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IMF History (1972-1978) Volume 3
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Final Report and Outline of Reform of the Committee of Twenty

Author(s):
International Monetary Fund
Published Date:
February 1996
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In June 1974 the ad hoc Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) sent to the Board of Governors of the Fund the following final report to which was attached a final Outline of Reform.

Report to the Board of Governors of the International Monetary Fund by the Committee on Reform of the International Monetary System and Related Issues

(June 14, 1974)

On July 26, 1972, the Board of Governors adopted Resolution 27-10, which established the Committee and instructed it to advise and report to the Board of Governors with respect to all aspects of reform of the international monetary system. On September 24, 1973, during the Annual Meeting in Nairobi, the Chairman of the Committee, Mr. Ali Wardhana, submitted to the Board of Governors an interim report on the work of the Committee, together with a First Outline of Reform which had been prepared by the Chairman and Vice-Chairmen of the Deputies and which, in his view, reflected the stage then reached in the Committee’s discussions. In that report it was stated that the Committee intended to settle the issues of reform by July 31, 1974. The Committee now presents its final report, together with an Outline of Reform.

Since the Nairobi meeting, the uncertainties affecting the world economic outlook, related to inflation, the energy situation, and other unsettled conditions, have increased. Major changes are occurring in the world balance of payments structure, and it is not yet clear to what extent the positions of individual countries will be altered or how adjustment will be achieved.

These conditions of greater uncertainty have led to a change of emphasis in the work of the Committee. It has been recognized that priority should be given to certain aspects of reform which have become all the more urgent. Thus, for example, during the current period of exceptional and widespread payments imbalances, there is a particular need to maintain close international consultation and surveillance of countries’ balance of payments policies in the Fund, and to develop orderly means of financing these imbalances, including means of supplying on appropriate terms the increased needs of many developing countries for financial resources. On the other hand, it is recognized that other aspects of reform will need to be developed and implemented at a later date. Thus, for example, it may be some time before there is a return to a system based on stable but adjustable par values or to general convertibility; nor will the full arrangements for management of the adjustment process and of global liquidity necessarily be feasible in the period immediately ahead.

Given, therefore, that there will be an interim period before a reformed system can be finally agreed and fully implemented, the Committee regards it as of the highest importance that immediate steps should be taken to begin an evolutionary process of reform, and that other action taken in this field during the interim period should be consistent with the principles of reform.

These considerations are reflected in the attached Outline of Reform. The Outline and the accompanying Annexes also reflect the detailed work which has been done by the Deputies since the Nairobi meeting.

The Outline itself is in two parts. Part I, The Reformed System, records the outcome of the Committee’s discussion of international monetary reform and indicates the general direction in which the Committee believes that the system could evolve in the future. This involves an enlargement of the scope of international surveillance and management in a number of important areas, and a consequently larger role for the Fund. It is envisaged that there should be more effective and symmetrical adjustment procedures which, while leaving the choice of particular policies as far as possible to the country concerned, will nevertheless ensure, through a process of assessment supported by reserve indicators and by graduated pressures, that appropriate action is taken where necessary; that the convertibility system should promote the better management of global liquidity and the avoidance of uncontrolled growth of reserve currency balances, and that the SDR should become the principal reserve asset, with the role of gold and of reserve currencies being reduced; and that there should be arrangements to give positive encouragement to economic development and to promote an increasing net flow of real resources to developing countries.

Part I of the Outline contains references to the accompanying Annexes. As stated above, the Committee has recognized that, in view of present uncertainties, it is not appropriate to attempt now to determine the full details of all aspects of the system, many of which can better be decided in the light of future developments. A number of areas, within which agreement has not yet been reached on some important aspects, are treated more fully in the Annexes. These Annexes have been prepared by the Chairman and Vice-Chairmen of the Deputies to record the state of discussion in these areas, and to provide illustrative schemes and operational detail. It is envisaged that arrangements in these areas, as they may be agreed, should be implemented as and when the Fund judges it feasible to do so, and that the Fund might in some cases introduce such arrangements initially on an experimental basis with a view to subsequent agreement on full implementation.

