Legal and institutional Aspects of the international Monetary System
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Front Matter

International Monetary Fund
Published Date:
December 1984
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    Legal and Institutional Aspects of the International Monetary System: Selected Essays Volume II

    This volume reproduces, with slight revisions, 16 essays contributed by the author to books and periodicals published originally under auspices other than those of the International Monetary Fund. A Supplemental Note is attached to most Chapters to provide more recent information on matters of detail. A first volume, consisting of 14 other essays, was published by the Fund in 1979. The author has drawn on his knowledge as a participant in the negotiation and drafting of the First and Second Amendments of the Fund’s Articles.

    The introduction to this second collection discusses the language of the Fund’s Articles and the problems of communication. The essays, which are addressed to all who are interested in the international monetary system and not to lawyers only, are presented in six sections: General Topics, Aspects of the Fund, Exchange Rates, Reserve Assets, Drafting in the Monetary Field, International Law. The first essay in the Section entitled General Topics is, in effect, a monograph that was the basis of a series of lectures delivered at the Academy of International Law at The Hague in 1982. This essay discusses the concept of the international monetary system, its relationship to the Fund and to international monetary law, and the changes that have occurred since 1971.

    Subsequent essays in the volume amplify some of the topics in the first essay, but examine additional topics as well. Among the topics considered in these essays are the concepts of symmetry and its relation to uniformity, substitution, the relationship between the Fund and the World Bank, the Fund’s General Arrangements to Borrow, the impact of variable exchange rates on treaties, models for the international regulation of exchange rates, gold, SDRs, ECUs, and many other aspects of international monetary affairs. Two of the essays discuss the drafting of convertible currency clauses and references in banks’ loan agreements to the Fund and its stand-by arrangements.


    Sir Joseph Gold is a graduate of the Law Schools of the Universities of London and Harvard. He was a member of the staff of the Legal Department of the International Monetary Fund from October 1946 to July 1979 and was the General Counsel of the Fund and Director of the Legal Department from 1960 to 1979. Since 1979 he has been Senior Consultant in the Fund. He is the author of numerous books, pamphlets, and articles on international and national monetary law, which have been published in many countries. Many of his publications have appeared in English, French, and Spanish under the auspices of the Fund. A bibliography of his work to mid-1984 is included in the present volume.

    ©1984 by the International Monetary Fund

    International Standard Book Number: 0-939934-34-5



    The essays included in this volume are published without substantial change. The opportunity has been taken to correct the extensive typographical errors that appeared in two of the essays as published originally. (The fourteenth essay and the lectures that constitute the first essay as published originally contained a number of such errors, some of them particularly unfortunate. Proofs were not supplied by the publishers.) Changes or new developments have occurred on matters of detail in some of the essays. The reader’s attention has been drawn to these changes or developments in Supplemental Notes attached to the essays where necessary. The volumes and journals in which the essays were first published are named in the notes at the beginning of each Chapter.

    In this volume, the International Monetary Fund will be referred to usually as the “Fund,” its Articles of Agreement as the “Articles,” and its member countries as “members.” Three versions of the Articles of Agreement are referred to in the volume: the original Articles, the Articles as modified by the First Amendment, and the Articles as modified by the Second Amendment. In the footnotes, the italicized words original first, and second follow references to provisions of the Articles and indicate the version or versions to which reference is being made. If no such word follows the reference to a provision, the reference is to the Articles as modified by the Second Amendment.

    The first bibliography in this volume is a guide to the short titles of books, articles, or speeches that have been used in the text and footnotes. The author’s publications are set forth in the second bibliography. There are six indexes of the sources that are cited: Provisions of the Articles of Agreement (indicating the three versions); By-Laws and Rules and Regulations; Resolutions of Board of Governors and Decisions of Executive Board; Cases Cited; Names; and Subjects.

