CHAPTER 25 The Techniques of Response

International Monetary Fund
Published Date:
February 1996
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Joseph Gold


The Fund is one of a growing number of international organizations, mostly financial or economic in character, that have the authority to adopt final interpretations of their own charters. Under Article XVIII of the Fund’s charter, any question of interpretation of the provisions of the Articles arising between any member and the Fund or between any members must be settled by the Executive Directors. In any case in which the Executive Directors have given a decision, any member may require that the question be referred to the Board of Governors, whose decision is final. Pending the result of the reference to the Board, the Fund may decide to act on the basis of the decision of the Executive Directors. The drafters attached importance to keeping disputes concerning the interpretation of the Articles within the framework of the Fund, while at the same time establishing safeguards for members and providing for external arbitration for disputes with a country in the liquidation of the Fund or after withdrawal from the Fund.1

The Fund has adopted no more than ten interpretations under Article XVIII, and there has been a special reason for resort to the formality of proceeding under that provision in each of these cases. The first interpretation was adopted on May 8, 1946, in response to a request by India, and in order to clarify what happens to an executive director who was appointed by a member which, between elections, ceases to be one of the members with the five largest quotas and entitled, therefore, to appoint executive directors.2 Two interpretations were adopted by the Executive Directors on September 26, 1946 in response to requests by the United Kingdom and the United States respectively, which wanted assurances on certain matters that were of particular interest to them, in part because these matters had raised political issues. The United Kingdom, committed to a policy of maintaining full employment, sought and received an interpretation that steps necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, are among the measures necessary to correct a fundamental disequilibrium.3 The United States, fearing that the Fund might engage in long-term lending that could undermine the policies of the World Bank, requested an interpretation with respect to the use of the Fund’s resources, and was given the answer that use was limited in accordance with the Fund’s purposes to give temporary assistance in financing balance of payments deficits on current account for monetary stabilization purposes.4

The next interpretation was adopted on June 10, 1949. It took the form of a letter addressed to members and was intended to make it clear that Article VIII, Section 2 (b) had modified private international law in many countries in connection with the recognition of the exchange control regulations of other members. The interpretation dealt with the prime example of “lawyer’s law” in the whole Articles. The provision declares that exchange contracts involving the currency of a member which are contrary to the exchange control regulations of that member maintained or imposed consistently with the Articles shall be unenforceable in the territories of any member. The interpretation explained that a court in a member country in which a litigant seeks to enforce such a contract should not refuse to recognize the exchange control regulations on the ground that exchange control regulations are against the public policy of the forum or because the regulations are not part of the law governing the contract or its performance under the traditional private international law of the forum.5 The novelty and compressed language of the provision have raised many legal issues, and both the provision and the interpretation have been relied on in numerous cases throughout the world.6 There is also a growing legal literature on the effect of the Articles on the recognition of foreign exchange control, but the Fund has not ventured into further interpretation of the provision.

In response to a question put by the executive director appointed by the United States, the Fund, on February 20, 1950, adopted an interpretation of the provision which requires a member to give the Fund the same treatment for its official communications as the member accords to the official communications of other members.7 The U.S. Federal Communications Commission recognized this interpretation as binding on the United States in a proceeding brought by the Fund and the World Bank against U.S. cable companies.8

The sixth interpretation was adopted by the Executive Directors on August 11, 1954, in reply to a question put by Czechoslovakia, against which proceedings had been instituted that led to a decision requiring it to withdraw from the Fund. Czechoslovakia argued that the failure to fulfill obligations for which a member could be compelled to withdraw meant a failure for which there was no legal justification, and that reasons of national security were recognized as a justification of that character in international law. In their interpretation, the Executive Directors did not accept this argument in connection with the provisions under which it was alleged that Czechoslovakia had failed to fulfill its obligations.9 This was the only case in which an interpretation under Article XVIII was appealed to the Board of Governors. The Board, on September 28, 1954, confirmed the interpretation of the Executive Directors.

