Special Drawing Rights
- International Monetary Fund
- Published Date:
- January 1971
Article IV, Section 8(d), was amended to intensify the formal requirements for exercise of the power to waive maintenance of the gold value of the Fund’s assets, but it is obvious that there was no widely held conviction that the power should be abolished. Retention of the power shows that there has been no general feeling that the power was otiose because there were no conceivable circumstances in which it would be sensible to exercise it. The decision to retain the power becomes all the more obvious when it is realized that during the negotiations leading to the international agreement on special drawing rights, the power did not lack critics who pointed out that it was a flaw, even though more technical than practical, in the quality of the gold tranche. Moreover, the existence of two schools of thought is apparent from the Outline which was approved by the Board of Governors in September 1967 as the basis for drafting the facility through which the Fund could generate special drawing rights. On the question of “Maintenance of gold value” of special drawing rights, the Outline included alternative solutions:
The unit of value for expressing special drawing rights will be equal to 0.888 671 grams of fine gold. The rights and obligations of participants and of the Special Drawing Account will be subject to an absolute maintenance of gold value or to provisions similar to Article IV, Section 8 of the Fund’s Articles.59
The reference to Article IV, Section 8, included subsection (d) of Section 8.
The option that was chosen will be clear from some of the examples of the effect of a decision to waive maintenance of the gold value of the Fund’s assets on the Fund’s holdings of special drawing rights in the General Account. The value of special drawing rights is absolute: “The unit of value of special drawing rights shall be equivalent to 0.888 671 gram of fine gold.” 60 This gold value is the same as the gold content of the U. S. dollar of the weight and fineness in effect on July 1, 1944, which is also the contemporary U. S. dollar. Any change in the gold content of the U. S. dollar, however, would not affect the gold value of a unit of special drawing rights. Nor would its gold value be affected by a uniform proportionate change in par values, whether or not accompanied by a decision to waive maintenance of the gold value of the Fund’s assets. The only way in which the gold value of the unit could be changed would be by amendment of the Articles. This would require acceptance by three fifths of the Fund’s members with four fifths of the total voting power among them.61
The effect that a change in the par value of a currency has on special drawing rights held in the General Account, whether the change is individual or part of a uniform proportionate change, would be the same as the effect on the Fund’s holdings of gold. The Fund’s holdings of special drawing rights would command more units of the currency after a devaluation and fewer after a revaluation.62 In this connection, it should be recalled that the operations and transactions in special drawing rights of the Fund conducted through the General Account are carried out at the par value or the Fund’s book rate and not in accordance with the doctrine of equal value which applies between participants. This doctrine establishes a special system of rates based on market quotations, and it is likely to result in rates that differ from those employed by the Fund.63
In the event of a uniform proportionate change in par values with a waiver of maintenance of the gold value of the Fund’s assets, the effect on the Fund’s holdings of special drawing rights as reflected in the Fund’s balance sheet has been illustrated already. The consequences would be the same for the Fund’s holdings of both gold and special drawing rights.