    The editorial task of preparing for publication a volume of this kind is onerous. I have been fortunate in having this task supervised by Miss O. Mary Price of the Fund’s External Relations Department. I express my deep gratitude to her, and to Mrs. Esther Parsons and Miss Pamela Witcher who typed and retyped, often from palimpsests, many of the essays included in this book. Miss Witcher contributed greatly to the compilation of reference materials.

    The author is currently Senior Consultant, and formerly was the General Counsel and Director of the Legal Department, of the International Monetary Fund. This book sets forth views of the author. They are not necessarily views of the Fund unless the context attributes them to the Fund.

    June 1984

    Joseph Gold


    Papers I have written on monetary matters have been published in the first instance either by the International Monetary Fund or by others. Procedure and not substance explains the choice of the original medium of publication. Most of the papers published originally under auspices other than those of the Fund were written in response to requests by the publishers of the books or periodicals in which the work first appeared. A number of these essays were collected in a volume entitled Legal and Institutional Aspects of the International Monetary System: Selected Essays, which was published by the Fund in 1979. A further selection of essays, which have been written since then, are collected in this volume.

    The essays now collected fall into some distinguishable categories: general topics affecting the international monetary system; special aspects of the Fund; exchange rates; monetary reserve assets; drafting monetary provisions of legal instruments; public international law. The approach is primarily from the standpoint of law, including the law of international organizations that have monetary functions, and in particular the law of the Fund as the central institution of the international monetary system. There is some discussion also of what is meant by the system. The expression is now a term of art, but a clear meaning has not been given to the expression notwithstanding the abundant use made of it. Perhaps, like the elephant, the international monetary system can be recognized by observers even if they cannot define it.

    If the content of the essays is predominantly legal in character, they are, nevertheless, not written for lawyers only. Nonlawyers 1 often claim to be practical men or not practical men, and predisposed for either reason not to take the law into account.2

    Each profession develops its own vocabulary, usually for the purpose of avoiding prolixity,3 but there are other reasons, not always so admirable. Although the motives for a special vocabulary are not dissimilar, the vocabulary of one profession is usually considered rebarbative 4 by other professions.5 This reaction complicates the task of writing for readers of other professions. Anyone who writes on monetary matters, whether as a lawyer or as an economist, should be aware of the duel that took place on March 14, 1945 in the Committee on Banking and Currency of the House of Representatives of the Congress of the United States. The Committee was considering the proposed Bretton Woods Agreements Act. The duellists, whose cut and thrust were conducted with a verve reminiscent of Conrad’s Feraud and D’Hubert, were Harry D. White, Assistant to the Secretary of the Treasury of the United States, and Representative Frederick C. Smith of Ohio. The exchange between them should not be forgotten and is reproduced in the Annex to this Introduction as moral instruction for drafters and expositors.

    In recent years, the law has been relied on increasingly to regulate language. The laws of syntax may become an ambiguous expression in the future. Statutes requiring the use of plain language instead of “legalese” for certain purposes have become popular in the United States 6 as a result of the pioneering effort undertaken by the Legislature of New York State.7 The protection of the citizen by insisting on the comprehensibility of language addressed to him has been the objective of this kind of legislation and not maintenance of the purity of the English of New York or of the States of the Union that have followed the pioneer. Similar official action has been taken at the federal center to simplify the language of regulations 8 and forms.9

    The movement has not been without difficulty. Ambiguities were discovered in the original project.10 Later drafters were surprised to discover that the plain language of one State is not the plain language of another State, so that enterprises engaged in activities that are not purely local cannot employ a uniform vocabulary.11 Even within a single locality, there may be different communities of speech.12 The concept of the “legislative audience” has emerged.13 The member of this audience is often called the layman, who, in other contexts, becomes I’homme moyen sensuel, or the man on the Clapham omnibus, or, when he alights, the man in the street.14 These abstractions sometimes hide the thought that he is the average man because his education and perhaps his intelligence are of a modest order. When Chase Manhattan Bank was revising its loan forms to comply with the New York law on plain language, it was reported that the suggestion had been made “that we get a panel of semiliterates to test the forms.” 15

