Chapter

CHAPTER 23 Use of the Fund’s Resources

Author(s):
International Monetary Fund
Published Date:
February 1996
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Author(s)
Joseph Gold

THE POWER TO CHALLENGE

It is in connection with its financial operations and transactions that the Fund has shown the greatest virtuosity and imagination even though the overture began with discord. “For legal purposes it is normally necessary to try to get rid of ambiguities. … In poetry the ambiguities can happily remain.” 1 The negotiators of treaties are sometimes more like poets than lawyers in their drafting. It is possible that the dissonant effect of declaring in Article V, Section 3 (a) that a member is “entitled” to make purchases from the Fund subject to certain conditions, but that one of the conditions is that the member “represents” that the currency is needed and so on, is not fortuitous. The words permitted two understandings of the right to make purchases from the Fund and each had vigorous supporters. One version, based on the word “entitled,” was that, if a member was eligible to use the Fund’s resources, it had the right to make purchases without hindrance if they did not require a waiver under Article V, Section 4. “Drawing rights” were often said to be “automatic” according to this view. The other version, based on the word “represents,” was that the representation that the currency requested “is presently needed for making in that currency payments which are consistent with the provisions of this Agreement” could be challenged by the Fund if it thought the representation to be incorrect in some respect. The acceptance of this second understanding would reduce the need for the Fund to employ the procedures of ineligibility in order to defend the Fund’s resources against an improper use of them. The Fund would be able to challenge the representation made when a member requested a purchase without taking the more disagreeable action of imposing a status on the member which made it ineligible to use the Fund’s resources in general or beyond a limited amount prescribed by the Fund.

A decision in favor of the second understanding of Article V, Section 3 (a) was adopted in May 1947, and, after further examination, this conclusion was confirmed by a decision of March 10, 1948.2 The later decision states that there is a presumption in favor of the correctness of a representation, but that the Fund may challenge any element in it if the Fund has good reasons to doubt its correctness. If the Fund concludes that a representation is not correct, the Fund may postpone or reject the request or accept it subject to conditions. This decision is one of the major influences in the development of the Fund’s law and practice on the use of its resources because in rejecting the theory of “automaticity” the decision opened the way to the tranche policies and “conditionality.”

The power to challenge representations was not a substitute for ineligibility if there were grounds for ineligibility, but no member has ever submitted repeated requests that forced the Fund to declare the member ineligible in order to avoid repeated challenges. In fact, there has never been a decision by the Executive Directors to challenge a representation on the occasion of a request. Members seem to feel that even a challenge would convey stigma, and, therefore, once it became clear that the Fund had the power to challenge representations, there developed the tacit understanding that it was wise for a member to consult the Managing Director before it submitted a request to the Fund. Even Rule G-5 of the Rules and Regulations has become a dead letter insofar as it was intended to facilitate small purchases. One purpose of this rule, which was adopted on February 7, 1947, was to allow members an automatic right to make a limited use of the Fund’s resources by permitting a member to make a purchase without the need for consideration by the Executive Directors if the purchase would increase the Fund’s holdings of the member’s currency by no more than 5 per cent of quota during the thirty days ending with the purchase.

The decision establishing the Fund’s power to challenge a representation when an eligible member requests an exchange transaction was one of a number taken during March 1948 in order to clarify the Fund’s powers to prevent an improper use of its resources,3 but it is not necessary to say more about the other decisions. The central decision was the one affirming the power to challenge, and the uncertainty which it produced about the circumstances in which the power might be exercised, apart from the notice given in the decisions of April 5 and June 4, 1948 on the use of the Fund’s resources by members benefiting under the European Recovery Program, led to an almost complete paralysis in the financial operations of the Fund.

If the decision of March 10, 1948 on the power to challenge representations is a landmark, the decision of February 13, 1952 is the Mount Everest that towers over all other decisions on the use of the Fund’s resources.4 The decision of February 13, 1952 was intended to reinvigorate the Fund by encouraging members to believe that they would be able to use its resources. The decision clarified what the Fund regarded as an appropriately temporary use of its resources; initiated the policy of representations of intention as to repurchase; foreshadowed the stand-by arrangement; and invented the concept of the gold tranche. The discussion will deal with these elements in the decision and then other developments in the Fund’s law and practice on the use of its resources.

TEMPORARY USE AND REPURCHASE

The topics of temporary use and repurchase are related and can be considered together. The word “temporary” in connection with the use of the Fund’s resources does not appear in the original Articles, although there were clear indications that only temporary use was proper. This was inherent, of course, in the idea that the Fund provided an addition to a member’s monetary reserves during periods of balance of payments difficulty. In order to pacify those critics in the United States who feared that the Fund might engage in long-term financing and undermine the lending practices of the World Bank, the United States provided in its Bretton Woods legislation that it would seek an interpretation from the Fund on the proper use of the Fund’s resources, and that it would propose an amendment of the Articles if the interpretation was unsatisfactory.5 This led to the interpretation of September 26, 1946 on the use of the Fund’s resources, on which more will be said later in this chapter, but which, it is sufficient to note here, emphasized that the Fund gave no more than “temporary assistance” in making its resources available.6

There could be no quarrel with that conclusion but it was not specific. What was meant by “temporary”? The Articles did not declare that use must be temporary and, therefore, they did not define what period could be regarded as temporary, but nevertheless there was some evidence of the attitude of the drafters. Article V, Section 8 sets forth a system of charges on the Fund’s holdings of a currency in excess of quota, which increased in relation to both time and amount, and provided that when the rate of charge on any part of those holdings reached 4 per cent per annum the Fund and the member must consider means by which the Fund’s holdings could be reduced. The stage of compulsory consultation might not be reached until seven years had passed after a purchase on which periodic charges were payable, and therefore it was argued by some that the maximum period of temporary use could not be less than seven years. Their view of the Articles was that the repurchase provisions of Article V, Section 7 (b) were a mechanism under which repurchase obligations were to accrue, and if they did not accrue there would then be consultation on the means to reduce the Fund’s holdings under Article V, Section 8 (d), and finally ineligibility could be declared under Article V, Section 5 if a member’s use of the Fund’s resources was so protracted as to be adjudged “contrary to the purposes of the Fund.”

The opponents of this view considered seven years, followed by whatever period was agreed in the consultation for the reduction of the Fund’s holdings, to be too lengthy. Moreover, they were troubled by the fact that the provisions of Article V, Section 7 (b) would not produce repurchase obligations for some members. Obligations under that provision depended on monetary reserves and increases in them. A member’s monetary reserves were defined substantially as the holdings of gold and convertible currencies of its central institutions minus currency liabilities, i.e., the holdings of the member’s currency by the central institutions and other official institutions of other members and by other banks within their territories. A member like the United Kingdom tended to have negative monetary reserves under this formula because its central holdings were less than its currency liabilities. For certain other members, repurchase obligations would not accrue because a large part of their reserves was held in the form of inconvertible currencies which were not included in the calculation of monetary reserves.

