The First Amendment of the Fund’s Articles of Agreement
Fund staff studied and prepared a report on “The Adequacy of Monetary Reserves” that defined adequacy. This report was presented to the United Nations Economic and Social Council.
A Fund staff study was released on “International Reserves and Liquidity.”
Robert Triffin made the first proposal for an enlarged Fund and for the creation of a new type of international reserve asset. He proposed that all reserves, except gold holdings, be centralized in the Fund.
Various proposals for the creation of an international reserve asset—either in, associated with, or separate from the Fund—were advanced by a number of experts, including Edward M. Bernstein, Reginald Maudling, Maxwell Stamp, and Xenophon Zolotas.
The announcement was made, at the Fund Annual Meeting in Washington, D. C., that official studies of the problem of global liquidity would be undertaken by the Fund and the Group of Ten industrial countries. The Deputies of the Group of Ten were instructed to undertake a thorough examination of the international monetary system and of a probable future need for liquidity.
A Study Group on the Creation of Reserve Assets was set up, following a report by the Deputies of the Group of Ten, to consider the need for a new reserve asset. The Group was chaired by Rinaldo Ossola of Italy.
A call for a global approach through the Fund for any new liquidity arrangements was made by Fund Managing Director Pierre-Paul Schweitzer at the Annual Meeting in Tokyo.
Secretary of the U. S. Treasury, Henry H. Fowler, announced that the United States wished to go ahead with improvements in international monetary arrangements.
Both the technical and the policy aspects of “deliberate reserve creation” were considered by the Executive Directors in their 1965 Annual Report. These questions were also studied during 1964 and 1965 by the Study Group appointed by the Group of Ten and headed by Rinaldo Ossola. The report by the Ossola Group was published at the same time as the 1965 Annual Report of the Fund.
Two proposals on how international reserve creation could be effected through the Fund were submitted to the Executive Board by the Fund’s Managing Director.
Following discussion of his two proposals and a number of other proposals in the Fund and by the Group of Ten in reports issued in the summer of 1966, the Managing Director was asked by the Board of Governors to prepare a contingency plan for the creation of additional international liquidity. Executive Directors and the Group of Ten agreed to meet jointly to discuss and review the various plans that had been put forward.
The Fund staff prepared two outlines for the creation of additional international liquidity: (i) an “Outline of an Illustrative Reserve Unit Scheme” based on a Fund-affiliated institution, and (ii) an “Outline of an Illustrative Scheme for a Special Reserve Facility Based on Drawing Rights in the Fund.” The preparation of these papers had been preceded by two joint meetings between Executive Directors of the Fund and the Deputies of the Group of Ten in November 1966 and January 1967.
After two further joint meetings in May and June between Executive Directors and the Deputies of the Group of Ten, two new outlines on the same subjects were prepared and considered by them.
Following two meetings in London of Ministers and Governors of Central Banks of the Group of Ten as well as several meetings of the Deputies, agreement was reached that decisions relating to the basic period for, timing of, and amount and rate of allocation of special drawing rights should be taken by the Board of Governors by a majority of 85 per cent of total voting power. It was also agreed that participants would incur reconstitution obligations according to rules to be specified in the Rules and Regulations of the Fund rather than the amended Articles. Fund staff had prepared background papers on the two outstanding issues, namely voting procedures and reconstitution obligations, for these meetings at the request of the Deputies.
The “Outline of a Facility Based on Special Drawing Rights in the Fund” was approved by the Executive Board, together with the text of a draft resolution, and forwarded to the Board of Governors.
The resolution, and the attached Outline, were approved by the Board of Governors at the Annual Meeting in Rio de Janeiro. The Governors asked the Executive Board to submit to them no later than March 31, 1968, a report proposing amendments to the Articles of Agreement and to the By-Laws on both liquidity creation and improvements in the Fund’s rules and practices.
The Executive Board completed preparation of the text of a Proposed Amendment, subject to the resolution of certain outstanding problems.
The draft of the Proposed Amendment was discussed by the Ministers and Governors of the Group of Ten at their meeting in Stockholm, and the Group reached agreement on certain aspects, with France reserving its judgment until a final text was available.