The seventh interpretation was adopted on August 24, 1955 and dealt with the troublesome question of the amount of exchange that a member is entitled to purchase from the Fund without a waiver. One of the conditions on which a member is entitled to make a purchase is that the proposed purchase will not cause the Fund’s holdings of the member’s currency to increase by more than 25 per cent of quota during the period of twelve months ending on the date of the purchase. The Fund recoiled from reading the provision to mean that the 25 per cent referred to is measured simply by the difference between its holdings of the member’s currency at the beginning of the period and the level to which they would be increased by the proposed purchase. This could permit a member to purchase huge amounts in terms of its quota and could enable it to make long-term use of the Fund’s resources. This would follow because any reduction in the Fund’s holdings of a member’s currency by repurchase, by a sale of its currency, or as the result of other operations, during the preceding twelve months, would enable the member to purchase an amount equivalent to the reduction and a further 25 per cent of quota without the need for a waiver. The Executive Directors decided that such a view would be repugnant to the basic ideas of the temporary use and revolving character of Fund resources and adopted a view under which during any twelve months a member may make purchases amounting to 25 per cent of quota augmented only by the amount of any reductions in the Fund’s holdings of the member’s currency, not in excess of those purchases, which take place after the purchases have occurred.10

On January 25, 1956, the Executive Directors adopted their eighth interpretation under Article XVIII by deciding, after years of debate, that the Fund has the legal authority to sell part of its gold for investment of the proceeds in U.S. Government securities in order to prevent the impairment of its capital as a result of the excess of its administrative expenses over income. The interpretation laid down the conditions on which this could be done, including the condition that the Fund must be able to reacquire the gold.11 On the disappearance of its accumulated deficit, the Fund, on November 27, 1957, decided under Article XVIII that the investment could be continued in order to provide a reserve against any similar deficits that might occur in the future.12 A third interpretation dealing with investment was adopted on July 24, 1959 and dealt with the length of the maturity of the securities in which the Fund might invest.13 That has been the last interpretation under Article XVIII so far.14

Nobody could claim that these ten decisions constitute an impressive body of legal principles, or even that all of them have made outstanding contributions to the constitutional development of the Fund. It is unlikely that anyone would deny the constitutional importance of the interpretations dealing with fundamental disequilibrium, use of the Fund’s resources, and the meaning of the 25 per cent limit, but opinions might differ about the impact of some of the others. It would be difficult to insist that certain of the interpretations have had more than a minor effect on the work of the Fund.

The modest number of interpretations under Article XVIII gives no impression of the considerable volume of interpretative decisions that have been taken without recourse to that provision. Many of these decisions have been drafted in general terms and quite obviously as interpretations. Others have been rendered in particular cases and have dealt with the facts of the individual case. All in all, these decisions do amount to a very substantial body of law. The progressive development of its interpretative decisions has been one of the outstanding techniques of the Fund in dealing with the problems under the Articles with which it has been confronted by a far from quiescent international monetary order.

It has not been the attitude of members of the Fund, the Executive Directors, the Managing Director, or the staff that interpretative decisions can be held in lower esteem if they are not taken under Article XVIII. The procedures for arriving at decisions and the techniques of interpretation have been the same for both categories of decision. Clearly, any distinction between the two categories on the basis of their importance in the working of the Fund would be in favor of the decisions taken without recourse to Article XVIII.

The preference for interpreting the Articles without raising questions under Article XVIII is not the result of any conscious decision and it is not easy to explain the practice. The feeling of greater formality that necessarily accompanies the invocation of Article XVIII may be one explanation. Members regard interpretative decisions with respect and there is no need, therefore, to give these decisions maximum solemnity in order to ensure observance of them. Perhaps this informality may seem more compatible with the cooperation, consultation, and collaboration that are referred to in the first purpose of Article I. Another explanation may be the subconscious conviction that if an interpretative decision will have to be modified for good cause, this will be easier if it has not been adopted under Article XVIII. The debate on the clarification of the Executive Directors’ interpretation of September 26, 1946 on the use of the Fund’s resources shows that there may be great reluctance to re-examine a decision taken under Article XVIII.15 A similar desire to minimize rigidity can be detected in some of the legal systems in which the volume of appeals to higher tribunals is closely controlled. Finally, it is possible that the assurance which members enjoy that they can raise any questions of interpretation under Article XVIII if they wish makes it unnecessary for them to overindulge in the privilege.

