The Fund Agreement in the Courts, Vol. III
Front Matter

Front Matter

Joseph Gold
Published Date:
December 1986
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    The Fund Agreement in the Courts: Volume III

    ISBN 9781475507324

    (Vol. III)

    Price: US$45.00

    The Articles of Agreement of the International Monetary Fund have had many effects on public and private international law. Aspects of the Articles have been involved in litigation in the courts of member countries of the Fund and in international tribunals. A broader range of issues and of the jurisprudence of member countries is covered by Volume III of The Fund Agreement in the Courts than by the first two volumes, which were published in 1962 and 1982.

    Volume III includes a Preface, an Introduction, and 24 chapters. Seven of the chapters have been published previously but have now been thoroughly revised and augmented. The other 17 chapters arc completely new. The volume is divided into three sections, which deal respectively with cases, topics, and views.

    The effects of the Articles on a great variety of legal problems are examined, such as problems involving the judicial application of gold or composites of currencies as units of account, capital transfers, exchange rates, and exchange controls. An intensive examination is devoted to the last of these problems, including the discord created by the numerous defenses raised against the recognition of foreign exchange controls, because of the new difficulties created by international indebtedness.

    The third section of the volume discusses in detail drafts of the monetary law provisions of the American Law Institute’s revision of the Restatement of the Foreign Relations Law of the United States. The section includes also a conspectus of the opinions expressed by other authors on the meaning and effect of Article VIII, Section 2(b) of the Fund’s Articles and a summary of the author’s views on that provision. The book is completed with 6 indexes, which will enhance its usefulness as a work of reference.

    Sir Joseph Gold is a graduate of the Law Schools of the Universities of London and Harvard. He was a member of the staff of the Legal Department of the International Monetary Fund from October 1946 to July 1979 and was the General Counsel of the Fund and Director of its Legal Department from I960 to 1979. He is now Senior Consultant of the Fund. He is the author of the following books published by the Fund: The Fund Agreement in the Courts, Volumes 1 (1962) and II (1982). The Stand-By Arrangements of the International Monetary Fund (1970). Voting and Decisions in the International Monetary Fund (1972), Membership and Nonmetnhership in the International Monetary Fund (1974). and Legal and Institutional Aspet is the International Monetary System: Selected Essays, Volumes I (1979) and II (1984). He has contributed numerous pamphlets to the Funds Pamphlet Series, including a series devoted to legal developments involving SDRs. currencies, and gold since the Second Amendment of the Fund’s Articles, and has contributed a study of the Fund’s constitutional development to The International Monetary Fund. 1945–1965. published by the Fund in 1969. He has contributed numerous articles to the Fund’s periodicals Staff Papers and Finance & Development. His publications outside the Fund include Aspectos legates de la reforma monetaria international (Mexico, 1979) and numerous articles in law journals in many countries. He is an advisor on the boards of a number of law journals, has been a lecturer at the Hague Academy of International Law. and has received an honorary LL.D. from Southern Methodist University


    By the same author

    The Fund Agreement in the Courts (1962)

    The Stand-By Arrangements of the International Monetary Fund:

    • A Commentary on Their Formal, Legal, and Financial Aspects (1970)

    • And in Spanish: Los acuerdos de derechos de giro del Fondo Monetario

    • Internacional (Stand-By Arrangements): Un comentario sobre aspectos formales, jurídicos y financieros (1970)

    Voting and Decisions in the International Monetary Fund: An Essay on the Law and Practice of the Fund (1972)

    Membership and Nonmembership in the International Monetary Fund:

    • A Study in International Law and Organization (1974)

    The Fund Agreement in the Courts: Parts VIII-XI (1976)

    Legal and Institutional Aspects of the International Monetary System:

    • Selected Essays (1979)

    Aspectos legales de la reforma monetaria internacional (1979)

    The Fund Agreement in the Courts, Volume 2 (1982)

    Legal and Institutional Aspects of the International Monetary System:

    • Selected Essays, Volume 2 (1984)

    © International Monetary Fund 1986

    Library of Congress Cataloging-in-Publication Data

    (Revised for vol. 3)

    Gold, Joseph, 1912–

    The Fund agreement in the courts.