Discouraged by the probable ineffectiveness of the repurchase provisions, the U.S. executive director proposed in October 1949 that whenever a member sought to use the Fund’s resources it should undertake to make a repurchase equivalent to its purchase not later than five years after the event. The dissenters argued, correctly, that the “conditions” on which a member could make purchases were set forth in Article V, Section 3 (a) and they could not be added to by fiat. The Articles did not establish a fixed term for use of the Fund’s resources, and this was one of the ways in which the use of the Fund’s resources differed from a loan. The attempt to impose repurchase conditions failed.

A related development was in process at this time. The Fund could not impose repurchase conditions, but could it accept a repurchase that was voluntary because the member was not obligated to make it and the Fund was not obligated to receive it? The question in other words was whether a repurchase could be made by agreement between the Fund and a member. Probably there would have been no dispute about the validity of “voluntary” repurchases in gold, but for a time there was stiff resistance by some to the acceptability of currencies. It was understood that voluntary repurchases would have to be compatible with the concept of repurchase as elaborated in the Articles, and that they could be made, therefore, only in convertible currencies and only to the extent that they did not increase the Fund’s holdings of any member’s currency above 75 per cent of that member’s quota or reduce the Fund’s holdings of the repurchasing member’s currency below 75 per cent of its quota. Nevertheless, it was argued by a minority that voluntary repurchases in this form were unacceptable. In part, the objection was based on a suspicion of the doctrine of implied powers, on which part of the argument for voluntary repurchases rested. This was not the only occasion on which implied powers have been resisted, but this resistance has not prevented them from making their due contribution to the growth of Fund law. However, the objection to voluntary repurchases in currency was based on more than textual or doctrinal considerations. For example, according to one view, it would be advantageous for the Fund to obtain as much gold as possible, and therefore voluntary repurchases in gold should be encouraged by refusing to recognize that they could be made in currency. Another reason for opposition was that the amount of currency that a member would be able to purchase from the Fund would be reduced by voluntary repurchases made with its currency. This consideration was related more to the future operation of the Fund because when the validity of voluntary repurchases in currency was discussed few currencies were convertible and therefore acceptable in repurchase. It was not then as clear as it became in later years that if the Fund receives a member’s currency in repurchase this can be as helpful to the member as an equivalent purchase by it, because it eliminates a claim against the member’s resources. Indeed, the repurchase is a less expensive form of assistance because a repurchase, unlike a purchase, involves no service charge. The lengthy debate terminated with a decision of March 8, 1951 which recognized the validity of voluntary repurchases on the ground that, like repurchase obligations, they promoted the revolving character of the Fund’s resources, and they were not prohibited by any provision of the Articles.7 Again, as in the case of repurchase obligations, a voluntary repurchase could be made in a member’s currency without the necessity for getting the consent of that member.

When the time arrived for ending the Fund’s financial inactivity, it was possible to build on the basis of the decision on voluntary repurchases. The decision of February 13, 1952 relied upon the classic theory of the purpose of the use of the Fund’s resources. It is to give a member the time in which to pursue the policies that will correct its balance of payments problem and thereby enable the member to accumulate resources with which to repurchase. Therefore, the appropriate period of use is one that is reasonably related to the problem for which the member makes its purchase. Some term had to be placed on the period of use, and as there were different views on what it should be, the limping phrase of “an outside range of three to five years” was adopted as a compromise in the drafting of the decision. Lack of style has not impaired its career. It has become firm practice that if the Fund’s holdings of the currency of a purchasing member have not been reduced within three years after a purchase, there must be an understanding under which repurchase will be completed not later than five years after the purchase. Even the paragraph in the decision which was introduced because the new policy was an experiment and which said that the Fund would “consider” some extension beyond five years if “unforeseen circumstances beyond the member’s control” made it “unreasonable” to insist that the member repurchase in accordance with the decision 8 has never been applied, although there have been a few attempts to obtain a longer period. There is a strong feeling that there should be no extensions of the period of use beyond five years, either in particular cases or under general policies, even though from time to time those who would like a longer period recall that the determination of what is temporary is a policy decision. Notwithstanding its strict adherence to the limit of five years, the Fund has permitted a small percentage of members to make an effectively longer use of the Fund’s resources by allowing these members to make new purchases after they have repurchased. Each stand-by arrangement or purchase in the series has required consultation with the Fund on a new program, and in this way the Fund has been able to stay in close contact with members that have had persistent balance of payments difficulties notwithstanding their efforts to solve their problems.

The technique for putting the understanding on temporary use to work, without stumbling over the objection that the “conditions” in Article V, Section 3 (a) are exhaustive, was as follows. The rates of charge on the Fund’s holdings of a member’s currency in excess of quota were altered so that the date for consultation under Article V, Section 8 (d) on means to reduce the Fund’s holdings of a member’s currency would arrive not later than three years after the member’s purchase. When making a request for a purchase, a member would be expected, although not required, to declare that in the consultation the member would agree with the Fund on appropriate arrangements to ensure that the Fund’s holdings would be reduced by the amount of the purchase as soon as possible and not later than five years after the purchase. The “conditions” of Article V, Section 3 (a) did not preclude a representation of intention as to repurchase, and nothing else in the Articles prevented a member from declaring that it intended to make a voluntary repurchase not later than a date that met the test of temporary use. It was never made clear what would happen if a member refused to make the representation of intention as to repurchase. In practice, this representation has been made in connection with all purchases, and, on the rare occasions when it was omitted as part of the request, this was an oversight that was remedied immediately when it was drawn to the member’s attention.

A representation as to repurchase became standard practice very quickly, but the original conception of it has been transformed to a very great extent. It has been seen that a representation of intention as to repurchase is not a “condition” of a purchase, and it does not create an obligation of repurchase in any other way. It is a representation of the member’s intention to make a repurchase in due time. Members began to make these representations at a time when modest uses of the Fund’s resources were foreseen after a period of virtually no use. As the volume of transactions grew under the influence of decisions that gave increasing precision to the Fund’s policies on the use of its resources, it became possible for the Fund to employ certain powers which enabled it to insist on binding commitments with respect to repurchase instead of being content with representations of intention. For example, the Fund can grant a waiver under Article V, Section 4 of the conditions in Article V, Section 3 (a) under which members may make purchases, including the condition of use not in excess of 25 per cent of quota during any period of twelve months.9 It will be seen later that the grant of a waiver permitting use in any period of twelve months beyond this “normal” amount has become common practice. When the Fund grants a waiver, it can impose terms that safeguard its interests, and it invariably makes the repurchase provisions of the decision of February 13, 1952 a term safeguarding its interests. This is not the only way in which repurchase commitments, which differ from representations because they are legally binding, are entered into. For example, when the Fund approves a stand-by arrangement, a term is always included which obligates the member to make a repurchase corresponding to each purchase under the stand-by arrangement, unless the Fund’s holdings resulting from the purchase are reduced in some other way, not later than three years after the purchase. The result, therefore, is that in every case in which a purchase is requested the member makes a representation as to repurchase or assumes a commitment to repurchase if there is a legal basis for an obligation. In view of the frequency with which the Fund now grants waivers or approves stand-by arrangements, commitments are far more common than representations.