There are many approaches to the interpretation of treaties and the last word on this subject is always being written. The Fund has adopted an eclectic approach to problems of interpretation and has never decided that its technique would be based exclusively on the grammatical elucidation of the text, the determination of the intent of the drafters, the object of the provision, or the wider purposes of the Fund. A study of the interpretative work of the first two decades would show that a number or all of these techniques have been applied to most problems of interpretation. There is probably nothing unique in the experience of the Fund in this respect.

In the process of interpretation, what is sometimes called a “constitutional” or a “teleological” approach, or an approach that seeks to make the purposes of the institution effective, has found a place, although again the approach may have been no more pronounced in the Fund than in other international organizations. Perhaps the best public expression of the Fund’s consciousness of this technique occurred in a speech by Mr. Jacobsson, who included the law among his many interests:

In this and in other matters under the Fund’s charter, I am reminded of what an English Lord Chancellor, Lord Sankey, said of the Canadian Constitution. It was, he said, “a living tree capable of growth and expansion within its natural limits.” 16

His quotation from Lord Sankey was taken from an opinion in which the following passage also is relevant to Mr. Jacobsson’s attitude of mind:

Their Lordships do not conceive it to be the duty of this Board—it is certainly not their desire—to cut down the provisions of the Act by a narrow and technical construction, but rather to give it a large and liberal interpretation so that the Dominion to a great extent, but within certain fixed limits, may be mistress in her own house, as the Provinces to a great extent, but within certain fixed limits, are mistresses in theirs. “The Privy Council, indeed, has laid down that Courts of law must treat the provisions of the British North America Act by the same methods of construction and exposition which apply to other statutes. But there are statutes and statutes; and the strict construction deemed proper in the case, for example, of a penal or taxing statute or one passed to regulate the affairs of an English parish, would be often subversive of Parliament’s real intent if applied to an Act passed to ensure the peace, order and good government of a British Colony” (see Clement’s Canadian Constitution, 3rd ed., p. 347).17

In presenting his plan to the Executive Directors on February 10, 1961 for the development of the Fund’s activities in an era of widespread convertibility, Mr. Jacobsson explained his position even more clearly:

  • It is frequently suggested that one or another of the activities of the Fund indicated above might require amendment of the Articles of Agreement. I have an open mind on this; but I do know that the Articles provide considerable flexibility in many respects. The Articles are a constitutional charter, and constitutional interpretation recognizes that such a document must meet needs when this can be done without offending its spirit, purposes, or provisions.

In this approach he was supported, of course, by the last sentence of Article I, which declares that “the Fund shall be guided in all its decisions by the purposes set forth in this Article.”

As in any body of men who are called on to exercise the art of interpretation, there have been differences of opinion on technique among executive directors. Some have seen interpretation as a more mechanical and less creative task than have those others who have held that, if there is a choice among readings, the best answer must be considered the right answer, and what is the best answer calls for knowledge, experience, and an understanding of the purposes of the Fund. Whatever differences of opinion may have existed about technique, and the frequency of this kind of disputation should not be exaggerated, it has been the unanimous view in the Fund that its power to interpret its charter was not a laissez-passer that authorized it to move beyond the law in order to achieve some end that was not attainable within the law. Strict adherence to this view has sometimes provoked lengthy and meticulous scrutiny of propositions that in retrospect seem obvious. The legality of voluntary repurchases and the decision of February 13, 1952 are examples of issues that were debated with ardor over long periods. But this behavior has encouraged the law-abidingness of which it is itself a product. Furthermore, it has produced a body of interpretative decisions that are harmonious and therefore stable.18 Indeed, some critics have thought that there was too much rigidity in the jurisprudence of the Fund, although the critics who have said the reverse must not be neglected.

It is interesting to speculate whether there have been special reasons in the Fund for the legalism, in the non-pejorative sense, which it has observed. Once again it is possible that its special character as an international regulatory institution may be an explanation. It would have been unreasonable to expect members to observe their obligations, and particularly the code of conduct, if the Fund had acted in the spirit of the old maxim that it is the function of a good judge to extend his jurisdiction (boni judicis est ampliare jurisdictionem).