    Vol. 2 has subtitle: Further jurisprudence involving the Articles of Agreement of the International Monetary Fund.

    Vol. 3 has subtitle: Further studies in jurisprudence involving the Articles of Agreement of the International Monetary Fund.

    Includes bibliographies and indexes.

    1. International Monetary Fund. I. Title.

    K4430.A495G65 1962 341.7’51 73-166361

    ISBN 0-939934-70-1 (v. 3)

    ISBN 0-939934-17-5 (v. 2)

    ISBN 0-939934-03-5 (v. 1)

    ISBN 0-939934-63-9 (set)



    Jurisprudence in which the provisions of the Articles of Agreement of the International Monetary Fund have affected the issues or been considered continues to accumulate in the courts of many member countries. The problem of international indebtedness faced by many members of the Fund in the 1980s has contributed to the body of cases considered in this volume. The two volumes of The Fund Agreement in the Courts published hitherto have been of obvious assistance to counsel in the preparation of their briefs and to academic scholars. A third volume might perform a similar service.

    This third volume of The Fund Agreement in the Courts, like its predecessors, takes a close look at the new cases through the telescope of the Fund’s Articles and practice, but now the glasses are trained on a number of broader legal questions as well. The new volume is a collection of 24 studies related principally to litigation involving the Fund’s Articles of Agreement, but some cases are considered in which the Articles were not cited but might have been relevant. Earlier versions of Chapters 1, 2, 3, 8, 9, 10, and 21 have been published in the periodicals mentioned in the footnotes to those chapters. The seven published papers have been thoroughly revised, and in most instances substantially augmented, for inclusion in this volume, so that they are virtually new studies. The other 17 chapters have not been published hitherto in any form. Supplemental Notes have been added to a number of chapters when certain specific topics were related to the subject matter of a chapter but seemed too detailed to be discussed in the body of the chapter.

    Some views expressed in the earlier volumes have been reviewed and even revised, but I am pleased that only one substantial revision has seemed necessary. If an apologia is required, it will be found in the words of the late Jorge Luis Borges that are quoted in footnote 1 on page 674.

    The present volume is divided into three parts. The eight chapters of Part I approach issues from the standpoint of some new cases and their relationship to earlier cases. Some of the new cases raise or suggest new issues. The decisions discussed in this volume have been taken by courts in Austria, England, France, the Federal Republic of Germany, Italy, Japan, Luxembourg, Mexico, the Netherlands, South Africa, Spain, and the United States of America. The discussion compares individual decisions with the jurisprudence of other countries. Other cases considered in Part I have been decided by the Court of Justice of the European Communities and by an international arbitral tribunal.

    The 13 chapters of Part II are devoted to specific topics, but cases discussed in Part I and in the two earlier volumes are not neglected, so that a sharp distinction cannot be drawn between the cases of Part I and the topics of Part II. Numerous topics are discussed in Part II and include, among others, legal concepts of public policy, capital transfers, the continued effect of the former par values of currencies, the hierarchy of defenses when the exchange control of another country is involved in litigation, the distinction between exchange restrictions and governmental failures to perform contractual obligations, and obligations to apply for exchange licenses.

    In Part II, much attention is devoted to the interpretation and application of Article VIII, Section 2(b), as well as to additional problems of exchange control, including, among others, the relationship between the provision and private international law, the burden of proof and the role of presumptions, consequences of the failure to give domestic effect to the provision, the effect of information on exchange control regulations provided by the Fund, the effect of the provision on the assignment and guarantee of claims arising under exchange contracts, and the effect of newly introduced exchange control regulations on existing contracts. Many topics that could have been given separate attention and included in Part II are discussed only in Part I, because it is more convenient to consider them in the context of decided cases. Among these topics are the effect of the concurrent existence of the exchange control regulations of two countries, estoppel, and foreign judgments. Discussion of the meaning and application of provisions of the Articles other than Article VIII, Section 2(b) will be found throughout Parts I and II and to some extent in Part III as well. The more extensive examination of Article VIII, Section 2(b), however, is justified because it is the provision of the Fund’s Articles that is cited most often in the cases.