These developments in Fund practice represent a transformation of certain features of the original theory of the Fund. For example, the practice on repurchase makes the doctrine that the Fund’s operations are not for a fixed term somewhat unreal. Repurchase representations and commitments do not replace the provisions of Article V, Section 7 (b), to which they can be regarded as ancillary, but there is now a precise final date for repurchase, which may not be obligatory but usually is. Although this practice was first introduced as a result of the initiative of the United States, it has had widespread support for some years, and not merely from the expanding group of members whose currencies are used in the Fund’s operations.

The slogan that the Fund’s resources should be a “second line of reserves” is another example of the divergence between theory and practice.10 It was intended that if a member wishes to use the Fund’s resources in order to meet a balance of payments problem, it should use its own reserves and the Fund’s resources in equal proportions and should not throw the whole burden on the Fund. There is no obligation to make an equal current use, but the object of the repurchase provisions is to bring this about if the member has made a disproportionate use of the Fund’s resources. Subject to certain refinements which need not be recalled here, the repurchase provisions are constructed on the principle that if in any year in which a member, in order to meet a deficit, makes a purchase from the Fund in a greater amount than it uses its own reserves, the member will have a repurchase obligation at the end of that year that will put it in the same position as if it had made that equal use. Moreover, if in any year in which a member is making use of the Fund’s resources it enjoys an increase in its monetary reserves, it will have to share that increase with the Fund, so as to reduce or eliminate its outstanding use of the Fund’s resources. In recent years, for a number of reasons, including the unacceptability in repurchase of both U.S. dollars and sterling because the Fund’s holdings of those currencies were at or above the level of 75 per cent of quota, no more than about one fourth by value of repurchases have been the result of obligations that accrued under Article V, Section 7 (b). All other repurchases have been made in accordance with representations or commitments. This phenomenon, coupled with widespread waivers, means that the concept of the second line of reserves as an equal use of a member’s own reserves and the Fund’s resources has not operated as it would have if the repurchase provisions had been effective on a broad scale. The Fund’s resources have been a second line of reserves in a less precise sense because of the condition that a member must “need” the currency that it purchases, which implies in many cases some reduction in its reserves in the recent past, the present, or the immediate future.

Equally little significance remains in the distribution theory of repurchase obligations as written into the Articles. Article V, Section 7 (b), and Schedule B were drafted on the principle that repurchase obligations should be discharged in the types of reserve assets that constitute monetary reserves in proportion to a member’s holdings, or increases in its holdings, of each type of reserve asset. The rationale of the distribution rules was that reserve assets might not be of equal quality. For example, a currency would still be “convertible” under the Articles even though the Fund approved many restrictions on its use. This consideration led to the interpretative decision under which if part of an obligation had to be discharged under the distribution rules in a member’s currency that could not be accepted by the Fund because its holdings of the currency were already at 75 per cent of quota, that part of the obligation was abated and there was no obligation to discharge it in gold or some other currency that the Fund could accept.11 The drafters thought that if an obligation allocated to a currency which the Fund could not accept had to be discharged by the automatic reallocation of the obligation to another and more usable currency, the distribution formulas would work too inflexibly and perhaps inequitably. Repurchases under representations and commitments are not based on any formulas for distribution among types of reserve assets, and repurchases of this kind may have to be made on occasion because abatement has operated under the fixed formulas of the Articles. The Fund has developed policies, which are discussed a little later, on the currencies in which repurchases should be made under representations or commitments. It will also be seen in Chapter 27 that the principle of abatement has been abrogated under the amendments, but there will be no automatic redistribution of any repurchase obligation that is distributed to an unacceptable currency. The greater flexibility that developed in practice has been preferred, and the new rule is that the Fund will determine the convertible currencies in which the obligation is to be discharged.12

WAIVERS

In the discussion of repurchase there was a reference to the Fund’s practice on waivers under Article V, Section 4, and an excursus on that subject will be useful before stand-by arrangements are considered. Under Article V, Section 4, the Fund has the discretion to waive any of the conditions governing use of the Fund’s resources, and it may grant a waiver on terms which safeguard the Fund’s interests. The provision declares that the Fund may grant a waiver especially in the case of members with a record of avoiding large or continuous use of the Fund’s resources. In making a waiver, the Fund is to take into consideration “periodic or exceptional requirements” of the member requesting the waiver. Although the Fund is not required by the provision to confine waivers to members that avoid a large or continuous use of the Fund’s resources or to members that have periodic or exceptional requirements, the drafters undoubtedly thought that waivers would be unusual. In particular, they regarded the condition limiting use of the Fund’s resources in any period of twelve months to 25 per cent of quota as an indication of the “normal” rate of use of the Fund’s resources. The Fund has not developed in accordance with these expectations. The first waiver of the 25 per cent limit was not granted until August 1953, but it is now granted with great frequency. It is still uncommon for the Fund to waive the limit of 200 per cent on its total holdings of a member’s currency, but there is evidence of an attitude towards the waiver of that limit also which is different from that of the drafters. For example, in the decision on the compensatory financing of export fluctuations, the Fund has announced in advance its willingness to waive the latter limit in order to make the decision workable.13

The almost routine grant of waivers suggests that it would be possible to realize the expectations of the drafters in connection with waivers only if all quotas were considerably larger. A general increase in quotas of 50 per cent was approved in February 1959 and a further increase of 25 per cent in March 1965. These general increases, together with numerous increases in individual quotas throughout the life of the Fund, have expanded total quotas from under $8 billion to the equivalent of approximately $21 billion, but this has not led to a diminished grant of waivers.14 The effect of the size of quotas and resources on the development of the Fund is not confined to waivers. The General Arrangements to Borrow and all that has followed on that decision are other consequences. This may be true also, at least to some extent, of other forms of financing balance of payments difficulties that have been negotiated outside the framework of the Fund. Some of these are now recognized by the amendments to the Articles.15

The Fund has been modest in its recourse to terms safeguarding its interests when granting waivers. The only terms that it has imposed, apart from the rare exceptions mentioned in the next paragraph, have dealt with repurchase. Whenever a member receives the benefit of a waiver, it is required to undertake a commitment to repurchase either as a term under the waiver provision or as a term in a stand-by arrangement.

