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IMF History (1966-1971) Volume 2
Chapter

(A) An Outline of a Reserve Facility Based on Drawing Rights in the Fund 1 (May 29, 1967)

Author(s):
International Monetary Fund
Published Date:
February 1996
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This outline, which contains the principal elements of a reserve facility based on drawing rights in the Fund and whose resources are separate from those of the Fund, could serve as a basis for a report to be submitted to the Board of Governors for consideration at the Rio Annual Meeting. It reflects comments and suggestions made during recent discussions in the Fund, in the Group of Ten, and in the Third Joint Meeting.

The facility is described in this outline as being established within the framework of the Fund and, therefore, by an amendment of the Fund Articles. This course was followed for illustrative purposes and is not intended to imply a preference for it as compared with the establishment of an affiliate.

I. Establishment of a Reserve Drawing Account in the Fund

An amendment to the Articles will establish a Reserve Drawing Account through which all the operations relating to reserve drawing rights will be carried out. The resources and operations of the Reserve Drawing Account will be separate from the resources and operations of the present Fund which will be referred to as the General Account. Separate provisions will be included in the amendment for withdrawal from or liquidation of the Reserve Drawing Account; Article XVI, Section 2, and Schedules D and E on withdrawal and liquidation will continue to apply as they do at present to the General Account of the Fund.

II. Participants and Other Holders

1. Participants. Participation in the Reserve Drawing Account will be open to any member of the Fund that undertakes the obligations of the amendment. A member’s quota in the Fund will be the same for the purposes of both the General and the Reserve Drawing Accounts of the Fund.

2. Holding by General Account. The General Account will be authorized to hold and use reserve drawing rights.

III. Distribution of Reserve Drawing Rights

1. Record of holdings. All changes in holdings of reserve drawing rights will be recorded in the books of the Reserve Drawing Account.

2. Principles for Decisions. The principles to be taken into consideration in connection with the first and subsequent decision to distribute reserve drawing rights will be included in an introductory provision of the amendment or in a report explaining the amendment.

3. Basic period and rate of distribution, (a) Decisions to distribute reserve drawing rights will prescribe the rate at which they will be distributed annually for a basic period ahead.

(b) Basic periods will be five years in length, but the Fund may decide that any basic period may have a different length. The first basic period will commence on the effective date of the first decision to distribute reserve drawing rights.

(c) The rate at which reserve drawing rights will be distributed annually for a basic period will be expressed as a percentage, uniform for all participants, of Fund quotas on the date specified in the decision.

4. Procedure for decisions, (a) Any decision on the rate of distribution, basic period, and timing of the distribution of reserve drawing rights will be taken by the Board of Governors on the basis of a proposal to be made by the Managing Director. The Managing Director will conduct such consultations as will enable him to ascertain that there is broad support among participants for the distribution of reserve drawing rights at the proposed rate and for the proposed basic period. The Managing Director’s proposal will be considered by the Executive Directors who, if they concur, will transmit it to the Board of Governors.

(b) The Managing Director will make proposals with respect to the distribution of reserve drawing rights (i) normally not later than six months before the end of a basic period, (ii) in accordance with III.5 below, or (iii) within six months after a request that he do so is made by the Board of Governors. The Managing Director will make a proposal for the first basic period when he is of the opinion that there is broad support among the participants to start the distribution of reserve drawing rights.

5. Change in rate of distribution and basic period. If the Managing Director considers that, because of unexpected major developments, a change is desirable in the rate at which further reserve drawing rights are to be distributed for a basic period, he may propose (i) that the rate be increased or decreased or the distribution of further reserve drawing rights be discontinued for the remainder of that basic period, or (ii) that the basic period be terminated and a different rate of distribution applied for a new basic period ahead. Paragraph 4 (a) will apply to such proposals.