    The three chapters of Part III concentrate on the opinions of law commissions and writers. The first chapter of Part III (Chapter 22) discusses drafts of three sections on monetary law to be included in the American Law Institute’s revision of the Restatement of the Foreign Relations Law of the United States. The three sections deal with the exchange arrangements of members of the Fund, Article VIII, Section 2(b), and the expression of judgments in currency foreign to the forum. The refinements made by the successive drafts probably ensure that the final product will be strongly affected by the two drafts examined in this volume. The drafts are discussed from the standpoint of the issues they raised, for which reason the discussion should be useful even if the final text of the Restatement contains some polishing.

    The second chapter of Part III (Chapter 23) is a résumé of the opinions expressed by numerous authors in many countries on aspects of Article VIII, Section 2(b). There is now a large and still growing body of commentary on the provision throughout the world. Even by 1962, when the first volume of The Fund Agreement in the Courts was published, it had become possible to compile two substantial bibliographies (on pages 67–68 and 100–101), but they were certainly not exhaustive even at that early date. Since 1962, the output of studies has increased, largely in response to the problem of international indebtedness and the accumulation of judicial decisions in which Article VIII, Section 2(b) has been, or should have been, considered. Chapter 23 is not offered as a complete statement of the numerous views that have been expressed so far, but it is hoped that an adequate impression is conveyed of the diversity of opinions on most of the leading issues, but also the concurrence of opinion on some problems. Attached to Chapter 23 is a list of the authors and their principal works on which the chapter is based.

    The last chapter of Part III attempts a résumé of my own opinions on the main features and consequences of Article VIII, Section 2(b). This effort seemed justifiable not only because by now these opinions have been advanced in the course of some 1,400 pages of discussion but also because, as noted above, earlier views have been reexamined in the light of more abundant jurisprudence, the opinions of other authors, and parthenogenetic further thought.

    References to the Articles throughout this volume are to the current Articles of Agreement of the International Monetary Fund, namely, the Articles after the Second Amendment, unless it is made clear that a reference is to the text of either the original Articles or the Articles as affected by the First Amendment.

    Repeated references to certain works have made it desirable to compile a list of short titles, which may be found under the heading of Guide to Short Titles.

    The opinions expressed in this volume are those of the author, formerly the General Counsel and the Director of the Legal Department of the Fund and now Senior Consultant. Unless opinions are attributed to the Fund, courts, or other authors, the opinions are those of the author of this volume.

    I wish to acknowledge, and to express my gratitude for, the help I have received from legal scholars in various countries, who have responded to my requests for reports of cases or other material or who have answered inquiries I have addressed to them: Professor Klaus O. Böhlhoff (Düsseldorf), Professor Richard M. Buxbaum (Berkeley), Professor Ellison Kahn (Johannesburg), Géric Lebedoff (Paris), Professor Ignaz Seidl-Hohenveldern (Vienna), Dr. René J. H. Smits (Amsterdam), Professor Fernando A. Vázquez-Pando (Mexico City), and Professor Reinhard Welter (Mainz), I have sole responsibility for the use I have made of the material and the replies they have supplied.

    I am indebted to Patricio Aranda-Coddou, the Fund’s Law Librarian, and to Amokrane Touami and Garnell Doggett of the Law Library for their invariably willing pursuit and prompt retrieval of material in response to my innumerable requests. They have supplied this material from their own resources or obtained it from many other libraries. I am indebted in addition to the staff of the Fund’s Graphics Section who worked on the production of this volume.