Under Article V, Section 4 a further consideration that the Fund is to take into account when deciding whether to grant a waiver is “a member’s willingness to pledge as collateral security gold, silver, securities, or other acceptable assets having a value sufficient in the opinion of the Fund to protect its interests” and the Fund may require “the pledge of such collateral security.” There has always been resistance to the idea that the Fund should relax the standards of its tranche policies merely because of a member’s willingness to give security. In addition, the Fund has drawn back from the prospect that, if a pledgor could not repurchase because of continuing difficulties, the Fund would have to decide either to pursue its remedy against the pledged property or, by foregoing its remedy, admit that the pledge was an illusory security. For these and other reasons, the Fund has shown no more than a glimmer of willingness to accept collateral. There have been only three decisions by the Fund to accept gold collateral, and one of them was abortive. It is interesting, however, that one of the cases did not involve a waiver but rested on the proposition that the Fund and a member could agree on the pledge of collateral in any circumstances. As a result of the reaction to some of the features of these three cases, the Fund adopted a general decision on July 1, 1963 which declared that it would be willing to enter into a gold collateral transaction in exceptional circumstances if this would promote the purposes of the Fund and give the member time to work out a program in consultation with the Fund. Certain restrictive conditions were established in order to enforce this objective, including the condition that normally the transaction would not be outstanding for more than six months.16 There has been no transaction in which this decision has been tested.

The Fund itself, however, has given a negative pledge. When the General Arrangements to Borrow were being negotiated the participants feared that the Fund’s liquidity would be enhanced unduly by its receipt of the currency of the participant in an exchange transaction made possible by a loan to the Fund. The Fund might then use that currency in transactions with other members, including nonparticipants. The Fund could not agree that some of its holdings could not be used in its operations, but it was a legitimate use to retain adequate satisfactory resources with which to repay its creditors. It is, therefore, a term of the General Arrangements to Borrow that the Fund shall not reduce its holdings of the currency of a participant below the amount that the Fund has borrowed under the General Arrangements to Borrow in order to finance a transaction with the participant.17

STAND-BY ARRANGEMENTS

The stand-by arrangement is the most original instrument of financial policy that the Fund has created. It is wholly an invention because no suggestion of it can be found in the Articles. Among the forces that produced it, as well as the tranche policies, were the affirmation of the Fund’s power to challenge representations when members request the use of the Fund’s resources, the absence of any clear definition of the circumstances in which there might be a challenge, and the Fund’s determination early in 1952 to end its financial inactivity. The possibility of the stand-by arrangement was suggested, therefore, as a technique by which a member could be given an assurance that it would be able to make purchases not going beyond a prescribed limit during a defined period. The essential characteristic of a stand-by arrangement is that a member is given the assurance that it will be able to use the Fund’s resources without any further review of its position and policies. This assurance means that there will be no challenge of a representation when there is a request to make a purchase under a stand-by arrangement, because it is a review which shows whether there is the basis for a challenge.

The idea imbedded in the decision of February 13, 1952 germinated in the first general decision on stand-by arrangements of October 1, 1952, and it has flourished with ever increasing vigor under the four major decisions of December 23, 1953, April 27, 1959, February 20, 1961,18 and September 20, 1968. Each decision has been taken after a period in which it had become apparent as the result of experience that the stand-by arrangement could be made to serve the interests of members and the Fund even more effectively than it already had. There has been and continues to be great scope for the adaptation of policy on stand-by arrangements without running athwart the Articles.

There is no need to resume the stages by which the stand-by arrangement has been improved to the point of its present flexibility and variety. A few general reflections on its intricate history are appropriate, however, in a survey of development and change. The first comment must be that the concept of the stand-by arrangement has undergone a complete metamorphosis. Originally, it was considered as something in the nature of a confirmed line of credit that gave a member an absolute right to make purchases subject only to those provisions of the Articles on ineligibility and the general suspension of operations that were lex cogens and therefore necessarily applicable. At the present date it has become the main instrument for conditionality, and, in particular, for making the Fund’s resources available beyond the first credit tranche only if the member observes certain policies. Annexed to each stand-by arrangement is a letter of intent from the member’s authorities in which they set forth the program they will pursue. The stand-by arrangements that permit purchases beyond the first credit tranche include performance clauses establishing criteria on the non-observance of which the member’s right to make purchases under the stand-by arrangement will be interrupted without the need for a decision by, or even notice to, the Executive Directors. Performance criteria are invariably objective in character, in the sense that a subjective judgment is not necessary in order to ascertain whether they are being observed, with the result that a member will know at all times whether it is able to make purchases. The movement, therefore, has been from the assurance of use without the review of requests to the definition of the circumstances in which there is assured use without review. It is still proper to speak of assured use because no evaluation is necessary in order to determine whether performance criteria are being observed. No subjective judgment is necessary to determine whether, for example, a limit on credit has been transcended or a restriction on payments and transfers for current international transactions has been introduced. Therefore, if a member is unable to make purchases under its stand-by arrangement, it will not be able to complain that its legitimate expectations have been frustrated by a surprise decision of the Fund.

There are a number of reasons why the stand-by arrangement has been transformed into an instrument of conditionality. One reason has been the willingness of the Fund to take into account the fact that quotas are less than they might be and therefore to allow members to make a large outstanding use of the Fund’s resources in terms of quota, provided, however, that there are adequate safeguards that the use will be proper. The continuous refinement of protective clauses in stand-by arrangements providing for consultation, review, and performance has made it possible to protect the Fund’s resources against improper use. This should not be understood to mean that the provisions of stand-by arrangements have become progressively stricter for members with each development in the Fund’s policies on stand-by arrangements. On the contrary, a dominant theme in the history of these arrangements has been an equitable reconciliation of the assurance to members that they will be able to use the Fund’s resources with the assurance to the Fund that use by members will be consistent with the Articles and the policies of the Fund. Great care has been taken to ensure that the balance between the two assurances is not disturbed by being tilted unfairly in either direction, with the result that there have been changes in policy that were designed to reduce the severity of certain protective clauses. For example, the Fund does not insist on performance criteria for purchases in the gold tranche or the first credit tranche, and the “prior notice” clause, which was in common use at one time and which enabled the Fund to interrupt the right to make purchases under a stand-by arrangement on the basis of its subjective judgment of performance, has been banished since February 1961. More recently, in September 1968, the Fund has decided that the number of performance criteria affecting purchases beyond the first credit tranche should be confined to those that are truly necessary for determining whether the objectives of the member’s program are being achieved.

It must not be assumed that the stand-by arrangement could have become an effective instrument of conditionality without the support of members. It is true that from time to time there have been debates leading to a revision of policy in order to strike a more acceptable balance between the two basic assurances and between the desiderata of flexibility in dealing with the idiosyncrasies of particular cases and the uniform treatment of all members. The stand-by arrangement has had the endorsement of members since its conception, and the Fund’s efforts to improve the efficacy of the instrument have had the same response. The Fund’s approval of a stand-by arrangement is commonly regarded by other sources of finance as a seal of approval on the member’s program as set forth in its letter of intent, although it should be understood that the standards for this judgment depend upon the amount in terms of tranches that is made available by the stand-by arrangement. Other lenders, international, governmental, or private, often await the Fund’s decision to approve a stand-by arrangement before entering into their own financial arrangements with the member, sometimes in a total amount exceeding the amount that the member can purchase under the stand-by arrangement. This is one of the reasons why most of the exchange transactions of the Fund now take place under stand-by arrangements and they account for the larger proportion by value as well. Moreover, there are cases in which stand-by arrangements are approved although there is no great likelihood that any purchases will be made under them. Sometimes a member fears that it is not the presence of a stand-by arrangement but its absence that may be interpreted as a criticism of the member’s program. This is an unexpected form of testimony by some members to the success of the Fund’s erstwhile campaign to encourage a more routine use of the Fund’s resources in order to dispel the impression that members resort to the Fund only in a crisis. Now, if one or another member is reluctant to use the Fund’s resources the reason is less likely to be the fear that the public will be alarmed than the reluctance of the member to measure its program against the Fund’s tranche policies.