One of the purposes of the Fund is to promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.19 This purpose is matched by Article IV, Section 4 (a), under which members undertake “to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.” The provision is a source of authority on which the Fund has drawn in order to promote the purposes of exchange stability and orderly exchange arrangements. Sometimes the Fund has done this expressly, but at other times the spirit of the undertaking has affected relations between the Fund and its members even though the undertaking was not openly invoked.

Three examples drawn from the early years of the Fund illustrate the protean quality of the provision. In deciding that members are not entitled to adapt or introduce multiple currency practices, without the approval of the Fund, as restrictions on payments and transfers under Article XIV, Section 2, the Fund held as a matter of interpretation that because multiple currency practices are also rates of exchange the Fund must judge whether the adaptation is justified by “changing circumstances” or the introduction is “necessary.” 20 The Fund relied largely on Article IV, Section 4 (a) as the source of this interpretation. In its letter of December 19, 1947 to members, the Fund referred to the purposes of the Fund and the undertaking of members under the provision as “fundamental considerations in an interpretation of the rights and obligations of members” in connection with multiple currency practices. The widespread importance of this decision and its influence on the Fund’s attitude to its jurisdiction in connection with exchange rate practices have been referred to in Chapter 24.

When in January 1948 France made an unauthorized change of par value and introduced discriminatory multiple currency practices of which the Fund disapproved, the Fund’s action under Article IV, Section 4 (a) was of a different character. The Fund advised other members that neither the former par value nor the new rates of exchange adopted by France were binding on them and members were not bound to take appropriate measures to ensure that these rates were observed in exchange transactions in their territories. Nevertheless, members were bound to avoid exchange disorder. Therefore, the Fund was willing to agree in advance if by a bilateral arrangement between France and another member an exchange rate between their currencies was established on the basis of the unauthorized par value. If these arrangements contemplated other rates of exchange, the Fund did not give advance approval even if they corresponded with another rate in the French exchange system. The parties negotiating the agreement on a rate had to request the approval of the Fund because in the context of the French exchange system the rate inevitably would constitute a discriminatory currency arrangement. In this case, the Fund drew from Article IV, Section 4 (a) an obligation of members to seek prior approval for the introduction or adaptation of discriminatory currency arrangements involving rates of exchange.

In the third case, the Fund made yet a third kind of use of Article IV, Section 4 (a). In 1947, the Fund came to the conclusion that external sales of gold by members at premium prices tended to undermine exchange stability. It has been seen that whereas Article IV, Section 2 prevents members from buying gold at a price above par plus the Fund’s margin for gold transactions or selling it at a price below par minus the margin, sales by a member or its residents at a premium to a purchaser that is not another member are not proscribed. Whether these latter sales continue to be permitted if the Fund finds that they undermine, and not merely tend to undermine, exchange stability was not decided. For a number of reasons, including perhaps the desire to avoid the settlement of that question, the Fund decided not to go beyond a recommendation to members. In its letter to members of June 18, 1947 the Fund deprecated premium sales in external markets and recommended that its members take effective action to prevent them.21 The legal authority on which this policy pronouncement was based was Article I (iii) and Article IV, Section 4 (a).

In these three episodes, the Fund made the undertaking of members in Article IV, Section 4 (a) more specific when dangers threatened exchange stability and orderly exchange arrangements. The Fund acted by formulating the obligations of members, by employing the provision in the interpretation of other provisions, or by addressing recommendations to members, when problems arose that imperiled the purposes of the Fund and the provisions of the Articles were not sufficiently clear or detailed in their relation to the problems. A study of the three episodes shows that there may be legal problems in reconciling an obligation or recommendation drawn from Article IV, Section 4 (a) with other provisions or with the silence of other provisions. Therefore, the acceptability to members at large of the Fund’s reliance on the provision has been an element in the success of the Fund’s action. The obligations of members to seek prior approval for the adaptation or introduction of multiple currency practices or discriminatory currency arrangements involving rates of exchange are firmly established. The history of the Fund’s policy on premium transactions in gold shows that an application of Article IV, Section 4 (a) may be unsuccessful if it is not supported by the cooperation of those members from which cooperation is thought to be necessary.22

The recognized usefulness of Article IV, Section 4 (a) induced the drafters of the amendments dealing with special drawing rights to formulate a similar provision. This progeny of Article IV, Section 4 (a) is entitled “General Obligations of Participants,” and it provides that:

In addition to the obligations assumed with respect to special drawing rights under other Articles of this Agreement, each participant undertakes to collaborate with the Fund and with other participants in order to facilitate the effective functioning of the Special Drawing Account and the proper use of special drawing rights in accordance with this Agreement.23


One of the techniques for adaptation at the disposal of the Fund is a power to vary certain provisions in the Articles without the need for amendment, and the exercise of this power has made at least one vital contribution to the operation of the Fund. The provisions in the original Articles under which variation is possible have been the precedents for a broader use of the technique in the amendments. Agreement on a power to vary without amendment enabled the negotiators of the amendments to arrive at a compromise on a basic feature of special drawing rights that was the subject of a particularly stubborn difference of opinion. The power to vary is one of the more obvious responses to Keynes, who said at Bretton Woods of the lawyer that: “I want him to tell me how to do what I think sensible, and, above all, to devise means by which it will be lawful for me to go on being sensible in unforeseen conditions some years hence.” Full disclosure makes it necessary to report that the second use of the word “I” appears in italics.24

There were four examples of the technique in the original Articles. It is provided that when countries not listed in Schedule A become members of the Fund, the Board of Governors has authority, by a four-fifths majority of the total voting power, to increase the number of elected executive directors from the original seven.25 The exercise of this power has enabled the Fund to increase the number of executive directors over time from twelve to twenty by increasing the number elected by the American Republics from two to three and the number elected by other members not appointing executive directors from five to twelve. The Fund has followed a policy of providing for further elected executive directors on the basis of the voting power exercised by newcomers, and one of the results of this policy has been to permit emerging countries to participate directly in the affairs of the Fund through executive directors of their choice.

The Articles also provide that whenever the Board of Governors increases the number of elected executive directors, it shall issue regulations making appropriate changes in the proportions of votes required to elect executive directors as laid down in the Articles.26 The Board of Governors has made a flexible use of this power. For each election once countries not listed in Schedule A had joined the Fund, the Board of Governors has established the minimum number of votes required for the election of an executive director and the maximum number that he may retain. In determining these limits the Board of Governors has been guided by the objective of maintaining an approximate equality in the number of votes that elected executive directors can cast and by the further objective of making it possible, up to a point, for members to combine as they wish in electing an executive director.

The original Articles provide for a service charge of ¾ of 1 per cent on exchange transactions with the Fund but allow the Fund to alter this charge within a range of ½ of 1 per cent to 1 per cent.27 On November 19, 1951 the Fund reduced the charge to the minimum in order to encourage short-term transactions as one means of reviving the use of the Fund’s resources.28

The Articles also include a system of periodic charges on the Fund’s holdings of currency in excess of quota under which the rates ascend in relation to both holdings and time.29 It is provided that when the charge applicable to any bracket of the Fund’s holdings of a member’s currency reaches the rate of 4 per cent per annum, the Fund and the member have to consider means by which the Fund’s holdings can be reduced.30 That rate could be reached as late as seven years after a transaction with the Fund. The Fund is empowered to change the rates in the Articles, including the rate at which consultation occurs on the reduction of the Fund’s holdings, by a three-fourths majority of the total voting power.31

In the discussions leading to the decision of February 13, 1952 the view was advanced that seven years was not an ideal period for the use of the Fund’s resources, although obviously it had been considered tolerable by the drafters, and that a shorter period not exceeding five years was preferable. There was a more basic difference of opinion, however, on whether any fixed period was compatible with the notion of the Fund and whether it could be made effective in any way that was acceptable legally. The solution to the latter question was found in the variation of the charges in the Articles so that the date for consultation on the reduction of the Fund’s holdings would occur not later than three years after a transaction. With that revision of the charges, members were willing to assure the Fund, in advance of the consultation that they would be obligated to enter into, that in the consultation they would agree upon appropriate arrangements for reducing the Fund’s holdings of their currency as soon as possible but in any event not later than five years after a transaction.32 On the basis of that settlement it became possible also to agree on a modified form of repurchase representation for gold tranche purchases on which periodic charges are not payable and to which, therefore, the requirement of consultation does not apply if only those purchases are outstanding. It is not an exaggeration to say that the Fund’s power to vary the charges included in the Articles provided the legal basis on which it became possible to establish the policy that the temporary use of the Fund’s resources meant use not in excess of three to five years.