    To Jennie Lee Carter of the Fund’s External Relations Department, who has worked with me on other publications, I express my gratitude for the skill and patience she has again exercised in preparing this volume for publication. One debt that I owe her arises because she has told me quite seriously that she has enjoyed the legal complexities of this volume.

    Finally, I come to Pamela M. Witcher, my Legal Assistant. There is no aspect of this book to which she has not made a contribution. If that contribution is invisible, it has nevertheless been indispensable. For the duties she has performed, even while engaged in promising studies of her own in another discipline, I affirm my admiration and gratitude.

    May 1, 1986


    An international monetary system governed by international law in the form of a multilateral treaty was created for the first time at the Bretton Woods Conference of July 1944. On December 27, 1945, the Articles of Agreement took effect and the International Monetary Fund came into being as an international organization. In the short period of four decades, an enormous increase has occurred in the trade and payments of the world, and not a small share of the responsibility—one could say credit were it not for the appearance of a pun—must be attributed to the Fund. In that short history, however, the Fund and its members have had to face grave vicissitudes, the most recent of which is the problem of external indebtedness.

    In April 1984, a panel of lawyers of diverse nationalities meeting under the auspices of the American Society of International Law considered the topic “Exchange Controls and External Indebtedness: Are the Bretton Woods Concepts Still Workable?” The concepts cannot be reduced to a few simple propositions, even if the reference is to those of the original concepts that have persisted through the three versions of the Articles and have survived the First and Second Amendments, which took effect on July 28, 1969 and April 1, 1978, respectively. Nevertheless, a simplified version of the concepts is desirable as a framework within which to fit the studies included in this volume. These studies examine, as the main subjects for inquiry, exchange control, gold and the SDR as units of account, capital movements, exchange rates, and the currency of judgments. Exchange control predominates in the litigation considered in this volume and raises numerous legal issues, many of them related to the problem of transnational indebtedness. Many of the legal issues of exchange control have not yet been resolved and may remain troublesome for some time to come.


    A concept that has prevailed since Bretton Woods is that the Fund should be both the custodian of a code of monetary conduct binding on member states and the administrator of resources subscribed by them or borrowed by the Fund if subscribed resources prove to be inadequate when abnormal problems develop. To help members observe the obligations that constitute the code, without resorting to measures destructive of national or international prosperity, the Fund makes its resources available for modest (“temporary”) periods. Members buy time as well as resources and use both these assets to overcome or fend off balance of payments problems without being forced into hasty and harmful policies. This concept is admirable but has been hampered by limitations.

    To understand the limitations, it must be recalled that national sovereignty reigned in international monetary affairs in the period before agreement was reached on the Articles. Sovereignty dominated even though balances of payments and exchange rates are by their nature both bilateral and multilateral phenomena. It is not astonishing, therefore, that when agreement was reached on an international legal order for monetary relations among states, and in the few decades since then, the legal order would appear to be a concession in derogation of sovereignty. It is not only governments and their electorates that take this view. It will become apparent from this volume that courts are still influenced by the conceptions of an earlier era in dealing with monetary problems. The pooling of a degree of sovereignty, so that the quid pro quo for the sacrifice by each member is the sacrifice by others, is an attractive idea in the abstract. The idea is less attractive in the practice of states than in political theory because states have unequal power. They perceive themselves to fall into different classes and conclude that the international monetary system does not ensure the symmetrical treatment of them. The pooling of sovereignty is limited, but enough benefit has been achieved to preserve the idea of an international monetary order even when it is subjected to stress.

    The caution with which authority has been entrusted to a central organization in the international monetary system is apparent in many ways. The negotiators of the original Articles distinguished between the external and the domestic policies of a country, and confined the regulatory authority conferred on the Fund to external policies. The distinction was made because of the determination by states to retain sovereignty over domestic policies even though external and domestic policies are interactive. A limited recognition of this interaction was conceded if a member wished to make use of the Fund’s resources in an abnormal amount. The original Articles implied broader scope for the Fund in such circumstances by declaring that the Fund might waive the numerical limits on, or other conditions for, the use of the Fund’s resources “on terms which safeguard its interests.”1 The distinction between the two categories of policies is somewhat less pronounced under the present Articles, but the regulatory authority of the Fund is not as strong as it was under the original Articles.