The stand-by arrangement has become the main instrument by which the Fund makes a practical contribution to the adjustment process because all stand-by arrangements are approved on the basis of a letter of intent in which the member sets forth its policies after they have been discussed with the representatives of the Fund. The legal character of the stand-by arrangement and letter of intent as clarified by the Fund is itself evidence of the responsiveness of the Fund. In its letter of intent a member states the program that it will pursue during the period of the stand-by arrangement. The stand-by arrangement is the Fund’s decision which prescribes the terms on which the member may make purchases consistently with the Articles, including those specific or quantified policies, targets, or ceilings that are to be performance criteria, i.e., the criteria that the member must observe in order that there will be no interruption of its right to make purchases. There are many reasons why a member may not be able to observe a performance criterion, and sometimes the circumstances responsible for non-observance may be beyond the member’s control. The Fund has made it clear that a letter of intent does not have contractual effect, and the non-observance of a performance criterion is not the violation of an international agreement. If a member fails to observe a performance criterion, its access to the Fund’s resources under a stand-by arrangement will be interrupted not because it is breaking a contractual commitment but because the Fund has decided in the stand-by arrangement that the non-observance may result in an improper use of the Fund’s resources and therefore that there should be consultation with the Fund to determine the circumstances in which further purchases may be made. This analysis is consistent with the disposition of the Fund to avoid actions that may harm the reputation of members. The analysis has made it easier for members to formulate effective programs and accept performance clauses as a basis for access to the Fund’s resources. The stand-by arrangement is a wholly original contribution to international finance and international monetary law.

THE GOLD TRANCHE

One of the main purposes of the decision of February 13, 1952 was to give members the maximum assurance that was possible under the Articles that they would be able to make certain purchases without challenge. The purchases for which there was the strongest case were those that would not raise the Fund’s holdings of a member’s currency above its quota. These purchases would not exceed the net contribution in economic terms that the member had made to the Fund because they would be no more than the member’s gold subscription and the net use of the member’s currency by the Fund in its operations and transactions. In the first instance, the amount of this contribution was equal to the member’s gold subscription, and for this reason it was called the gold tranche. The Fund could not bind itself validly to surrender the right to challenge the representation of a member requesting a transaction, but in order to convey the idea that a challenge was highly unlikely in practice, even though it remained possible in law, the decision informed members that they could count on “receiving the overwhelming benefit of any doubt” if they requested gold tranche purchases. The concept of “adequate safeguards” in Article I (v), under which the Fund makes its resources available, enables it to graduate safeguards according to financial risk. For gold tranche purchases, the Fund could adopt minimum safeguards because its risk would not exceed the member’s own net economic contribution to the Fund.

The gold tranche policy thus began as an attempt to encourage a limited use of the Fund’s resources, but from this modest origin it has developed into yet another original contribution to international monetary law and financial arrangements. Once the Fund had formulated its full tranche policies and had become an active financial institution, the gold tranche policy ceased to be an experimental first step in the use of the Fund’s resources. The Fund and many of its members began to see in the gold tranche a facility that could be treated as a reserve asset under central bank statutes or at least in the public presentation of a member’s reserves. One advantage of this treatment of the gold tranche was that it would counteract the decline in reserves that would follow from the payment of a gold subscription to the Fund or from the Fund’s sale of a member’s currency and the member’s conversion of it into a reserve currency. The latter effect would have special importance in connection with the Fund’s efforts to bring about the use of a broader range of currencies in its transactions.

The Fund urged its members to regard the gold tranche as an asset, notwithstanding an occasional resistance provoked by the novelty of the idea, and did what it could to emphasize the asset-like character of the gold tranche. In order to facilitate gold tranche purchases, the Fund refrained from making an examination of the member’s policies as it did in the case of purchases beyond the gold tranche, and on August 3, 1964 the Fund adopted a further simplification of procedure for dealing with requests for gold tranche purchases. They were not placed on the agenda of the Executive Directors, unless there was a prompt call for discussion, and arrangements were made for an accelerated transfer of currency.19 There remained, however, certain shortcomings of the gold tranche in the view of some members. Although in practice it had the quality of ready availability, often described as “de facto automaticity” or “virtual automaticity,” it could not be given this quality de jure. It had to remain subject in principle to the possibility of challenge, although it was never necessary for the Fund to clarify in what circumstances it would feel constrained to challenge a representation because even the overwhelming benefit of any doubt would not be an adequate presumption of propriety. The legal possibility of challenge was not the only shortcoming. It was pointed out that, in addition, the gold tranche policy could be abrogated because it was no more than a policy, and again it was not a formal rebuttal of the objection to aver that this was unlikely to occur. These criticisms of the gold tranche became more troublesome as the Fund sought to promote a policy on the use of an increasing number of currencies in its transactions, one result of which would be to produce gold tranches for more members. There was some sympathy for a more solid legal foundation for the gold tranche even before the principle of amendment was accepted at Rio de Janeiro, and it is not surprising, therefore, that a number of the amendments concentrate on the legal status of the gold tranche and its characteristics. Under the amendments, representations by a member when requesting gold tranche purchases will be immune from challenge by legal prescription, and the gold tranche will enter yet another stage in its evolution.

The Fund’s success in achieving widespread recognition of the gold tranche as a reserve asset even before the proposals to amend the Articles led it to make a similar effort in connection with the claims of its creditors to repayment under loan agreements negotiated by the Fund in order to replenish its holdings of currencies. The terms of the General Arrangements to Borrow 20 and the bilateral loan agreement with Italy 21 provide that if before the due date for repayment a lender gives notice to the Fund representing that it has a balance of payments need for repayment, the Fund will give “the overwhelming benefit of any doubt” to the representation and will make prompt repayment. Members lending to the Fund under these agreements have concluded that the characteristics of their claims to repayment warranted recognition of them as reserve assets. It will be seen later that once again the reserve character of these claims will have legal endorsement under the amendments to the Articles.