Part II of the Outline sets out the immediate steps on which the Committee is agreed. These include the establishment of an Interim Committee of the Board of Governors and subsequently of a Council; the strengthening of Fund procedures for close international consultation and surveillance of the adjustment process; the adoption of appropriate guidelines for the management of floating exchange rates during the present period of widespread floating; establishment of a facility in the Fund to assist members in meeting the initial impact of increased oil import costs; the reinforcement of the presumption against restrictions on trade and payments for balance of payments purposes; improvement of procedures in the Fund for management of global liquidity, and further international study in the Fund of arrangements for gold in the light of the agreed objectives of reform; the adoption of an interim method of valuing the SDR in transactions against currencies; measures to supply the needs of developing countries, as well as reconsideration of the possibility and modalities of establishing a link between development assistance and SDR allocation, and arrangements for carrying forward the study of the broad question of the transfer of real resources; and the preparation of draft amendments of the Articles of Agreement, for further examination by the Interim Committee and for possible recommendation at an appropriate time to the Board of Governors.

Outline of Reform

PREFACE

The Committee recognizes that, in view of present uncertainties related to inflation, the energy situation, and other unsettled conditions, it is not appropriate to attempt to determine the full details of all aspects of the future international monetary system, many of which can better be decided in the light of future developments. Part I of this Outline, The Reformed System, records the outcome of the Committee’s discussion of international monetary reform and indicates the general direction in which the Committee believes that the system could evolve in the future. A number of areas, within which agreement has not yet been reached on some important aspects, are treated more fully in the Annexes accompanying the Outline. These Annexes have been prepared by the Chairman and Vice-Chairmen of the Deputies to record the state of the discussion in these areas, and to provide illustrative schemes and operational detail. It is envisaged that arrangements in these areas, as they may be agreed, should be implemented as and when the Fund judges it feasible to do so, and that the Fund might in some cases introduce such arrangements initially on an experimental basis with a view to subsequent agreement on full implementation. Part II of the Outline, Immediate Steps, sets out the steps which the Committee is agreed should be taken immediately.

PART I. THE REFORMED SYSTEM

Introduction

1. It is agreed that there is need for a reformed world monetary order, based on cooperation and consultation within the framework of a strengthed International Monetary Fund, that will encourage the growth of world trade and employment, promote economic development, and help to avoid both inflation and deflation.

2. The main features of the international monetary reform will include

  • (a) an effective and symmetrical adjustment process, including better functioning of the exchange rate mechanism, with the exchange rate regime based on stable but adjustable par values and with floating rates recognized as providing a useful technique in particular situations;

  • (b) cooperation in dealing with disequilibrating capital flows;

  • (c) the introduction of an appropriate form of convertibility for the settlement of imbalances, with symmetrical obligations on all countries;

  • (d) better international management of global liquidity, with the SDR becoming the principal reserve asset and the role of gold and of reserve currencies being reduced;

  • (e) consistency between arrangements for adjustment, convertibility, and global liquidity; and

  • (f) the promotion of the net flow of real resources to developing countries.

3. It is recognized that the attainment of the purposes of the reform depends also upon arrangements for international trade, capital, investment, and development assistance, including the access of developing countries to markets in developed countries; and it is agreed that the principles which govern the international monetary system and arrangements in these related areas must be consistent.

Adjustment

4. There will be a better working of the adjustment process in which adequate methods to assure timely and effective balance of payments adjustment by both surplus and deficit countries will be assisted by improved international consultation in the Fund, including the use of objective indicators. To this end

  • (a) Countries will take such prompt and adequate adjustment action, domestic or external, as may be needed to avoid protracted payments imbalances. In choosing among different forms of adjustment action, countries will take into account repercussions on other countries as well as internal considerations.

  • (b) Countries will aim to keep their official reserves within limits which will be internationally agreed from time to time in the Fund and which will be consistent with the volume of global liquidity. For this purpose reserve indicators will be established on a basis to be agreed in the Fund. Possible operational provisions in connection with reserve indicators, with an illustrative scheme, are discussed in Annex 1.