The draft of the amendment and a report on the “Establishment of a Facility Based on Special Drawing Rights in the International Monetary Fund and Modifications in the Rules and Practices of the Fund” were completed and adopted by the Executive Board. It recommended that the Board of Governors adopt a resolution approving the Proposed Amendment.
The Board of Governors, without meeting, approved the Proposed Amendment and directed the Secretary of the Fund, in accordance with the procedure for the amendment of the Articles, to ask all members whether they would accept it.
The First Amendment became effective for all members.
The International Monetary Fund, 1966-71—The System Under Stress, Vol. I, Narrative, and Vol. II, Documents, by Margaret Garritsen de Vries, International Monetary Fund (Washington, D.C., 1976), especially chapters 1-9 and 24-27.
Selected Decisions of the International Monetary Fund and Selected Documents, Eighth Issue, International Monetary Fund (Washington, D. C., May 10, 1976).
From Finance & Development
“Special Drawing Rights: A Legislative View,” by John V. Surr (September 1971).
“The Operations and Transactions of the Special Drawing Account,” by David S. Cutler (December 1971).
The Second Amendment of the Fund’s Articles of Agreement
A report on “The Role of Exchange Rates in the Adjustment of International Payments” was prepared and approved by the Executive Board. The Board considered various ways in which the exchange rate regime might be made somewhat more flexible but reaffirmed the view that the par value system retained its validity.
At the Annual Meeting in Copenhagen, the Board of Governors indicated that it did not want to pursue the subject of exchange rate flexibility much further.
The floating of their exchange rates by the Federal Republic of Germany and the Netherlands in May, and the U. S. decision of August 15 to suspend the official convertibility of the dollar into gold or other reserve assets, initiated a period of serious exchange market disorder.
The Executive Board was asked to prepare a report on reforming the Bretton Woods system by the Board of Governors at its Annual Meeting in Washington.
A new pattern of exchange rates among major currencies was agreed at a meeting of Ministers and Governors of the Group of Ten at the Smithsonian Institution in Washington. A temporary regime of central rates and wider margins was established by a decision of the Executive Board on the same date.
A “Report on the Reform of the International Monetary System” was prepared and released by the Executive Board. The Board of Governors agreed on July 26 to establish for a two-year period an ad hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Issues, known informally as the Committee of Twenty, to negotiate the reform.
The announcement by the United States of its intention to devalue the dollar for the second time was made on February 12 (the first devaluation became effective on May 8, 1972), and the European Economic Community introduced a joint float of their currencies against the dollar in March. In effect, a new exchange rate regime with floating rates against the dollar emerged. Major foreign exchange markets in Europe and Japan closed on March 2 and opened on March 19.
The objective that an eventual reformed exchange rate regime should be based on “stable but adjustable par values” was agreed by the Committee of Twenty in a meeting in Washington. Deputies of the Committee were instructed to prepare an Outline of Reform.
The First Outline of Reform prepared by the Deputies of the Committee of Twenty was published during the Annual Meeting of the Board of Governors of the Fund in Nairobi. Four days later the Deputies established four Technical Groups to study specific aspects of the monetary reform effort that had proved especially troublesome.
After the Organization of the Petroleum Exporting Countries had adopted a substantial increase in the price of oil effective January 1, 1974, massive surpluses by oil exporting countries and massive deficits by oil importing countries were expected.
Because of the new crisis in international payments, the Committee of Twenty, at a meeting in Rome, abandoned its two-year timetable for full-scale monetary reform and decided to let a new monetary “system” evolve gradually out of existing arrangements. The Committee agreed also on the need for a permanent Council of Governors with 20 members, under revised Articles of Agreement, and on the establishment meanwhile of an Interim Committee of the Board of Governors.
The Committee of Twenty completed its work and published the Outline of Reform. To promote evolution of the system, it suggested, among other things, the establishment of the Interim Committee; guidelines for managing floating exchange rates; an oil facility to assist countries facing balance of payments problems stemming from the rise in price of imports of oil; the valuation of the special drawing right on the basis of a standard weighted basket of 16 currencies; and changes in the provisions relating to the Fund’s gold holdings and the role of gold in the new system.
The Executive Directors began to consider a comprehensive revision of the Articles of Agreement in order to put into a proposed amendment those items that the Committee of Twenty had termed as “immediate steps” for a new monetary system and such other modifications as it might propose.