    The authority of the Fund when making its resources available is more ample than when it acts as the custodian of the code of conduct. The difference can be explained precisely because the Fund is providing resources. The Fund’s transactions with a member are financed with resources made available to the Fund by other members. The prospect that these resources might be used improvidently concentrates the minds of the membership at large on safeguards to ensure that the resources, when put to use, will not be wasted.

    The creation in the Fund of a pool of resources so that, in the general as well as in the individual interest, disequilibria in balances of payments can be headed off or eliminated has not been accompanied by any obligation on the part of a member facing disequilibrium to draw on the Fund’s resources. On the contrary, the Articles have always declared that the initiative for transactions with the Fund rests with the member that needs supplementary reserves to deal with a difficulty in its balance of payments. A member is not required to turn to the Fund if the member can raise resources from commercial banks or other lenders.

    The original Articles provided in effect that, if a member did draw on the Fund’s resources, the member should not throw the full burden of its need on the Fund. A special obligation arose for a member that did not make equal use of its own reserves and the Fund’s resources in any financial year in which the member drew on the Fund’s resources. The member had an obligation to repay the Fund an amount that would bring about an equal use for that year. Furthermore, in any year in which the member’s reserves increased while it was making an outstanding use of the Fund’s resources, the member had to share the increase with the Fund by a sufficient repayment. The formulas under which these results were brought about have been eliminated by the Second Amendment as too rigid in their operation. More flexible provisions have been substituted that require a member to repay the Fund as the member’s balance of payments and reserve position improves.

    The Fund has urged members to apply for the use of its resources in the early days of an approaching or existing balance of payments difficulty. An application to the Fund gives it the opportunity to cooperate with the member in developing an economic program that will achieve a sustainable balance of payments position over the medium term. The conditionality that is necessary to justify use of the Fund’s resources—that is to say, the economic terms on which the resources can be made available—will be less severe if the member’s difficulty is not allowed to deepen before an application is made. The more rigorous conditionality that becomes necessary when there is delay gives the Fund an undeserved reputation for harboring an ideological preference for rigor in all circumstances. This fallacy has had the paradoxical effect in some instances of deterring the timely approach to the Fund that would have avoided the necessity for rigor.

    The Fund’s appeal for early approaches to it became more emphatic as members with access to the financial markets took increasing advantage of that opportunity. Borrowing by governments in the markets for balance of payments financing or for augmenting monetary reserves, sometimes to present the appearance of a strength that would attract further lending, was a new development. The temptation to borrow was intensified by adverse developments in the world economy: recession, mounting prices for energy, protectionism, and unfavorable terms of trade. The resources available in the markets made it easy for borrowers and lenders to find each other, but this mutual attraction diminished once it became clear, with disconcerting suddenness, that the servicing of external debt was placing an untoward strain on the balances of payments of debtor countries.

    In this predicament, many members did turn to the Fund. Its ordinary resources, however, were inadequate to enable it to make a contribution that would not seem too small when measured against the magnitude of members’ problems. Experience had shown that members would not undertake rigorous conditionality in return for assistance that they considered inadequate. The Fund established a policy of providing resources in unprecedented dimensions, but its needs outstripped the increases in quotas, and therefore in subscriptions, that could be negotiated.

    The increases in quotas did not eliminate the need to formulate a policy on the provision of resources expressed in multiples of quota. Subscribed resources were inadequate to finance the expected demands under such a policy. The Fund could perform its role in the international monetary system only by exercising its power to borrow in amounts that were unparalleled in its experience. For the first time in its history, the Fund found it necessary to establish guidelines on the volume of its borrowing.