CREDIT TRANCHE POLICY AND COMPENSATORY FINANCING

The Fund’s policies for the use of the “credit” tranches, i.e., for members’ purchases beyond the gold tranche, developed after 1952 on the legal basis of the Fund’s power to challenge representations and the concept of adequate safeguards. By 1955 the Annual Report could state the policy for the first credit tranche and by 1957 the Annual Report could formulate the policy for the higher tranches.22 These declarations are the framework within which the Fund supports the policies of members by making its resources available as conditional liquidity. Members have come to recognize the credit tranche policies as applied to both purchases and stand-by arrangements as more than the safeguards by which the Fund attempts to protect its resources against improper use. In a world in which the adjustment process is still largely unregulated by international agreement, the credit tranche policies perform part of the task, although only for members in balance of payments deficit.

The greater part of the financial activity of the Fund is now conducted under its credit tranche policies, but the Fund has been prolific in establishing more specialized operations. Although the Fund still subscribes to the doctrine that its financial operations are entered into for the purpose of assisting members to overcome difficulties in the balance of payments taken as a whole, the Fund has felt that this did not prevent it from identifying the specific character of the difficulty and providing assistance more closely related to the difficulty.

The compensatory financing facility is one of the results of this approach that deserves special notice not only because of the intrinsic interest of the facility but also because it has had an effect on the amendments to the Articles. On February 27, 1963 the Fund adopted a decision under which it declared its willingness to assist all members, but particularly primary producers, by compensating them for temporary shortfalls in their export receipts that were largely attributable to circumstances beyond their control. The Fund had been making its resources available to members suffering from these difficulties under its tranche policies but now it was prepared to give special assistance. Compensation was to be limited normally to 25 per cent of quota and was to be additional to the amounts that a member could purchase under the tranche policies. For purchases under the new facility special criteria were prescribed that were less severe than those that applied to the credit tranches or at least the higher credit tranches.23 On September 20, 1966 the facility was liberalized in amount and in other ways,24 one of which was the introduction of the “floating” feature. Under the earlier policy, the compensatory financing facility was not separated from the ordinary tranches, with the result that a purchase under the facility might exhaust the gold tranche or the first credit tranche as well and thus deprive the member of the opportunity to make other purchases under the relaxed criteria that apply to those tranches. The revised policy introduced an original development in Fund practice by providing that the facility was to exist alongside the ordinary tranches without overlapping them, so that purchases under the facility would not affect the tranches. The facility has been given statutory recognition in a form that will be mentioned later.

USE OF RESOURCES FOR CAPITAL TRANSFERS

On September 26, 1946 the Executive Directors adopted an interpretation in response to a request made by the Governor for the United States in accordance with the U.S. Bretton Woods Agreements Act.25 The question was drafted somewhat infelicitously and seemed to ask whether the Fund’s authority went beyond the financing of deficits on current account to the length of meeting a large or sustained outflow of capital. The reply to the question was that “authority to use the resources of the Fund is limited to use in accordance with its purposes to give temporary assistance in financing balance of payments deficits on current account for monetary stabilization operations.”26 This appeared to exclude all possibilities for the use of the Fund’s resources in respect of an outflow of capital under Article VI (“Capital Transfers”). Section 1 (a) of that Article declares that a member may not make net use of the Fund’s resources to meet a large or sustained outflow of capital, and Section 1 (b) provides that this rule does not prevent the use of the Fund’s resources for certain capital transactions of reasonable amount. According to these provisions, therefore, it would seem that the Fund’s resources could be used to deal with difficulties created by a capital outflow that was not large or sustained or by certain specified capital transactions of reasonable amount.

There was no doubt that the drafters had placed primary emphasis on the financing of deficits on current account but they had left room in Article VI for the financing of difficulties caused by capital transactions in certain circumstances. The interpretation of September 26, 1946 had not been applied so as to preclude this form of financing, and indeed it gave so little difficulty that virtually no reference was made to it in the Fund’s conduct of its operations. By 1961 widespread convertibility had been restored for the currencies of members that had major roles in world trade and payments and this movement had been accompanied by a freedom for exchange markets that permitted great mobility for capital movements. This probably involved a greater freedom for capital movements than the drafters had expected. They had assumed that capital transfers would be suppressed by controls if they became troublesome, and this assumption was carried to the point of empowering the Fund to call for capital controls in certain circumstances. The view which developed, however, was that greater freedom was beneficial and would bring about a greater integration among markets, even though there were dangers of disequilibrating movements. As a result, the Fund has never exercised its power to call for capital controls.

Greater permissiveness for capital movements made it more difficult to decide contemporaneously to what extent payments problems were in the current or in the capital account. In these circumstances, it became advisable to ascertain the exact effect of the 1946 interpretation. Studies of the legislative history of the Articles confirmed what seemed apparent from the text of Article VI: use of the Fund’s resources for capital outflows was not proscribed if the outflows were not “large or sustained.” These terms were not self-executing, and in the application of them the Fund could take a number of factors into account, including the resources, whether subscribed or borrowed, available for its transactions and its continued capacity to help members deal with deficits on current account. Certain special difficulties might have arisen if it had been necessary to rescind or amend the interpretation, but it was decided ultimately that a clarification would suffice because it could not have been intended that the interpretation should reject what seemed so clear on a reading of Article VI. On July 28, 1961 the Executive Directors decided “by way of clarification” that the interpretation of September 26, 1946 “does not preclude the use of the Fund’s resources for capital transfers in accordance with the provisions of the Articles, including Article VI.” 27

The clarification did not initiate use of the Fund’s resources to meet difficulties occasioned by capital transfers. That kind of use had already occurred. It is probable, however, that it has led to a greater volume of use for this purpose than would have occurred without provoking the anxiety that this could not be defended under Fund law. The reason for this in large part is that the General Arrangements to Borrow became effective on October 24, 1962 “in order to enable the … Fund to fulfill more effectively its role in the international monetary system in the new conditions of widespread convertibility, including greater freedom for short-term capital movements.” 28 The participants in the General Arrangements to Borrow stand ready, in accordance with the terms of the General Arrangements, to make their currencies available to the Fund to supplement its resources for financing the exchange transactions of these members in order to deal with their balance of payments difficulties, including, but not limited to, those produced by short-term capital movements.

THE WIDER USE OF CURRENCIES

The last of the leading decisions on the use of the Fund’s resources to be considered here is the decision of July 20, 1962 entitled “Currencies to be drawn and to be used in repurchases.” 29 It is a decision approving a statement that sets out “what may be regarded as appropriate practices to be followed for the time being.” The tentative note in this language reflects the novelty of the synthesis that was being attempted. Nevertheless, the statement has not been amended since it was adopted, although, as in the case of most important declarations of policy, it has become the nucleus around which conventions and procedures are constantly forming.

For ten years or more, almost all purchases from the Fund were of U.S. dollars, but in 1958 the Fund began to suggest that other currencies might enter into its transactions. As the deficit in the balance of payments of the United States continued, it became less justifiable to concentrate on the dollar in the Fund’s exchange transactions with other members while the United States itself was reluctant to use the Fund’s resources. If the United States had been more willing to purchase the currencies of other members, it would have been possible to continue to sell substantial amounts of dollars to other members. This procedure would have produced fewer problems in applying the provisions of the Articles. With the reluctance of the United States to resort to the Fund, it became necessary to sell non-reserve currencies to other members. This process was encouraged by the de facto convertibility of many European currencies and the protracted payments difficulties of both of the main reserve currency countries. The practices that grew up in the period after 1958 were the main content of the decision of July 20, 1962.

