatible with the revised Articles and that they provide the necessary operating principles and procedures.
The rest of this Report consists of three parts. Part II is a Commentary on the Proposed Amendment of the Articles of Agreement. For the most part, the Commentary follows the order of the provisions in the proposed text. It should be noted that the sequence of provisions is slightly changed so that the Articles can follow a more logical order. An Annex is attached to the Commentary in Part II that sets forth in tabular form the special majorities of voting power that would be required for certain decisions under the amended Articles and the organs of the Fund that could take those decisions. Part III of this Report describes the procedure to be followed in order to give effect to the Proposed Amendment.
Part IV of this Report sets forth a proposed Resolution that the Executive Directors recommend for adoption by the Board of Governors. Annexed to the Resolution is the proposed text of the amended Articles of Agreement. In the Appendix to Part II, this text is shown in the left-hand column of the pages of the Appendix. The right-hand column sets forth the corresponding provisions of the present Articles, in an order therefore that does not follow the sequence of the present Articles.
The proposed modifications of the Articles are extensive, but the main themes can be summarized under six headings.
(a) Exchange arrangements of each member’s choice; the possible adoption of particular general arrangements; and the possible adoption of a system of par values that members will have an option to participate in; subject at all times to general obligations and firm surveillance by the Fund (Chapter C).*
The provisions on exchange arrangements recognize that the essential purpose of the international monetary system is to provide a framework that both facilitates the exchange of goods, services, and capital among countries and sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability. Members undertake a general obligation to collaborate with the Fund and with other members in order to assure orderly exchange arrangements and to promote a stable system of exchange rates. Members must perform this obligation by observing certain specified undertakings with respect to domestic and external economic and financial policies.
The general obligation and specified undertakings apply to all members at all times. Members are free, however, to apply the exchange arrangements of their choice. The Fund will be able, by decisions taken with an eighty-five percent majority of the total voting power, to recommend exchange arrangements that accord with the development of the international monetary system, but members will continue to have the right to choose their own arrangements.
The Fund is required to oversee the international monetary system in order to ensure its effective operation and to oversee the observance by each member of its obligations.
The Fund may determine, by the majority already referred to, that international economic conditions permit the introduction of a system based on stable but adjustable par values, whereupon provisions governing such a system will apply. Each member will then establish a par value unless it intends to apply other arrangements.
(b) A reduction in the role of gold, including the disposition of the Fund’s own holdings of gold (Chapter I).
The most important changes under this heading are as follows:
(i) the elimination of the function of gold as the common denominator of the par value system and as the unit of value of the special drawing right (Chapter I, section 2);
(ii) the abolition of the official price of gold (Chapter I, section 3 ) ;
(iii) the abrogation of obligatory payments in gold by members to the Fund and by the Fund to members (Chapter I, section 4), and elimination of authority for the Fund to accept gold except under decisions taken with a high majority of the total voting power (Chapter I, section 8(d));
(iv) the requirement that the Fund complete the disposition of fifty million ounces of gold (Chapter I, sections 5-7);
(v) the authorization of the Fund to dispose of the remainder of its gold holdings in various ways by sale on the basis of prices in the market or at the official price in effect before the second amendment (Chapter I, section 8);
(vi) “profits” on the sale of gold on the basis of prices in the market would be placed in a special account for use in the ordinary operations and transactions of the Fund or for other uses, including those for the special benefit of members with low per capita income (Chapter I, section 8(b) and section 13);
(vii) the requirement that the Fund, in its dealings in gold, avoid the management of the price, or the establishment of a fixed price, in the gold market (Chapter I, section 10); and
(viii) the undertaking of members to collaborate with the Fund and with other members in order to ensure that their policies with respect to reserve assets will be consistent with the objectives of promoting better international surveillance of international liquidity and making the special drawing right the principal reserve asset in the international monetary system (Chapter I, section 10).
Many of the powers that the Fund may exercise under this heading (b) are subject to a majority of eighty-five percent of the total voting power.
(c) Changes in the characteristics and expansion of the possible uses of the special drawing right so as to assist it to become the principal reserve asset of the international monetary system (Chapter Q).