The further powers of the Fund under the amended Articles to vary provisions without amendment relate to both the General Account and the Special Drawing Account. In the former category is the power of the Executive Directors to vary a basic rate of remuneration of 1½ per cent per annum payable on the amount by which the Fund’s holdings of a member’s currency are below 75 per cent of quota; a three-fourths majority of the total voting power is required for a decision to vary the rate beyond a band of 1 to 2 per cent per annum.33 In addition, the Board of Governors has received the power to vary, by a majority of 85 per cent of the total voting power, a number of amendments that have been made in the provisions relating to repurchase.34 This power was created because of the uncertainty about the way in which the amendments of the repurchase provisions might work not only from the point of view of equity but also in relation to the complexities of the original repurchase mechanism.

In the field of special drawing rights, there are powers to vary within a defined band the prescribed rate of 1½ per cent payable as interest on participants’ holdings and as charges on net cumulative allocations of special drawing rights,35 and to vary the rules for the designation of participants as recipients of special drawing rights that are intended to promote over time a balanced distribution of holdings of special drawing rights among participants.36 Both powers may be exercised by the Executive Directors by a majority of votes cast.

The most striking power to vary a provision without amendment relates to “reconstitution.” Those who favored the view that the new instrument of unconditional liquidity should take the form demonstrably of a reserve asset and not credit, or that it should be a “unit” and not a “drawing right,” argued that a participant should have no legal obligation to restore its holdings of the new-instrument after they had been used. Those who preferred the concept of “credit” or a “drawing right” insisted that there should be a duty of restoration. The compromise between the two schools was an agreement that there would be an obligation on each participant, in accordance with the rules in Schedule G, to maintain over time an average balance of 30 per cent of its net cumulative allocation of special drawing rights beginning five years after the first allocation. The rules for reconstitution, however, are to be reviewed before the end of the first and each subsequent basic period and new rules may be adopted if they are considered necessary but they may be abrogated altogether. Any decision to adopt, modify, or abrogate reconstitution rules will be taken by the Board of Governors and will require a majority of 85 per cent of the total voting power.37


The Board of Governors, and the Executive Directors to the extent that they have been authorized, may adopt “such rules and regulations as may be necessary or appropriate to conduct the business of the Fund.”38 In accordance with this provision in the Articles, the Board of Governors adopted By-Laws on March 16, 1946 and the Executive Directors adopted Rules and Regulations on September 25, 1946.39

Most of the By-Laws and Rules and Regulations now in force were adopted on those occasions, although there have been amendments and additions over the years. The words “necessary or appropriate,” which are the criterion for rule-making, are broad and flexible, but the Fund has not made conspicuous use of either the By-Laws or the Rules and Regulations as a medium of adaptation to changing circumstances. Nevertheless, some rule-making actions have had more than a routine character. The changes already noted in the service charge on members’ exchange transactions with the Fund and in the periodic charges on the Fund’s holdings of currencies were incorporated in the Rules and Regulations. Another noteworthy example is the amendment of Rule F-4 of the Rules and Regulations on October 15, 1954 by which the Executive Directors adopted an alternative to the original margin for gold transactions which they had established on June 10, 1947. The need for a new margin had been foreseen before the London gold market was reopened on March 22, 1954. The adoption of the new margin of 1 per cent facilitated the working of the market, through which, in due course, the operations of the Gold Pool were conducted. Yet another interesting example of rule-making is Rule M-6, adopted on June 7, 1950, in which the Fund deemed it prejudicial to the interests of members and contrary to the purposes of the Fund for a member to impose restrictions on non-members that have entered into special exchange agreements under the GATT, or with persons in their territories, which the member would not be authorized in similar circumstances to impose on transactions with members or with persons in their territories.40

The last rule to be mentioned here as worthy of particular notice is Rule K-2, which was adopted on September 25, 1946. It declares that whenever the Fund is authorized to declare a member ineligible to use the resources of the Fund, it may refrain from taking that action and instead indicate the circumstances in which, or the extent to which, the member may make use of the Fund’s resources. The rule expresses the Fund’s philosophy that its powers should be exercised not to obstruct access to its resources but to clarify the circumstances in which members can rely on the availability of those resources.