6. Voting majority. Decisions of the Board of Governors on the rate of distribution, basic period, and timing of distribution of reserve drawing rights will be taken by a [———] majority of the voting power of the participants, except that decisions to decrease the rate of distribution of reserve drawing rights or to discontinue the distribution of such rights for the remainder of a basic period will be taken by a simple majority of the voting power of the participants.

7. Opting out. (a) Subject to (b) below, participants will be required to receive reserve drawing rights distributed to them.

(b) After reserve drawing rights equal to one half a participant’s quota on the effective date of the amendment have been distributed to the participant, it may elect not to receive reserve drawing rights to be distributed to it under a decision if it did not vote in favor of the decision and if it gave notice of its election prior to the distribution of any reserve drawing rights under the decision.

(c) A participant that has opted out in accordance with (b) above may, by giving notice to the Fund, withdraw its earlier notice insofar as it relates to reserve drawing rights to be distributed after such withdrawal.

IV. Cancellation of Reserve Drawing Rights

The principles set forth in III above relating to the procedure and voting for the distribution of reserve drawing rights will be applicable, with appropriate modifications, to the cancellation of such rights.

V. Use of Reserve Drawing Rights

1. Right to use reserve drawing rights, (a) A participant will be entitled to use its reserve drawing rights to acquire from another participant an equivalent amount of the other participant’s currency, or at the user’s option, of the other participant’s main reserve currency, either directly from the other participant or through the Reserve Drawing Account. A participant which provides currency to another participant, either directly or through the Reserve Drawing Account, will receive an equivalent amount of reserve drawing rights.

(b) Except as otherwise indicated in general rules as the Fund may adopt, a participant will be expected to make gross use of its reserve drawing rights only up to the extent that, over a reasonable period, its other reserves would otherwise decrease. The use of reserve drawing rights will not be subject to prior challenge on this basis, but the Fund may make representations to any participant which, in the Fund’s judgment, has failed to observe this expectation.

2. Provision of currency. (a) Except as otherwise indicated in general rules as the Fund may adopt, a participant may agree to acquire reserve drawing rights by providing currency to any other participant or holder.

(b) A participant will be bound to acquire reserve drawing rights by providing currency to another participant either directly or through the Reserve Drawing Account in accordance with such general and specific instructions as the Fund may issue.

(c) A participant’s obligation to provide currency in accordance with (b) above will not extend beyond a point at which its holdings of reserve drawing rights equal three times the net cumulative amount of such rights distributed to it. However, a participant may provide currency or agree with the Fund to provide currency in excess of this limit.

3. Participants from which currencies are to be acquired. The Fund’s instructions regarding the participants from which currencies are to be acquired by users of reserve drawing rights will be based on the following main general principles, supplemented as the Fund may find desirable from time to time:

(a) Currencies will normally be acquired from participants that have sufficiently strong balance of payments and reserve position, but this will not preclude the acquisition of currency from participants with strong reserve positions even though they have moderate balance of payments deficits.

(b) Subject to (a), the Fund’s primary criterion will be to seek to approach over time equality in the ratios of participants’ holdings of reserve drawing rights to total reserves.

(c) If a participant is making a large and sustained use of the reserve drawing rights distributed to it, the Fund may, after making an appropriate representation to the participant, instruct other participants using their reserve drawing rights to acquire either directly or through the Reserve Drawing Account currency from such participant, even though it is not in a reasonably strong payments and reserve position.

4. Exchange rate. Uses of reserve drawing rights between participants either directly or through the Reserve Drawing Account will be at par against U.S. dollars or, if against the currency of any other member, at the corresponding rate between that currency and the U.S. dollar. The Fund will certify this rate upon request.

VI. Interest

1. Rate of interest. Interest will be credited by the Reserve Drawing Account at a rate uniform for all participants on the amount of reserve drawing rights held by each participant or other holder. The Fund may increase or decrease the rate from time to time.

2. Rate for holdings above limit. The Fund may decide to pay a higher rate of interest to a participant holding reserve drawing rights in excess of the limit prescribed under V.2 (c).