September 30-October 4
The Interim Committee was established during the Annual Meeting in Washington.
Attempts to narrow differences among members of the Fund were made at a meeting of the Interim Committee in Paris that considered reports by the Executive Board on progress toward an amendment of the Articles.
Understandings on the gradual reduction of the role of gold in the international monetary system and on quotas of Fund members in the Sixth General Review were reached on the basis of reports by the Executive Board at a meeting of the Interim Committee during the Annual Meeting of the Board of Governors in Washington.
Heads of state or government of France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States met in Rambouillet. France and the United States reached a compromise agreement on a new exchange rate regime and on a draft of the revised Article IV of the Fund’s Articles of Agreement, which governs the nature of exchange rate arrangements.
A meeting of the Ministers and Governors of the Group of Ten approved the draft of Article IV agreed at Rambouillet and subsequently somewhat amended by the Executive Board to fit within the framework of the Amendment.
The Interim Committee meeting in Jamaica resulted in agreement on a number of important issues that remained. Among other features of the agreement were that floating would be legalized; the Fund would be responsible for surveillance of members’ exchange rate arrangements; quotas would be increased for almost all Fund members; the Fund would dispose of one sixth of its gold holdings (25 million ounces) by auction, and another one sixth by a process of “restitution” to member countries (profits from the sales of the first of these amounts would be used by a Trust Fund to assist developing countries); and the Fund should be able to make effective use of its holdings of all members’ currencies in its operations and transactions in accordance with its policies. The Sixth General Review of Quotas, begun in 1974, was completed with an agreement by the Board of Governors on the recommendation of the Executive Board; when it became effective, together with the Proposed Second Amendment, it would result in an increase in total Fund quotas from SDR 29.2 billion to SDR 39 billion.
The Executive Board completed the text of the Proposed Second Amendment of the Articles of Agreement and sent it to the Board of Governors of the Fund with a report on the Amendment and a resolution seeking approval by April 30 by vote without meeting.
The Board of Governors adopted the resolution approving the Proposed Second Amendment of the Articles of Agreement. The Proposed Amendment was sent to members for their acceptance. The Amendment would become effective when accepted by three fifths of the members having four fifths of the total voting power.
Willy de Clercq, Finance Minister of Belgium, became Chairman of the Interim Committee at its meeting in Manila prior to the Annual Meeting of the Board of Governors. The Interim Committee asked the Executive Board to report to it on the subject of firm surveillance of members’ exchange rates by the Fund. The Board of Governors endorsed this request during its meeting of October 4-8.
The Executive Board approved a document on “Surveillance Over Exchange Rate Policies” of members that would guide the Fund in its work after the Second Amendment entered into force.
Consent by members having 75 per cent of total quotas as of February 19, 1976 to proposed increases in their quotas was received, thus completing one requirement for increases in quotas under the Sixth General Review of Quotas.
The Second Amendment entered into force.
From Finance & Development
“The development and functioning of the postwar international monetary system,” by Fred Hirsch (June 1972)
“The Committee of Twenty,” by John Surr (June 1974)
“The evolving monetary system,” by C. J. Morse (September 1974)
“International monetary developments and changes in the world economy,” by Margaret G. de Vries (September 1974) “The Fund and monetary reform: looking to the future,” by Ian McDonald (September 1974)
“Changes within the Fund” (June 1976)
“The Fund after Jamaica,” by J. J. Polak (June 1976)
“The emerging international monetary system,” by H. Johannes Witteveen (September 1976)
“Reforming international monetary relations—an analysis,” by Tom de Vries (September 1976)
“Surveillance over exchange rate policies,” by John H. Young (September 1977).
“The Second Amendment of the Fund’s Articles of Agreement—a general view, I and II,” by Joseph Gold (March and June 1978)
From IMF Survey
August 25, 1975—for an assessment (by Margaret G. de Vries) of reform efforts from 1971 to 1975.
January 19, 1976—for a report on the Jamaica meeting of the Interim Committee.
March 1, 1976—for a detailed chronology of recent developments in the international monetary field.
April 3, 1978—for details of the entry into force of the Second Amendment and the Sixth General Review of Quotas.
Selected Decisions of the International Monetary Fund and Selected Documents, Eighth Issue, International Monetary Fund (Washington, D.C., May 10, 1976).