International Monetary Fund
Published Date:
January 1979
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The preceding sections described, in broad terms, the changes in certain major provisions of the Fund that would be required to achieve an integrated Fund. The financial adjustments necessary—under powers not available in the present Articles—to bring about such an integrated Fund would be few and simple.

1. The Fund would issue (not “allocate”) an amount of SDRs equal to the amount of reserve tranche positions outstanding minus its own holdings of SDRs, and then use its total holdings of SDRs to redeem all reserve tranche positions. In Fund operational terms, this redemption would take the form of the Fund purchasing with SDRs the amounts of currencies needed to bring its holdings of the currency of every member that was below this level to 100 per cent of quota.

2. The Fund would use an amount of each currency equal to 100 per cent of the quota of the issuer to repay its quota liability. This operation would remove quotas and an equal amount of currency holdings from the Fund’s balance sheet. It would not change the amount of any member’s quota, but this quota would cease to be a Fund liability and become a pure yardstick of a member’s rights and obligations—as it is in the Special Drawing Rights Department.32

3. The Fund would exchange its remaining holdings of any currency for an obligation by the member expressed in SDRs. This would formalize use of the Fund beyond the quota as credit expressed in SDRs and would do away with the need for a special provision on maintenance of value.

The effects of these changes on the balance sheet of the Fund are shown and discussed in the Appendix.

It should be noted that only the first of these adjustments has a substantive effect. It would give creditor countries a different type of asset, would eliminate the Fund’s interest-free source of funds, and, even without steps 2 and 3, it would achieve a number of other simplifications in fact, if not in law. Once the Fund decided never to lower its holdings of any currency below 100 per cent of quota, and to operate entirely in SDRs, there would be no balances to which a rate of remuneration would apply, no need for operational budgets, and the issue of floating in the gold tranche would disappear.

Step 1 is also the only one that, at least in part, can be taken under the present Articles. To the extent that the Fund holds SDRs it can acquire additional amounts of currency. The question arises, therefore, whether it would be possible to bring about most of the transition under the present Articles and by voluntary decisions (including decisions by all members to undertake enlarged acceptance obligations), while leaving the formal transition for a later stage.

The answer to this question is in the negative. The Fund does not hold enough SDRs, and cannot acquire enough SDRs by any transactions or operations that are possible under the present Articles,33 to pay off all reserve tranche positions, let alone to do this and to have a large enough balance of SDRs left to conduct the Fund’s operations in SDRs thereafter. The Fund could conceivably reach this position under the present Articles by selling its gold for currencies at high prices and using the proceeds to raise its holdings of all currencies to 100 per cent of quota after having acquired sufficient balances of SDRs against currencies. But while this is a theoretical possibility, it can presumably be dismissed as outside the realm of the practical. Thus the conclusion seems justified that a unified Fund can be attained only by a restructuring of the Fund’s assets and liabilities, on the basis of a new amendment. In the meantime, the Fund, by holding an adequate stock of SDRs, can conduct a large part of its financial activities in SDRs, thus giving the SDR maximum exposure in the Fund’s relations with members.

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