    In countries in which English is not the native language, the law is being relied on to preserve the purity of the indigenous tongue and even to enrich it, but the promotion of comprehensibility within the legislative audience is a further objective. In France, the main provisions of such a law became effective on January 4, 1977.16 The law requires the use of the French language for specified purposes and forbids any foreign term or expression if there is a French idiom or term approved by ministerial decree under the law. Two exceptions are recognized: certain special products of foreign origin may be given the names associated with them,17 and foreign words may be used if French terms would be contrary to the international obligations of France.18 Various ministries have published approved terms with the English equivalents.19

    The drafting of legal instruments addressed to an international legislative audience encounters difficulties that are unknown to drafters whose legislative audience is narrower, although, as noted above, the advocates of plain language in the United States have discovered that there are problems even within a single country. The more complex the legal instrument, either in its obvious content or in the competing interests that are below the surface of the text, the greater is the need for clear exposition. Instruments, such as the original Articles of the Fund and the two Amendments, must reflect the diverse interests of the negotiators and the compromises they reach. The convoluted language of the First Amendment in avoiding any reference to the SDR (special drawing right) as a reserve asset,20 and the characteristics and uses of the SDR on which agreement was reached, must puzzle the reader who is unaware of the political attitudes of some of the countries involved in the negotiations that led to the amendment. Similarly, some of the provisions of the General Arrangements to Borrow can be understood only by mining below the surface of the language, as will appear in the essay on this extraordinary legal instrument.

    In the drafting of international instruments, the language in which agreement is expressed must satisfy drafters drawn from many countries and many linguistic cultures.21 The difficulty is not necessarily reduced when, as in the case of the Fund, the constitutive legal instrument is expressed in only one official language. The technique of resorting to the various authentic texts to resolve ambiguities in one of them is not available.22 It is a fallacy, however, to assume that negotiators for whom English is not the native language are necessarily at a disadvantage in comparison with those for whom English is a birthright. In the negotiation of texts on monetary matters, some of the negotiators who came from other linguistic cultures have had a sensitivity to English that was not blunted by the self-confidence of negotiators who spoke it intuitively.

    Compromises reached after controversy may be expressed in Stressperanto,23 my neologism for language that reveals the torments of dispute but allows negotiators to put their varied glosses on the formulation they finally accept. An example of this technique is Article VIII, Section 7 24 of the present Articles, which was the outcome of resistance by some negotiators to a firmer and clearer obligation of members in their treatment of gold as a reserve asset and by other negotiators to a similar obligation with respect to reserve currencies. Obligations to collaborate, as in this same provision, are sometimes a clue to a dispute in which resolute protagonists have prevented the creation of a more precise obligation.

    Stressperanto may be useful on other occasions, not because there is disagreement between contending parties, but because there is agreement that cannot be reconciled with the Articles. Under the original Articles, for example, it was not possible to give members an unqualified assurance that they would be able to make certain purchases of resources from the Fund without challenge, although there was agreement on the desirability of such an assurance if it were feasible. The solution was to give members a de facto assurance that approached certainty as closely as possible without formally conceding it. The expression “the overwhelming benefit of any doubt” was coined to express this thought. The formula is no longer applied to requests for purchases within what used to be called the “gold tranche,” because ever since the First Amendment members have had a de jure assurance that there will be no challenge, but the expression, however murky, has proved to be useful enough to justify retention of it for other purposes.