The restraint which the drafters observed in defining basic concepts has given the Fund a degree of flexibility by enabling it to decide how those concepts are to be applied. It is true that Article XIX explains a number of terms, but they deal with little more than payments for current transactions and the calculation of net official holdings and monetary reserves. Net official holdings were relevant to the determination of members’ gold subscriptions, and monetary reserves are important mainly in connection with repurchase obligations under Article V, Section 7 (b) and the payment of charges. Notwithstanding the explanation of terms in Article XIX, further elucidation of them was necessary before they could be put to work. The Net Official Holdings Committee of the Executive Directors met during the period March 1947 to April 1948 to unravel the complications of the concept by means of a number of case studies. This detailed work had a permanent usefulness because of the intersection of the concepts of “net official holdings” and “monetary reserves.” One of the most fundamental of the determinations common to both concepts was the decision that the “holding” of a reserve asset involves the ownership of the asset and not merely a claim to acquire it against another member that has the ownership of it. No committee was established in connection with monetary reserves, but the intricacies of both that concept and the repurchase formulas based on it were clarified as issues arose over the years in the practice of the Fund.

The other main topic on which Article XIX gives guidance is “payments for current transactions.” This concept sets the bounds within which the Fund exercises jurisdiction over restrictions on payments and transfers under Article VIII, Section 2. Problems of definition have arisen in connection with “payments for current transactions” but problems of application, such as the mode of operation of particular exchange control regulations, have been more frequent. One reason for the predominance of problems of application over problems of definition is the breadth of the first category in Article XIX (i): “All payments due in connection with foreign trade, other current business, including services, and normal short-term banking and credit facilities.”

In a discussion of the techniques of adaptation, it must be recalled that certain discretions were given to the Fund to extend particular definitions. Article XIX (d) defines “currency” for the purposes of that provision and declares that the term shall include “without limitation” the items that are specified. The definition has been applied, as was to be expected, to other references to “currency” in the Articles. Similarly, Article XIX (i) declares that payments for current transactions means payments that are not for the purpose of transferring capital and include “without limitation” the categories that then follow. The “without limitation” clause empowers the Fund to add items or categories to those enumerated, but no addition has been made to either list.

Obviously, the concepts that are wholly undefined have given the Fund no less opportunity for evolving a realistic and consistent body of practice than the concepts on which the drafters provided guidance by an explanation of terms. The Articles contain no definitions of such terms as “multiple currency practices,” “discriminatory currency arrangements,” “fundamental disequilibrium,” or even “rates for exchange transactions.” Sometimes, the Fund has made a specific project of the clarification of a particular concept. The Executive Directors’ Committee on Spreads and Multiple Currency Practices which sat in May to July 1947 mapped a large part of the terrain in this area of the Articles, and its work led to the letter to members of December 19, 1947 which still explains much of the Fund’s policy and interpretation in connection with multiple currency practices.41 With other concepts the Fund has refrained from making so systematic an effort and has allowed a body of practice to develop more slowly as problems arose. The concept of the rate of exchange has been formed in this way, and it has central importance in the work of the Fund. It is established that the rate of exchange with which the Fund is concerned is the “effective” rate, which means that it includes not only the formal quid pro quo for the exchange but also other payments, such as exchange taxes or charges, that are directly exigible in connection with the exchange transaction.

Reliance on the future administrators of the Fund to give substance to basic concepts of its operation is not an accident of hurried negotiation. There is the evidence of Mr. White himself who wrote in August 1946 that:

  • In the drafting of the Articles of Agreement no attempt was made to define fundamental disequilibrium. This, as we know, was not an oversight. It was generally agreed that a satisfactory definition would be difficult to formulate. A too rigid or narrow interpretation would be dangerous; one too loose or general would be useless in providing a criterion for changes in currency parities. It was felt too that the subject matter was so important, and the necessity for a crystallization of a harmonious view so essential that it were best left for discussion and formulation by the Fund.

