Chapter

Stand-By Arrangements

Author(s):
International Monetary Fund
Published Date:
January 1971
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In some stand-by arrangements, the Fund includes the following paragraph:

The rate of exchange at which [the member] will purchase currencies from the Fund in exchange for the currency of [the member] and at which the Fund will return the currency of [the member] in repurchase operations and make all other computations involving the currency of [the member] will be such rate as the Fund may from time to time determine under Article IV, Section 8, of the Fund Agreement.

This paragraph appears in a stand-by arrangement when the member for which it is approved does not have an effective par value, because the member has either a unitary fluctuating rate, which the Fund has no power to approve, or multiple currency practices, including a fluctuating rate, which the Fund can approve.26

If the member has not yet established an initial par value under the Articles, the paragraph reads as follows:

The rate of exchange at which [the member] will purchase currencies from the Fund and at which the Fund will return the currency of [the member] in repurchase operations and make all other computations involving [the member’s] currency will be the provisional rate of exchange for [the member’s] currency proposed by [the member] and agreed by the Fund, and thereafter the par value agreed with the Fund, or such rate as the Fund may from time to time determine under Article IV, Section 8, of the Fund Agreement.

There is no legal necessity for the inclusion of either type of paragraph in stand-by arrangements in order to enable the Fund to call on the member to adjust the Fund’s holdings of the member’s currency. That power stems from Article IV, Section 8, and the Fund can exercise it even in the absence of express reference to it in standby arrangements. The main purpose of the paragraph is to give the member notice that adjustment of the Fund’s holdings may become necessary during the existence of the stand-by arrangement. The Fund’s power remains exercisable after the termination of the stand-by arrangement.

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