3. Assessment of interest. The interest credited under 1 and 2 above will be assessed against all participants in proportion to the net cumulative amounts of reserve drawing rights distributed to each.

4. Form of interest payments. All payments of interest will be debited or credited by the Reserve Drawing Account in reserve drawing rights.

VII. Functions of Fund Organs and Voting

1. Supervision. The decisions taken with respect to the Reserve Drawing Account, and the supervision of its operations, will be carried out by the organs of the Fund: the Board of Governors, the Executive Directors, the Managing Director, and the staff. Certain functions, in particular the adoption of decisions concerning reserve creation, will be reserved to the Board of Governors; certain other functions will be specifically granted to the other organs.

2. Voting, (a) Decisions on matters pertaining to the Reserve Drawing Account will be taken only by participants. In a vote on a matter pertaining to the Reserve Drawing Account only Governors of participants will be entitled to vote, and Executive Directors will cast only the votes of participants appointing or electing them. Each Executive Director will cast all of these votes as a bloc.

(b) Each participant will have

  • (1) 250 votes

  • plus

  • (2) the greater of either

    • (i) one vote for each part of its quota as of the effective date of the amendment equivalent to $100,000

    • or

    • (ii) one vote for each 50,000 of the net cumulative amount of reserve drawing rights distributed to it;

  • plus

  • (3) one vote for each [———] of reserve drawing rights by which on the average over the preceding [———] years its holdings of reserve drawing rights have exceeded the net cumulative amount distributed to it.

(c) Except as otherwise provided in the amendment all decisions pertaining to the Reserve Drawing Account will be taken by a majority of votes cast.

VIII. General Provisions

1. Collaboration. Participants will undertake to collaborate in facilitating the proper functioning and effective use of reserve drawing rights within the international monetary system.

2. Gold guarantee. The unit of value for expressing reserve drawing rights will be equal to 0.888 671 gram of fine gold. The obligations of participants and of the Reserve Drawing Account can be given an absolute gold guarantee or a guarantee similar to that of Article IV, Section 8 of the Fund Articles.

3. Nonfulfillment of obligations, (a) If the Fund finds that a participant has failed to fulfill its obligations to provide currency in accordance with the amendment, the Fund may suspend the right of the participant to use its reserve drawing rights.

(b) If the Fund finds that a participant has failed to fulfill any other obligation under the amendment or continues to make a large and sustained use of its reserve drawing rights, the Fund may suspend the rights of the participant to use any reserve drawing rights distributed to it subsequently.

(c) Suspension under (a) or (b) above will not affect a participant’s obligation to provide currency in accordance with the amendment.

(d) The Fund may at any time terminate a suspension under (a) or (b) above.

4. Ineligibility to use other Fund resources. Ineligibility to use the resources of the General Account, or any limitation in connection therewith, will not prevent the use of reserve drawing rights.

IX. Settlement with a Withdrawing Member

1. Withdrawal from the Fund or the Reserve Drawing Account. A participant that withdraws from membership in the Fund will be deemed to have withdrawn automatically from both the General and Reserve Drawing Accounts. However, a participant will be permitted to withdraw from the Reserve Drawing Account without also withdrawing from the Fund.

2. Obligations upon withdrawal. Settlement between a withdrawing participant and the Reserve Drawing Account will be accomplished in a manner similar to that provided in the present Fund Articles. If no agreement is reached on a settlement, any net use or net receipt of reserve drawing rights by such a participant will be paid off by it or redeemed by the Fund, as the case may be, over a specified period of years.

X. Settlement on Liquidation

Liquidation will be in accordance with procedures comparable to those in Schedule E [of the Fund’s Articles] and with rules that would distribute the cost of default among participants according to the net cumulative distribution of reserve drawing rights to each participant.

XI. Entry into Force

As an amendment to the Fund Agreement it would enter into force in accordance with the terms of Article XVII of the Articles of Agreement.

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