  • (c) Countries will apply adjustment measures in a manner designed to protect the net flow of real resources to developing countries, so as to help to achieve any internationally agreed resource transfer targets that they have adopted. Deficit countries in designing their adjustment measures will seek so far as possible not to reduce the access of developing countries and international development finance institutions to their financial markets, nor to reduce the volume of official development assistance or harden its terms and conditions. Surplus countries, particularly those that are not meeting internationally agreed resource transfer targets that they have adopted, will seek so far as possible to increase aid and relax any restrictions on the access of developing countries and international development finance institutions to their financial markets.

5. Fund consultation and surveillance regarding the adjustment process will take place at two levels, the Executive Board and the Council to be established under paragraph 31, as follows:

  • (a) The Council will oversee the continuing operation of the adjustment process. In this connection the Council will at regular intervals review developments in world payments and liquidity and the aggregate net flow of real resources to developing countries. In addition, it may examine particular cases of imbalance which in the light of their international repercussions are referred to it by the Executive Board or are considered by the Council to be of special significance.

  • (b) The Executive Board will at regular intervals

    • (i) survey the world payments situation in relation both to the general working of the adjustment process and to developments affecting global liquidity, with periodic consideration of balance of payments aims;

    • (ii) review the aggregate net flow of real resources to developing countries and its financing, and the consistency of countries’ balance of payments aims and policies with any internationally agreed resource transfer targets that they have adopted; and

    • (iii) examine particular cases of imbalance that have significant international repercussions.

The Executive Board will as appropriate report to the Council on these matters.

6. Countries will become subject to examination under paragraph 5(b) (iii) if either

  • (a) there has been a disproportionate movement in their official reserves; or

  • (b) in the judgment of the Managing Director, following informal soundings among Executive Directors, there is prima facie evidence that a country is facing significant imbalance, even though this is not indicated by a disproportionate movement in its reserves.

7. In the process of examination under paragraph 5(b)(iii), representatives of the country will be expected to comment on the country’s economic prospects, including particularly its basic balance of payments position and prospects, on its external objectives, and on what domestic or external action, if any, it has taken or intends to take. An assessment by the Executive Board will establish whether there is a need for adjustment. In making its assessment, the Executive Board will take account of all relevant considerations, including the factors mentioned above; it will examine the consistency of the country’s reserve and current account aims and policies with those of other countries, and will attach major importance to disproportionate movements of reserves. Account will be taken of the special characteristics of developing countries that make it difficult for them to achieve prompt adjustment without seriously damaging their long-term development programs. Following an assessment the Executive Board will, where appropriate, call upon the country concerned to adopt or reinforce policies to correct its imbalance. A country in choosing between different forms of policy will take account of views expressed in the course of the examination on the form and size of policy action.

8. The Fund will contine to hold its normal consultations with member countries. In the course of these consultations the Executive Board will, inter alia, assess the country’s payments performance on the same basis as in paragraph 7 and taking into account the factors mentioned there, and will, where appropriate, call upon the country concerned to adopt or reinforce policies to correct its imbalance if it has not previously been so called upon under paragraph 7.

9. It is agreed that in the adjustment procedures described above separate arrangements will need to be made for a limited number of countries with large reserves deriving from depletable resources and with a low capacity to absorb imports.

10. Normally the provisions of paragraphs 7 and 8 for assessment supported by reserve indicators would be expected to lead to appropriate adjustment action. If they do not do so the Fund will have available graduated pressures to be applied to countries in large and persistent imbalance, whether surplus or deficit. The possibility of the activation of such pressures could of itself encourage timely and effective adjustment action. In considering the application of pressures the Fund will take into account the factors mentioned in paragraph 7. The possible forms and methods of activation of graduated pressures are set out in Annex 2.

The Exchange Rate Mechanism

11. In the reformed system exchange rates will continue to be a matter for international concern and consultation. Competitive depreciation or undervaluation will be avoided. The exchange rate mechanism will remain based on stable but adjustable par values, and countries should not make inappropriate par value changes. On the other hand, countries should, whether in surplus or deficit, make appropriate par value changes promptly. Changes in par values will continue to be subject to Fund approval. The Fund may establish simplified procedures for approving small par value changes under appropriate safeguards.