Numerous changes have been made in the provisions dealing with the special drawing right in order to modify its characteristics and extend its usability. Some of the most important modifications are listed below:
(i) Participants will be able to enter into transactions by agreement without the necessity for decisions by the Fund (Chapter Q, section 2(v)), and a participant transferring special drawing rights in such a transaction need not observe the requirement of need that is included in the Articles (Chapter Q, section 2(viii) ).
(ii) The Fund may authorize operations between participants that are not otherwise provided for by the Articles, subject to appropriate safeguards (Chapter Q, section 2(vii)).
(iii) The Fund may review the rules for reconstitution of participants’ holdings of special drawing rights at any time and may adopt, modify, or abrogate the rules by a lower majority of the total voting power than is necessary at present (seventy instead of eighty-five percent) (Chapter Q, section 2(xiii) ).
(iv) The possible uses of special drawing rights in operations and transactions conducted through the General Department of the Fund have been expanded (Chapter Q, sections 2(i) and 3).
(v) The Fund may broaden the categories of other holders of special drawing rights, although not beyond official entities, and the operations and transactions in which they may engage (Chapter Q, section 2(ii) and (iii)).
(d) Simplification and expansion of the types of the Fund’s financial operations and transactions, particularly those conducted through the General Department (Chapters D, E, F, G, H, J, and L).
The opportunity has been taken to incorporate in the Articles certain policies and practices that experience has proved to be useful. A leading example is the Fund’s policy on repurchase, which is designed to ensure that the use of the general resources will not extend beyond three to five years, unless a longer period is permitted under a special policy on use. The detailed formulae of the present Articles on repurchase and on the calculation of monetary reserves that governed the accrual of repurchase obligations and distribution among reserves have been deleted (Chapter E, section 1).
Provisions have been adopted to ensure that the Fund’s holdings of the currencies of all members will be usable by the Fund in its operations and transactions in accordance with its policies. Similarly, members will be able to obtain the currencies of other members when they have been specified by the Fund for repurchase. Appropriate safeguards are adopted for members (Chapter D, sections 11-15, and Chapter E, section 2(x) ).
Among other changes in relation to the use of the general resources of the Fund is the more extensive authority it will have to permit members to engage in transactions under special policies without at the same time foregoing their reserve tranche positions (formerly gold tranche positions) (Chapter D, section 9).
(e) The possible establishment of the Council as a new organ of the Fund (Chapter P).
The Board of Governors may decide, by an eighty-five percent majority of the total voting power, to call a new organ of the Fund, the Council, into being if this action is deemed appropriate. This organ would resemble the present Interim Committee of the Board of Governors in composition and terms of reference. It would differ from the Committee in that it would have powers of decision and not solely advisory authority. If the Board of Governors were to decide that the Council should be established, detailed provisions governing the Council would begin to apply.
(f) Certain improvements in organizational aspects of the Fund (Chapter O).
The provisions governing the election of Executive Directors have been brought up to date by the incorporation of the present number of elective Executive Directors in the Articles, together with authority to modify the number by a high majority of the total voting power. In addition, a member entitled to appoint an additional Executive Director in certain circumstances may decide to participate in the election of Executive Directors instead of making an appointment, It is also provided that if the member does make an appointment, it may arrange with individual members in its former “constituency” to have the Executive Director it appoints cast the number of votes alloted to them (Chapter O, section 2(b)).
Other major improvements under this heading are the clarification and simplification of the distribution and delegability of powers among the organs of the Fund and the reduction of the categories of special majorities to seventy percent and eighty-five percent (and in one instance an absolute majority). Special majorities would apply to a wide range of decisions beyond those that have been noted already under (b) above (Annex).
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The complete text of the Articles incorporating the proposed revisions, rather than a series of proposed amendments of particular provisions, is attached to the Resolution. The reason for adopting this technique is that, although the amendment does not represent a total revision of the Articles, the second amendment is an extensive one, affecting many provisions of the Articles. Nevertheless, the proposed revision is an amendment of the existing Articles and does not constitute a new international treaty.
Various changes in nomenclature in use in the Fund have been made. Some of the changes are intended to convey more clearly the structure of the Fund, which will consist of the General Department and the Special Drawing Rights Department. There will be three Accounts in the General Department: the General Resources Account, the Special Disbursement Account, and the Investment Account. These changes do not involve changes of substance in the legal or operational organization of the Fund (Chapter A, section 1).