    The intensity of debate in the discussions on reform of the international monetary system inspired neologisms that surprised but cheered some participants, although the new mintings have not been preserved in the Fund’s Articles. “Concertation” became popular to express the desirability of harmonizing the policies of members that affected balances of payments. The Mozartian resonance of the word was in its favor, but “concertation” had become obsolete in English, probably in the seventeenth century, and, worse, had meant “contention” or “disputation” before then.25 “Concertation” is alive and well, however, in Paris and other European capitals, where it is active in the service of the European Monetary System and in other ways.26

    “Banalization,” easily traceable to the French “banaliser,” was in vogue for a time as if it were an English word. It was used to describe the attitude of some European authorities that were willing to agree that gold should be deprived of its sovereign status in the international monetary system, but not that gold should be exiled. It should be treated as a commoner in company with other reserve assets. Gold could be “banalized” by allowing monetary authorities to deal in it among themselves at prices based on market quotations even before the Second Amendment became effective.27 The Second Amendment has “banalized” gold by stripping it of its regalia, but it has been treated with at least an appearance of respect by Article V, Section 12(d).28

    In recent years, lawyers have given more attention to the legal aspects of international monetary arrangements than they have in the past. One of the deterrents to scholarship in this field is the difficulty of gaining access to information about the practice of international organizations that have monetary functions. Legal studies that concentrate exclusively on the texts of constitutive treaties and subordinate regulations are jejune and often inaccurate. The organizations have not been much impressed by the moral of Lord Acton’s dictum: “The nation that keeps its archives secret has its history written by its enemies.”

    The Fund publishes a running history by its own Historian. The history is immensely valuable, but legal scholars would welcome the publication of original documents. It is sufficient to recall the value of travaux préparatoires in international law.29 The denial of access to the Fund’s archives is understandable in view of the assurance of confidentiality that members require as a condition of willingness to discuss their policies with the Fund. The Fund does not act on the principle that its documents lose their confidential character with the passage of time, but the Executive Board has authorized the publication of some documents in one of the group of volumes that appear from time to time as installments of the Fund’s history.

    Legal scholars are more aware than they were in the past that legal problems of a monetary character are also economic problems, although the courts of some countries still decide issues as if they were no more than verbal challenges. Most economists do not see their problems as legal problems even when they write the history of international monetary relations or make recommendations for change in current relations. The insulation of the disciplines of law and economics from each other has not been the practice of the Fund.

    Many critics have expressed doubts about the existence of an international monetary system in these days. A few legal scholars have asked whether there is much that deserves to be called international law in the way that international monetary relations are governed.30 Both reactions reflect dissatisfaction, mainly with the present international regulation of exchange arrangements and exchange rates. It is an exaggeration, however, to assert that present norms are no more than a modest and haphazard collection of rules without a rationale. Article IV, Section 1, whatever its effectiveness as a charter for exchange arrangements and exchange rates, cannot be dismissed so lightly.

    Softening of the law on exchange arrangements and exchange rates, as discussed in the seventh essay, does not mean that the norms of the system have come close to disappearance. Even in relation to exchange rates, firm norms remain, for example in the regulation of restrictions on payments and transfers for current international transactions, multiple currency practices, and discriminatory currency arrangements. These norms are not of slight importance in the conduct of international monetary relations.

    It is easy to demonstrate the existence of a considerable body of firm law on aspects of international monetary relations not directly formulated in terms of exchange arrangements and exchange rates. Moreover, rules that govern monetary relations within a group of countries must not be overlooked in any stocktaking of monetary law. The rules of the European Community are of particular interest because of the share of the member states in international trade and payments.

    The rules that bind such collective entities as the Fund, whether imposed by constitutive treaties or self-imposed, are part of the corpus juris that governs international monetary relations. It is easier to question the existence or scope of rules of law if the corpus juris is assumed to consist exclusively of the obligations of member countries. It would be whimsical, however, to ignore the rules of law that govern such activities as the Fund’s administration of its resources. The effects on members of these rules may be more profound than the effects of the obligations, whether firm or soft, that members have undertaken by their treaty. The softening of obligations on exchange arrangements and exchange rates may have contributed to a greater need for resources, but whatever the reasons may be for the greater need, the result has been the further development of rules governing the availability of internationalized resources. Terms that prescribe the conditions on which the resources may be used exercise a broad influence on the policies of members and help to make more precise and more effective the rules of the Fund’s regulatory jurisdiction. This influence is exercised not only to improve the welfare of the individual member using the Fund’s resources but also to promote the interests of the system as a whole. Keynes was prescient in declaring in his Proposals for a Clearing Union that