12. Countries will undertake obligations to maintain specified maximum exchange rate margins for their currencies, except when authorized to adopt floating rates. The Fund will be empowered to vary the specified maximum margins on a qualified majority. It is agreed that it would be desirable that the system of exchange margins and intervention should be more symmetrical than that which existed in practice under the Bretton Woods system. Two possible approaches to a more symmetrical intervention system are discussed in Annex 3.

13. Countries may adopt floating rates in particular situations, subject to Fund authorization, surveillance, and review. Such authorization will relieve a country of its obligations with regard to the maintenance of specified margins mentioned in paragraph 12. Such authorization will be given in accordance with provisions to be agreed, on condition that the country undertakes to conform with agreed guidelines for conduct. Guidelines will also be established for intervention by other countries in a floating currency. Authorization to float may be withdrawn if the country fails to conform with the guidelines for conduct, or if the Fund decides that continued authorization to float would be inconsistent with the international interest. Possible provisions for the authorization of floating and guidelines for floating are discussed in Annex 4.

Controls

14. There will be a strong presumption against the use of controls on current account transactions or payments for balance of payments purposes. In this connection arrangements will be made for continuing close coordination between the Fund and the gatt.

15. Countries will not use controls over capital transactions for the purpose of maintaining inappropriate exchange rates or, more generally, of avoiding appropriate adjustment action. Insofar as countries use capital controls, they should avoid an excessive degree of administrative restriction which could damage trade and beneficial capital flows and should not retain controls longer than needed. Such controls should be applied without discrimination except as stated in paragraph 16; in this connection appropriate recognition will be given to the special position of countries that maintain close financial ties or that establish an economic and monetary union among themselves.

16. Wherever possible developing countries will be exempted from controls imposed by other countries, particularly from import controls and controls over outward long-term investment. The special circumstances of developing countries will be taken into account by the Fund in assessing controls which these countries feel it necessary to apply. In addition, developed countries should seek to remove legal, institutional, and administrative obstacles to the access of developing countries to their financial markets. For their part, developing countries should seek to avoid policies which would discourage the flow of private capital to them.

Disequilibrating Capital Flows

17. Countries will cooperate in actions designed to limit disequilibrating capital flows and in arrangements to finance and offset them. Actions that countries might choose to adopt could include a more satisfactory degree of harmonization of monetary policies, subject to the requirements of domestic demand management; prompt adjustment of inappropriate par values, use of wider margins, and the adoption of floating rates in particular situations; and the use of administrative controls, including dual exchange markets and fiscal incentives. There will be improved consultation in the Fund on actions designed to limit disequilibrating capital flows, with the following objectives: first, to increase the effectiveness of such actions and to minimize harmful effects on third countries; and secondly, to avoid unnecessary proliferation and escalation of controls and the additional flows which might be prompted by anticipation thereof.

Convertibility, Consolidation, and the Management of Currency Reserves

18. It is agreed that the basic objectives to be accommodated in the reformed convertibility system should be symmetry of obligations on all countries including those whose currencies are held in official reserves; the better management of global liquidity and the avoidance of uncontrolled growth of reserve currency balances; adequate elasticity; and as much freedom for countries to choose the composition of their reserves as is consistent with the overall objectives of the reform.

19. As part of the better international management of global liquidity, the aggregate volume of official currency holdings will be kept under international surveillance and management in the Fund. In this connection the Fund will take account of any necessary increase over time in official currency holdings in relation to the growth of international transactions and also of the special position of a limited number of countries with large reserves deriving from depletable resources and with a low capacity to absorb imports.

20. All countries maintaining par values will settle in reserve assets those official balances of their currencies which are presented to them for conversion. The Fund will establish appropriate arrangements to ensure sufficient control over the aggregate volume of official currency holdings. Alternative approaches to the control of official currency holdings are discussed in Annex 5.

21. Elasticity within the settlement system, particularly to finance disequilibrating capital flows, may be provided by credit facilities, including Fund credit and official bilateral or regional short-term credit. The Fund may establish as necessary new credit facilities to assist countries exposed to disequilibrating capital flows, particularly those without sufficient access to bilateral or regional credit. The establishment and use of bilateral and regional credit facilities will be reported to the Fund. The extent to which credit facilities are used would be taken into account by the Managing Director for the purpose of paragraph 6(b). Additional forms of elasticity that have been suggested are set out in Annex 6.