    Not surprisingly, the difficulties of clients made banks hesitate to increase their exposure as lenders. Developing countries in particular were dismayed by this reluctance because they depend on a steady stream of lending to continue their development or even to avoid retrogression. The Fund could not provide all the resources that members needed, even with the supplementary resources that the Fund was able to borrow. The moral was obvious if the world’s monetary and financial structures were not to be imperiled: the banks as well as the Fund would have to share the burden of financing. The Fund was unwilling to provide resources unless the banks continued to lend in sufficient amounts and were willing to enter into agreements to restructure existing debt. In the past, the Fund had been content to act in the hope, without the assurance, that the banks would fill any financing gap in the balance of payments not filled by the Fund in making its resources available. In the new conditions, the Fund would continue to negotiate programs of economic recovery as the best prospect that all creditors would be repaid, but the banks would have to give assurances that they would continue to lend and would indeed fill the financing gap, while at the same time conceding some relief under outstanding loan agreements.

    To the question whether the Bretton Woods concept of the financial function of the Fund continues to be workable, the answer must be that the concept is sound. The strength of the concept has been demonstrated by the leadership of the Fund when the problem of debt became critical. Only the solution offered by the Fund has proved to be practicable so far. The impediments to a greater effectiveness of the Fund are not inherent in the concept itself.

    Code of Conduct

    The Bretton Woods concepts that are more intimately connected with the relationship between exchange controls and external indebtedness can be summarized in three propositions and in certain qualifications of them. The first proposition is that exchange controls are prohibited if they restrict the financial, or settlement, aspects of current international transactions. These exchange controls may fall into one or more of three categories of exchange measures that are undesirable: restrictions on the making of payments and transfers for current international transactions, multiple currency practices, and discriminatory currency arrangements. The prohibition of these measures promotes various purposes of the Fund. One purpose is the achievement of a multilateral system of payments for current international transactions among members, or the market convertibility of currencies as it is sometimes called. The prohibited measures are forbidden because they impede the multilateral system by interfering with the payments that are made for trade, services, and other current international transactions as defined by the Articles.

    To this first proposition, two qualifications are attached. First, the prohibitions are not absolute. The Articles give members the option of availing themselves of transitional arrangements. Under them, a member may maintain and adapt the restrictions it applied when it entered the Fund, without the necessity for requesting approval until such time as the member is satisfied that it no longer has a balance of payments need for the restrictions. The other qualification is that the Fund may approve exchange measures that are in principle prohibited, and that are not authorized by transitional arrangements, if the Fund finds that a member’s circumstances justify approval. Normally, the justification will be that a member is suffering from a balance of payments difficulty of sufficient severity and that the member cannot impose other measures that would be likely to give equal protection with comparable speed. Because approved measures are derogations from the permanent obligations of members, the Fund grants approval for no more than the limited period that gives the member a reasonable opportunity to overcome its problem.

    The second proposition is that, in contrast to restrictions on the making of payments and transfers for current international transactions, inward and outward movements of capital are subject to the sovereign authority of members, provided that payments for current international transactions are not restricted as a by-product of capital controls. A member is free to impose, or to refrain from imposing, controls on the movement of capital. There is no obligation, for example, to prevent inward capital movements that constitute disequilibrating capital flight from other members. The freedom of members to determine their policies on movements of capital has caused some concern. Proposals to give the Fund some regulatory authority were discussed in the Fund’s Committee on Reform of the International Monetary System and Related Issues (the Committee of Twenty) during 1972 to 1974 after the collapse of the par value system, but agreement was not reached and changes were not made by the Second Amendment. Nor were enabling powers conferred on the Fund to make changes without the need for further amendments by the membership.

    The second proposition is subject to three qualifications. First, the definition of payments for current international transactions in the Articles is an extensive one. It contains, for example, important categories of payments that are connected with external indebtedness. Second, the Fund can exercise considerable influence over a member’s policies and practices, whether they relate to payments and transfers for current international transactions or to capital transfers. A member ceases to be able to obtain further resources from the Fund under a stand-by or extended arrangement if terms of the arrangement are not observed. The right ceases under one standard term if the member introduces or intensifies restrictions, and may cease under another term if the member does not reduce or withdraw restrictions, such as those that are responsible for arrears of payment.