A policy of a wider use of currencies in Fund transactions had to be considered in relation to Article V, Section 3 (a) (i), which speaks of the sale of a currency that is needed by the purchasing member for making payments “in that currency.” The language could be read to mean that a member is entitled to purchase the currency that the member needs to support its exchange market or that its residents need in order to make international payments. On this view, the member would be able to purchase its intervention currency or the currency demanded by payees, which might be the intervention currency in its role of transactions or “vehicle” currency. This version would preclude the sale by the Fund of currencies that would have to be converted by the currency issuer for the benefit of the purchasing member. In reply to this view, it was argued that in a regime of widespread convertibility a member could be said to need any currency that would be converted in order that the proceeds could be put into the market. There was, however, a different approach to the provision which did not require the elucidation of its language. Whatever the words “for making in that currency payments” meant, the Fund could waive them as one of the conditions that were subject to waiver under Article V, Section 4, and in this way the Fund could eliminate any restrictive effect of the words on the sale of currencies. The choice between these theories was never formally settled. It was sufficient that the sale of currencies that would be converted by the currency issuers into a reserve currency for the benefit of purchasing members could be defended under the Articles. Moreover, the question whether there is an obligation on a member to convert its currency for the benefit of a purchasing member also has been left unresolved. Members have been willing to convert their currencies in the conviction that a policy of collaboration of this kind benefited the whole membership of the Fund. The evolution of procedures satisfactory to members for consulting them on the use of their currencies has encouraged the collaboration on which the wider use of currencies depends.

The decision of July 20, 1962 rests on the principle that the selection of currencies for use in the Fund’s transactions should be based on the balance of payments and reserve positions of members as well as on the level of the Fund’s holdings of their currencies. The Fund seeks to maintain an equitable proportion among members in the sale of their currencies, but the motive for this now is not so much equality of sacrifice as the fair distribution of a reserve asset resulting from Fund transactions, the gold tranche. It is a desirable asset because it is guaranteed as to gold value and to some extent carries remuneration.

It is now standard practice for a member contemplating a purchase to consult the Fund on the currency or currencies it should select. A similar practice has become established in connection with the choice of currencies to be used in repurchases that do not accrue under Article V, Section 7 (b), and the decision of July 20, 1962 includes criteria for this purpose also. The impact of the decision has extended even beyond the wider use of currencies in purchases and repurchases because the criteria which it established have affected the drafting of the provisions of the General Arrangements to Borrow on the selection of the currencies that should be lent to the Fund to supplement its resources and, more recently, the drafting of the amendments on special drawing rights.

The practices that are described in the decision of July 20, 1962 and that have grown up under it have had a fundamental effect on the operation of the Fund. These practices have made it possible for members to give assistance through the Fund whenever their position warrants this, and to give assistance on a multilateral basis that eliminates any need to link deficits and surpluses bilaterally. Another result is that to a large extent the subscription paid by a member in its currency has become a token of the reserve currency, or even gold, into which the member will convert its currency for use by purchasing members.

The policy has had another interesting effect. The drafters of the Articles were worried that the traditional practice by which trade and payments are conducted largely in a few transactions currencies might lead to the immobilization of the Fund’s holdings of many or even most currencies.30 For example, a member might require that payments to it or to its residents be made in dollars, with the result that the Fund’s holdings of the member’s currency would not be in demand from the Fund for making payments to it. At the same time, there might be additional pressure on the Fund’s holdings of U.S. dollars because other members might have to purchase dollars for making payments to the member or its residents. A member is free to prescribe the currency in which payments must be made to the member or its residents. This is not a restriction on the making of payments and transfers. The drafters did not want to interpose any impediment to the traditional use of transactions currencies, and so they adopted a special, although partial, solution for the effect that this practice might have on the Fund’s currency holdings. They imposed an additional repurchase obligation on a member that required payments to be made in a “third” currency if it was itself using the Fund’s resources. A formula was adopted under which the proceeds of transactions which a member had received in a third currency had to be used for the repurchase of that member’s currency from the Fund even beyond the standard repurchase obligation if that obligation did not reduce the Fund’s holdings to 75 per cent of the member’s quota.31 But this was a case in which the drafters’ reach exceeded the administrators’ grasp, because no way was found by which the provision could be made to work. The Fund’s policy on the wider use of currencies in its transactions provides a more satisfactory solution. If a member is in an economic position that justifies the use of its currency under the decision, other members can purchase the currency for conversion by the member into its reserve currency and they can use that currency for making international payments. Moreover, these sales by the Fund of the member’s currency can be more extensive than the member’s repurchases. A member cannot reduce the Fund’s holdings of its currency below 75 per cent of quota by repurchase, but the Fund can sell any of the member’s currency which it holds without observing that or any other limit.

It is convenient to refer here to another financial provision that has been dormant most of the time, although it has not become a dead letter. This is Article VIII, Section 4, which created a new form of convertibility. If a member undertakes the obligations of convertibility under the Articles it must convert balances of its currency that are presented to it by the monetary authorities of another member if the balances were recently acquired as the result of current transactions or their conversion is needed for making payments for current transactions. The currency issuer may choose to make the conversion with either gold or the currency of the other member, but the currency issuer will not be obligated to make a conversion unless it is entitled to purchase the currency of the other member from the Fund. This was a new form of convertibility because it is convertibility through the Fund on the theory that if the currency issuer purchases from the Fund the currency of the holder of the balances, the extent to which the latter will be able to make purchases of currencies from the Fund will be increased correspondingly. The provision is based on the assumption of a bilateral balancing of payments that has not occurred among members having convertible currencies.32 With the restoration of free exchange markets, most conversions take place in the market on an even broader scale than is required by Article VIII, Section 2 (a), under which members must refrain from restricting payments and transfers for current international transactions. In the result, there has been only one occasion on which there was an overt reference to Article VIII, Section 4 as the basis of a transaction. This was a sale by the Fund in August 1966 of lire to the United States in an amount equivalent to one quarter of a billion dollars in order to enable it to convert dollars held by Italy. The sale was contemporaneous with an equivalent loan of lire by Italy to the Fund.

The Fund’s policy on the selection of the appropriate currencies for its exchange transactions has not departed from the drafters’ theory of a “passive” Fund. The main expression of that theory is Article V, Section 2, which places a “limitation on the Fund’s operations” by declaring that, except as otherwise provided in the Articles, the Fund’s operations are to be confined to transactions for the purpose of supplying a member, “on the initiative of such member,” with the currency of another member in return for gold or for the purchasing member’s currency. Under this provision, the Fund cannot initiate an exchange transaction, either with a member or in the market. Under the policy on the selection of currencies, the Fund does not initiate exchange transactions, but it is the active party in indicating the currencies that are to be purchased in transactions initiated by members.