    There should be the least possible interference with internal national policies, and the plan should not wander from the international terrain. Since such policies may have important repercussions on international relations, they cannot be left out of account. Nevertheless, in the realm of internal policy, the authority of the Governing Board of the proposed Institution should be limited to recommendations, or at the most to imposing conditions for the more extended enjoyment of the facilities which the Institution offers.31

    International monetary arrangements are the subject of much criticism by both lawyers and economists, but shortcomings cannot be attributed to rigidity in the Articles of the Fund. The essays in this volume should show that the Fund has not been reluctant or conservative in responding to problems of the international monetary system as they emerge. The present Articles permit great flexibility and are not a hindrance to change. Nevertheless, a legal framework must impose some constraint. Why then should the constraint be respected and pragmatism or the politics of the moment rejected as the guiding principle? Sooner or later, an international organization that does not observe the rule of law can expect to see its effectiveness diminish even if it is not forced to the desperation of studying its provisions on liquidation.

    Annex: The Language of the Fund’s Articles 32

    Mr. Smith. Mr. White, do you agree with me that the Bretton Woods fund proposal is a highly complicated and involved document?

    Mr. White. No; Dr. Smith, I think the fund proposal seems involved possibly to the layman but not to an expert in the field of international finance; in the same way that certain questions of surgery or medical science involved [sic] to the layman but not to the physician. The fund handles a rather specialized field of international finance—foreign exchange. Those are matters which for obvious reasonable considerations are not easily understood by the layman, but that does not mean that the subject is difficult to a great number of men whose business it is and whose training it is to deal with these things, and to those persons the fund document is not a complex document. To be sure, any legal document, which is carefully drawn and which attempts to carefully protect and safeguard large assets, is going to have a large number of provisions, and the words are going to be frequently technical and one could not understand it by reading it only once. It would have to be studied. But I should say it is not complicated to persons conversant with the subject and there are literally thousands in the world who are expert in that field.

    Mr. Smith. You mentioned medicine. I practiced medicine for 30 years and I must say to you that I have never seen anything in the field of medicine that equals this.

    Mr. White. Well, I think that is quite understandable. But I, an economist, have occasionally dabbled at reading medical books—not very often because I believed that the thing for me to do when trying to decide on a course of treatment was to see a doctor rather than try to get my information from a medical book—but they have seemed very complicated to me, too, Dr. Smith, I mean the medical books.

    Mr. Smith. The document contains something like forty to forty-five thousand words, does it not?

    Mr. White. I have not counted them, but I can tell you the number of pages.

    Mr. Smith. It has 31 chapters, 100 subjects or more, and a hundred or more cross references.

    Mr. White. I see you have studied it carefully. How much does it weigh?

    Mr. Smith. It weighs very heavily upon our people.

    Now, you recognize that there are some fundamental differences of opinion respecting the fund proposal.

    Mr. White. Well, I think it is fair to say I recognize that there are fundamental differences of opinion about almost anything of any significance, whether it is in the field of economics, anthropology, government, or in the field of medicine.

    Mr. Smith. May I ask you this question, Mr. White? Do you know of any other proposal ever to come before the Congress of the United States so intricate and all-embracing as the one before us now?

    Mr. White. Why, I could not possibly answer that, Dr. Smith.

    Mr. Smith. Do you know of any that ever came before any parliamentary body in the world that was as intricate and involved as is this one?

    Mr. White. I do not know. I remember a little about the Constitution of the United States; it was a document that was discussed a very long time; there were a number of books written on the subject reflecting different points of view and interpretations on the various articles, and there were endless discussions on their precise meaning. I think the document stands out well as a document that is fairly simple to those who understand it.

    Mr. Smith. Now, if I understood you correctly, you have been working at this for about 3 or 4 years; is that correct?