    The problem of external debt has resulted in a record number of stand-by or extended arrangements in concurrent effect. Nevertheless, the Fund’s influence on the policies of members through the administration of its resources is subject to limitations. Influence can be exerted only when members need resources to meet balance of payments problems and decide to approach the Fund for this assistance. Members that have a surplus position in their balances of payments, and therefore in no need of resources from the Fund, cannot be influenced by means of the Fund’s policies on the administration of its resources.

    The third qualification of the proposition is that the Fund may be able to exercise some influence over a member’s policies on the inflow or outflow of capital in the course of the Fund’s surveillance over the exchange rate policies of members. This influence may be possible whether members are in surplus or in deficit in their balances of payments. The function of surveillance was assigned to the Fund by the Second Amendment of its Articles. Under the procedures for surveillance, the Managing Director may conclude that an unsustainable level of official or quasi-official borrowing by a member, or excessive and prolonged short-term official or quasi-official lending, for balance of payments purposes is a signal of the need for a special discussion with the member on its exchange rate policies.

    The third and final proposition in the Bretton Woods concepts is that if a member’s exchange control regulations are maintained or imposed consistently with the Fund’s Articles, the courts of other members must treat certain contracts as unenforceable if they are contrary to the regulations. This proposition is a paraphrase of Article VIII, Section 2(b), the provision of the Articles that above all others has provoked judicial consideration and scholarly debate. A French scholar, discussing the effects of the Articles on private international law, has referred to Article VIII, Section 2(b) as “[l]e cas le plus célèbre, et sans doute le plus obscur.”2 The provision completes the logic of the provisions that authorize exchange control regulations or empower the Fund to approve them. The provision is one of the clearest expressions of the revolutionary character in creating an international community with a shared interest in monetary matters that is called by the Second Amendment, for the first time, the international monetary system. It is submitted in this volume and in its two predecessors that, if exchange control regulations carry international endorsement under the Articles, the efficacy of the regulations should not be undermined by the judicial disregard of them.

    Legal Discord

    Indebtedness and exchange control have helped to create a cacophony of legal doctrines, particularly in the legal system of the United States, but with disharmonies contributed by other legal systems. Variations are played on the themes of act of state, forum non conveniens, sovereign immunity, confiscation, private international law, public policy, ordre public, discrimination, comity, provisions of the Articles, cours forcé, cours légal, and much more. Sometimes these variations are composed to sustain claims and sometimes defenses. A character in Thomas Love Peacock’s Crotchet Castle refers to a particular intellectual discipline, though not the law, as a “hyper barbarous technology,” and the further discussion of logic, meta-physics, and political economy among Peacock’s characters drives Mr. Crotchet to make the plaintive declaration: “The sentimental against the rational, the intuitive against the inductive, the ornamental against the tranquil, the romantic against the classical; these are great and interesting controversies, which I should like, before I die, to see satisfactorily settled.” What would Peacock have thought of the law as an intellectual discipline if he had been confronted with the strident discord of the legal doctrines that are cited on debt and exchange control?3

    The contribution of the Articles to this discord results almost wholly from the efforts of courts, litigants, and authors to understand and to apply, or to resist, Article VIII, Section 2(b). The problems of interpretation of the provision and of its relationship to other rules of law are multitudinous. The courts of members have not reached agreement on the solution of these problems. Sharp differences exist; sometimes disunity exists among the courts of the same member.

    The legal problems are technical and complex, but response to them may be influenced by predilections, including predilections of political economy. Courts may prefer the legal preconceptions of the past to “a measure that results from international legislation on so grand a scale.”4 Courts may favor private rights when they clash with the public interest of other countries, whatever the cost to those countries may be. The courts may be solicited to show this favor on the ground that it serves the wider interest of the international monetary system. The country whose measures are refused recognition may have a different view of what serves the public interest. It will certainly take a different view of what serves its own public interest. Again, a member’s attitude to the measures of other countries in its courts may be difficult to reconcile with its attitude to its own measures in foreign courts.