Another effect of Article V, Section 2 is that the Fund cannot sell currency A to member A in return for currency B, except under the repurchase provisions, if, for example, the Fund wishes to acquire currency B because member C wishes to purchase it from the Fund. Under the Fund’s policy on the selection of currencies, however, the Fund has been able to sell currency A to member C and member A has converted currency A into currency B for the benefit of member C. In this example, it is assumed, of course, that currency B is a reserve currency of A and needed by C. Because the conversion is not carried out in a direct operation with the Fund it need not be made at the par values.33 Once there is a departure from par values, however, the question of the ultimate value received by the purchasing member C arises, and this consideration has not been absent in the selection of currencies under the policy. The experience with exchange rates in conversions under the policy has been taken into account in the drafting of the provisions dealing with special drawing rights. In transactions between participants in the special drawing rights facility, currency is not provided at the par value, and the exchange rates that are used must be such that the transferor of special drawing rights receives the same value whatever the currencies that are provided.34

A BACKWARD GLANCE

In retrospect, there seem to have been two major and related themes in the evolution of the Fund’s practice on the use of its resources. The first has been the development of the two forms of liquidity, conditional and unconditional, that the Fund makes available to its members. Once it was accepted that the Articles give the Fund a power to challenge the representation made by a member when requesting the use of the Fund’s resources, it became desirable to encourage members to use the Fund’s resources by creating the concept of a gold tranche that was to be available as nearly automatically as possible. Because of this and other attributes, the gold tranche became recognized eventually as a new reserve asset. Meanwhile, the tranche policies based on an ascending scale of conditionality were being elaborated, while constant experiment was being devoted to the stand-by arrangement in order to improve it as the main instrument for putting this conditionality to work. A prerequisite of development in this part of the Fund’s constitutional history was the solution of the problems of temporary use and repurchase. Both the tranche policies and stand-by arrangements have entered on the scene and played their leading parts without the benefit of express mention in the Articles.

The second main theme has been the extension of the Fund’s financial operations in both volume and character. The “adequate safeguards” of tranche policies and stand-by arrangements and the liberal approach to waivers have made it possible to permit large individual transactions and large outstanding use of the Fund’s resources in terms of quota. Borrowing by the Fund and the employment of a wider range of currencies in its transactions are other techniques that have made this greater use possible. Clarification of the Fund’s authority to permit the use of its resources to meet difficulties caused by capital outflows in certain circumstances and the creation of the compensatory financing facility are leading examples of the adaptability of the Fund in helping members to deal with pressing new problems.

The position of the United States in the world and in the Fund has dominated much of the history of this part of the Fund’s affairs. For many years it was the member which provided virtually the only currency purchased from the Fund, and it used its influence to insist on adequate safeguards. In a later stage, the United States was in a persistent and troubling deficit in its balance of payments, and the Fund then sought to adjust itself to a situation in which the United States would need to receive assistance in financing its deficit, in greater or less degree through the Fund according to the willingness of the United States itself. It is not surprising that in this stage the members that did not readily accept the caution of the United States in the earlier period are now the most determined advocates of it. This change of opinion has had a decisive effect on the amendments of the Articles that deal with the use of the Fund’s resources.

1

Roy Fuller, “The Lawyer as Poet,” The New Law Journal, December 19, 1968, p. 1205.

2

E.B. Decision No. 284-4; below, Vol. III, p. 227.

3

E.B. Decisions Nos. 287-3, 284-3, 286-1, 292-3; below, Vol. III, pp. 228, 234–35.

4

E.B. Decision No. 102-(52/11); below, Vol. III, p. 228.

5

Sec. 13 (see above, Chapter 22, footnote 8).

6

E.B. Decision No. 71-2; below, Vol. III, p. 245.

7

E.B. Decision No. 7-(648); below, Vol. III, p. 244.

8

E.B. Decision No. 102-(52/11), February 13, 1952, paragraph 2.d; below, Vol. III, p. 229.

9

For the meaning of 25 per cent of quota in Article V, Section 3 (a) (iii), see E.B. Decision No. 451-(55/52), August 24, 1955; below, Vol. III, p. 228.

10

See, e.g., Hearings Before the Committee on Banking and Currency of the U.S. Senate on H.R. 3314 (79th Cong., 1st sess.) (Bretton Woods Agreements Act), p. 575. Hearings Before the Committee on Banking and Currency, U.S. House of Representatives, on H.R. 2211 (79th Cong., 1st sess.), p. 88.

11

E.B. Decision No. 521-3, January 16, 1950; below, Vol. III, p. 273.

12

Schedule B, paragraph 1 (d); below, Vol. III, p. 534. Cf. E.B. Decision No. 1371-(62/36), July 20, 1962; below, Vol. III, pp. 235–36.

13

E.B. Decision No. 1477-(63/8), February 27, 1963; below, Vol. III, p. 239.

14

The amendment by which 150 per cent of quota is substituted for quota in Article V, Section 7 (c) should be noted; see below, Vol. III, p. 523.

15

Schedule B, paragraph 5; below, Vol. III, p. 535.

16

E.B. Decision No. 1543-(63/39); below, Vol. III, pp. 240–42.

17

E.B. Decision No. 1289-(62/1); below, Vol. III, p. 250.

18

E.B. Decisions Nos. 155-(52/57), 270-(53/95), 876-(59/15), 1151-(61/6); below, Vol. III, pp. 230–33, 234.

19

E.B. Decision No. 1745-(64/46); below, Vol. III, p. 243.

20

E.B. Decision No. 1289-(62/1), January 5, 1962, paragraph 11 (f); below, Vol. III, p. 250.

21

See below, p. 544.

22

Annual Report, 1955, p. 85; Annual Report, 1957, p. 119.

23

E.B. Decision No. 1477-(63/8); below, Vol. III, p. 238.

24

Compensatory Financing of Export Fluctuations: A Second Report by the International Monetary Fund; below, Vol. III, pp. 469–96.

25

Sec. 13; see above, Chapter 22, footnote 8.

26

E.B. Decision No. 71-2; below, Vol. III, p. 245.

27

E.B. Decision No. 1238-(61/43); below, Vol. III, p. 245.

28

E.B. Decision No. 1289-(62/1), January 5, 1962; below, Vol. III, p. 246.

29

E.B. Decision No. 1371-(62/36); below, Vol. III, pp. 235–38.

30

Proceedings, pp. 461–63.

31

Article V, Section 7 (b) (ii); below, Vol. III, pp. 192–93.

32

See Questions and Answers on the International Monetary Fund, Question 24; below, Vol. III, pp. 164–65.

33

Article IV, Section 1 (b). E.B. Decision No. 1371-(62/36), July 20, 1962; below, Vol. III, pp. 237–38.

34

Article XXV, Section 8; below, Vol. III, p. 530.

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