    Mr. White. Well, we have been working on these specific proposals for several years. Of course, they reflect a lifetime of experience and training and also represent the outgrowth of experience which our Treasury and other treasuries have had during the thirties, with matters of this character.

    Mr. Smith. You have had many long conferences on this proposal?

    Mr. White. True.

    Mr. Smith. With persons here in our own country and people from abroad?

    Mr. White. Quite so.

    Mr. Smith. Would you mind stating for the committee the names of some of the more outstanding persons from other countries with whom you have consulted?

    Mr. White. There is a list of delegates in the document put out by this Government. It is called The Final Act and Related Documents, and it contains a list of the representatives who were at Bretton Woods, and most of the technicians and many of the representatives were included among those with whom we talked at length prior to the Bretton Woods conference. You can easily get a list of them.

    Mr. Smith. Do you contend that all of the delegates to the Bretton Woods Conference could be classified as authorities in the field of money?

    Mr. White. No.

    Mr. Smith. How many of those delegates would you consider as being authorities in the field of money?

    Mr. White. Oh, I would say the bulk of them, but one must bear in mind, Dr. Smith, that in an international conference which aims to draft proposals of this character that there are a lot of different kinds of decisions to be made; for example, there were a substantial number of persons there who were legal authorities, whose business it is to see that the drafting is properly done and who, of course, knew something about the subject but who in no sense could be classified as experts in money matters any more than I could be classified as an expert in legal drafting though I participated in the drafting.

    Now, there were other facets of this thing that had to be taken care of at the conference, and each one of the delegates was selected, I presume, for the reason that he could make some contribution either then or later.

    That is true in any international conference of any significance.

    Mr. Smith. There were representatives there who, however, could not be regarded as authorities in monetary matters?

    Mr. White. Well, I will let you answer that.

    The Chairman. Will you yield to me, Dr. Smith? I was a delegate and the best that I could claim is that I was an intelligent observer.

    Mr. Smith. Mr. Chairman, I did not mean that as a reflection upon anyone. I wish you to understand that.

    The Chairman. I do.

    Mr. Smith. I am speaking, rather, of the foreign delegates. We were very well represented. I realize that. Mr. White, himself, was there.

    Mr. White. Thank you, Dr. Smith; coming from you, that is very gracious.

    Mr. Smith. Now, do you believe, this is, after all, rather complicated? Do you expect the Congress, in a period of 3 or 4 or 5 weeks, to be able to understand this document?

    Mr. White. Oh, yes; very definitely. There are a substantial number of Congressmen and some Senators that I have spoken with personally, who already have a grasp of all the significant points. There are some of the provisions dealing with details necessary for operations that you can understand if you want to take considerable trouble, but certainly I expect that Congress—those Members of Congress who are sufficiently interested, can understand the basic pattern and the structure and the purpose and the powers of this agreement.

    I do not know whether you put it beyond Congress; I do not.

    Mr. Smith. I hope that is true, because I think you know that I have devoted a great deal of time to the study of this problem.

    Mr. White. We have been very, very pleased and encouraged by the time that you have spent on it and the very hard work you have been doing, and I have frequently commented to our colleagues: “Dr. Smith is really taking this to heart; he has written us about 20 letters, I think, and each one contained about 50 answers, and we have been glad to answer them.”

    We have been glad to inform you about the Bretton Woods proposals and I must say, speaking for the Treasury, we are delighted with your interest.

    Mr. Smith. And I am grateful for your courtesy.

    Mr. Patman. You mean questions in the letters, not answers?

    Mr. White. Yes; we supplied the answers.

    Mr. Smith. Well, the point I want to make is, that with all the study I have undertaken on this proposal, I cannot say that I understand it. Of course, that is no reflection on my colleagues. I want to assure you of that. But I do have that feeling, definitely.

    Mr. White. I do not get that feeling form the questions you have asked, Dr. Smith. I think that you understand a great deal about it.

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