    A consequence of the confusion of legal technology is that often courts and counsel intentionally neglect Article VIII, Section 2(b). The provision seems to be a quagmire into which one should not venture, or should venture only if all other legal doctrines seem to provide no cogent solution. Some courts that cannot avoid consideration of the provision narrow their interpretations of it to the point at which it will have minimal impact or no impact at all. Commentators have reacted by emphasizing the opportunities that exist for greater legal order if the provision were interpreted more realistically. Proposals have been made for the expansion of the Fund’s functions, or even for the assumption of new functions, that would produce greater legal order by giving vitality to Article VIII, Section 2(b).5

    Courts, when applying traditional legal doctrines and limiting the scope of Article VIII, Section 2(b), are often influenced by nationalistic ideas of the past. Article VIII, Section 2(b) represents a modest effort to recognize the modern and growing interdependence among national economies. The Fund itself was created as an ambitious effort to respond to this development and to promote it for the general welfare. Clearly, interdependence does not justify anything like subservience to the will of other countries. In the field of exchange control, with which much of this book is concerned, a new approach to the exchange control regulations of other members does not mean that the will of the foreign legislator or administrator must prevail whatever the circumstances of the cases may be. There exists an international arbiter, the Fund, which functions under a multilateral treaty that was thoroughly revised in 1978. If courts do not take into account the practice of the Fund on exchange control, an illogical conflict will exist between the will of governments on economic policy, as expressed through the Fund, and the decisions of the courts.

    The issue that emerges, as is shown by this volume, is one of the legal doctrine, or more properly doctrines, of public policy or ordre public. The plural is justified for a number of reasons. The doctrines are not the same in all countries. Sometimes, the doctrines are used as barriers to exclude legal principles and sometimes to justify positive solutions. More than one form of public policy can coexist. Sometimes, decisions are influenced by considerations of policy that are not explicitly attributed to the technical doctrine of public policy.

    Public policy may seek more than one objective at the same time, but these objectives may not be consistent with each other. Governments, working through the Fund, have to choose the objective that is to dominate if the objectives of public policy clash. The choice of the dominant objective can change from time to time.


    Article V, Section 4 (original Articles),

    Phillipe Malaurie, “Le droit monétaire dans les relations privées internationales,” Recueil des Cours, 1978–II (The Hague, 1979), pp. 265–333, at p. 276.

    ”Here I am reminded of something Merleau-Ponty called to my attention. According to Hegel, no one can be normal about money, or take an utterly rational attitude towards it. Money is that, according to the German philosopher, which abnormalizes. According to Merleau, it was from this insight that Simmel deduced some of the most interesting observations in his great book The Philosophy of Money.”— Lionel Abel, The Intellectual Follies: A Memoir of the Literary Venture in New York and Paris (New York: Norton, 1984), p. 167.

    Mann, Legal Aspect of Money, p, 373. “(I]n the more traditional area of conflict of laws, legal orders tend to implement each others’ public policy rules with greater frequency. Art. VIII, 2(b) of the IMF Treaty, and Art. 7 of the EEC Treaty of 1980 concerning the private international law of obligations, illustrate a growing awareness of the interdependence of legal systems.”—Eddy Wymeersch, “Response to Fedders’ ‘Waiver by Conduct,’” Journal of Comparative Business and Capital Market Law (Amsterdam), Vol. 6 (1984), p. 339 (footnote omitted).

    See, for example, Ebenroth, Blinking on Act of State. See also his article, “Rechtliche Probleme bei der Bewältigung der Schuldenkrise: Aktuelle Herausforderungen im internationalen Finanz- und Wirtschaftsrecht,” ZUKUNFT/Malente IV (Lübeck), Vol. 9 (1984).

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