22. The Fund will, as necessary, make provision for the consolidation of reserve currency balances to protect the future convertibility system against net conversion of any overhang of such balances which may exist at the restoration of general convertibility, and to ensure that the issuers of the currencies concerned will be able to acquire reserve assets when in surplus and will not lose reserve assets beyond the amount of any future official settlements deficits. For this purpose, and also to permit countries that wish to do so to exchange official currency holdings for SDRs, the Fund will have authority to establish a substitution account. Possible operational provisions of a substitution account with an illustrative scheme are discussed in Annex 7. In addition, the Fund may also assist those countries that desire to negotiate bilateral funding of currency balances.

23. Countries will cooperate in the management of their currency reserves so as to avoid disequilibrating movements of official funds. Among the possible provisions for achieving this objective, the following have been suggested but are not agreed:

  • (a) Countries should respect any request from a country whose currency is held in official reserves to limit or convert into other reserve assets further increases in their holdings of its currency.

  • (b) Countries should periodically choose the composition of their currency reserves and should undertake not to change it without prior consultation with the Fund.

  • (c) Countries should not add to their currency reserve placements outside the territory of the country of issue except within limits to be agreed with the Fund.

Primary Reserve Assets

24. The SDR will become the principal reserve asset and the role of gold and of reserve currencies will be reduced. The SDR will also be the numeraire in terms of which par values will be expressed.

25. As part of the better international management of global liquidity, the Fund will allocate and cancel SDRs so as to ensure that the volume of global reserves is adequate and is consistent with the proper functioning of the adjustment and settlement systems. In the assessment of global reserve needs and the decision-making process for SDR allocation and cancellation the Fund will continue to follow the existing principles as set out in the Articles of Agreement. However, it is agreed that the methods of assessing global reserve needs must remain the subject of study, and it has been suggested that they may need to give additional emphasis to a number of economic factors, as discussed in Annex 8.

26. The effective yield on the SDR will be high enough to make it attractive to acquire and hold, but not so high as to make countries reluctant to use the SDR when in deficit. The value of the SDR in transactions against currencies will be determined in such a way as to protect the capital value of the SDR against depreciation. Possible techniques for determining the value of the SDR in transactions against currencies are discussed in Annex 9. The interest rate on the SDR will be set from time to time by the Executive Board in such a way as to maintain an appropriate effective yield, in the light of changing market interest rates.

27. In the light of the agreed objective that the SDR should become the principal reserve asset, consideration will be given to revising the rules governing its use with a view to relaxing existing constraints. The suggestions for relaxation that have been made include

  • (a) abolition of the limits on acceptance obligations and of the reconstitution obligation;

  • (b) some relaxation of the requirement of need for the use of SDRs;

  • (c) authority for willing partners to enter into transactions in SDRs without designation by the Fund;

  • (d) authorization for the General Account to accept or use SDRs in all transactions and operations in which it can accept or use gold or currencies;

  • (e) authorization for the Fund to designate any official international or regional institution of a financial character as a holder of SDRs;

  • (f) authorization for the Fund to permit additional types of transactions and operations in SDRs; and

  • (g) authorization for the Fund to modify the provisions on opting out of decisions to allocate SDRs.

Consideration will be given to other aspects of the SDR, including its name, with a view to promoting public understanding.

28. Appropriate arrangements will be made for gold in the reformed system, in the light of the agreed objectives that the SDR should become the principal reserve asset and that the role of gold should be reduced. At the same time it is also generally recognized that gold reserves are an important component of global liquidity which should be usable to finance balance of payments deficits. It is not yet settled what arrangements for gold would be best in the reformed system, having due regard to the interests of all member countries. Under one approach, monetary authorities, including the Fund, would be free to sell, but not to buy, gold in the market at the market price; they would not undertake transactions with each other at a price different from the official price, which would be retained and would not be subject to a uniform increase. Under another approach, the official price of gold would be abolished and monetary authorities, including the Fund, would be free to deal in gold with one another on a voluntary basis and at mutually acceptable prices, and to sell gold in the market. A third approach would modify the preceding one by authorizing monetary authorities also to buy gold in the market. Arrangements have also been proposed whereby the Fund would be authorized to purchase gold from monetary authorities in exchange for SDRs at a price between the market and the official price, and to sell gold gradually over time in the market; if arrangements of this kind were introduced, questions would arise concerning both the Fund’s policy with respect to its sales in the market, and the sharing of any profits or losses accruing to the Fund from its gold transactions.