There can be few negotiators of a major international treaty who have been so enlightened as to hold that because of the basic importance of a concept, its definition had best be left to those who later would administer the treaty. It need only be said that those who have followed the drafters and administered the Fund have been equally enlightened, at least in connection with “fundamental disequilibrium.” They have not yet ventured a formal definition of it. There are other cases in which the administrators, like angels, have not rushed in, and by their reluctance to adopt definitions, or on occasion even interpretations, have preserved a valuable flexibility for the Fund.


Joseph Gold, Interpretation by the Fund, IMF Pamphlet Series, No. 11.


E.B. Decision No. 2-1; below, Vol. III, pp. 267–68.


E.B. Decision No. 71-2; below, Vol. III, p. 227.


Ibid., p. 245; cf above, pp. 524, 539.


E.B. Decision No. 446-4; below, Vol. III, pp. 256–57.


See Joseph Gold, The Fund Agreement in the Courts; “The Fund Agreement in the Courts—VIII,” Staff Papers, Vol. XI (1964), pp. 457–89; “The Fund Agreement in the Courts—IX,” ibid., Vol. XIV (1967), pp. 369–402; The Cuban Insurance Cases and the Articles of the Fund, IMF Pamphlet Series, No. 8; “The International Monetary Fund and the International Recognition of Exchange Control Regulations: The Cuban Insurance Cases,” Revue de la Banque (Brussels), Vol. 31 (1967), pp. 523–38.


E.B. Decision No. 534-3; below, Vol. III, pp. 266–67.


On the binding effect of interpretations, see Gold, Interpretation by the Fund, pp. 31–42.


E.B. Decision No. 343-(54/47); below Vol. III, p. 269.


E.B. Decision No. 451-(55/52); below, Vol. III, p. 228.


E.B. Decision No. 488-(56/5); below, Vol. III, pp. 275–76.


E.B. Decision No. 708-(57/57); below, Vol. III, p. 276.


E.B. Decision No. 905-(59/32); below, Vol. III, p. 277.


But see E.B. Decision No. 1107-(60/50), November 30, 1960; below, Vol. III, p. 277.


See above, pp. 539–40.


Per Jacobsson, International Monetary Problems, 1957–1963, p. 284. The quotation is from Edwards v. Att.-Gen. for Canada (1930) A.C. 124, 136.


Edwards v. Att.-Gen. for Canada, ibid., pp. 136–37.


“… the Executive Board has habitually shown a close regard for the legal arguments on both sides of a controversial question before it, and is probably more careful for the rule of law than many boards of directors, which have only municipal law to contend with, and it is slow to come to a decision until it can be legally well based. In the result the Fund’s decisions since it commenced operations in March 1947 show a high degree of coherence and consistency.” J. E. S. Fawcett, “The Place of Law in an International Organization,” in The British Year Book of International Law, 1960, p. 327.


Article I (iii); below, Vol. III, p. 188.


See above, p. 548.


See above, pp. 563–64.


See Joseph Gold, “The Duty to Collaborate with the International Monetary Fund and the Development of Monetary Law,” in Law, Justice and Equity, edited by R.H. Code Holland and G. Schwarzenberger, pp. 137–51.


Article XXVIII; below, Vol. III, p. 531.


Proceedings, p. 1241.


Article XII, Section 3 (b); below, Vol. III, p. 200.


Article XII, Section 3 (d).


Article V, Section 8 (a); below, Vol. III, p. 193.


Rules and Regulations, Rule I-2; below, Vol. III, p. 294.


Article V, Section 8 (c); below, Vol. III, p. 193.


Article V, Section 8 (d).


Article V, Section 8 (e).


E.B. Decision No. 102-(52/11); below, Vol. III, p. 229. Rules and Regulations, Rule I-4; below, Vol. III, pp. 294–95.


Article V, Section 9; below, Vol. III, p. 523.


Article V, Section 7 (d); Article XII, Section 2 (b) (ix).


Article XXVI, Sections 1-3.


Article XXV, Section 5 (b) and (c), and Schedule F.


Article XXV, Section 6.


Article XII, Section 2 (g); below, Vol. III, p. 199.


See below, Vol. III, pp. 278–303.


Joseph Gold, The Fund and Non-Member States, IMF Pamphlet Series, No. 7.


See above, pp. 548, 574.

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