The Link and Credit Facilities in Favor of Developing Countries

29. In the light of the agreed objective to promote economic development, the reformed monetary system will contain arrangements to promote an increasing net flow of real resources to developing countries. Such arrangements are further discussed in Annex 10, which deals with the special interests of developing countries. If these arrangements were to include a link between development assistance and SDR allocation, this could take one of the following forms:

  • (a) A link would be established between development finance and SDR allocation, the total volume of which allocation will be determined exclusively on the basis of global liquidity needs. This link would take the form of the direct distribution to developing countries of a larger proportion of SDR allocations than they would receive on the basis of their share in Fund quotas. Link resources so allocated would be distributed to all developing countries in such a way as to be relatively favorable to the least developed countries.

  • (b) A link would be established between development finance and SDR allocation, the total volume of which allocation will be determined exclusively on the basis of global liquidity needs. This link would take the form of direct allocation to international and regional development finance institutions of a predetermined share of SDR allocations. Link resources distributed to development finance institutions would be disbursed to developing countries on the basis of development need and in such a way as to be relatively favorable to the least developed countries. The use of link funds by development finance institutions, including their distribution and terms, would reflect the nature and purpose of these resources.

30. It is envisaged that there will be a new facility in the Fund, under which developing countries would receive longer-term balance of payments finance.

The Institutional Structure of the Fund

31. A permanent and representative Council, with one member appointed from each Fund constituency, will be established. The Council will meet regularly, three or four times a year as required, and will have the necessary decision-making powers to supervise the management and adaptation of the monetary system, to oversee the continuing operation of the adjustment process, and to deal with sudden disturbances which might threaten the system. The Managing Director will participate in meetings of the Council.

PART II. IMMEDIATE STEPS

32. It is recognized that, as stated in the Preface to this Outline, it will be some time before a reformed system can be finally agreed and fully implemented. In the interim period, the Fund and member countries will pursue the general objectives set out in paragraph 1, and will observe, so far as they are applicable, the principles contained in Part I of this Outline. It is proposed that a number of steps should be taken immediately to begin an evolutionary process of reform and to help meet the current problems facing both developed and developing countries.

33. The Council referred to in paragraph 31 will be established as soon as practicable. In the meantime an Interim Committee of the Board of Governors will be created, with an advisory role in the areas in which the Council is to have decision-making powers, and with similar composition and procedures. This Committee will come into being when the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues has completed its work.

34. During the interim period, with significant changes in prospect for the world balance of payments structure, there is an evident need for close international consultation and surveillance of the adjustment process. Countries will be guided in their adjustment action by the general principles set out in paragraph 4. During the current period of exceptional and widespread payments imbalances, they will cooperate with one another and with international institutions to find orderly means to deal with these imbalances without adopting polices that would aggravate the problems of other countries, and to promote equilibrating capital flows; in this connection a facility will be established in the Fund to assist member countries in meeting the initial impact of the increase in oil import costs. The Fund will exercise surveillance of the adjustment process through the Council (or, for the time being, the Interim Committee of the Board of Governors) and the Executive Board, on the lines of the procedures set out in paragraphs 5-10, and subject for the time being to the following provisos, namely that

  • (a) the Fund will seek to gain further experience in the use of objective indicators, including reserve indicators, on an experimental basis, as an aid in assessing the need for adjustment, but will not use such indicators to establish any presumptive or automatic application of pressures;

  • (b) determination of what is a disproportionate movement in reserves will be made in the light of the broad objectives of member countries for the development of their reserves over a period ahead, as discussed with the Fund; and

  • (c) the pressures which may be applied to countries in large and persistent imbalance will continue to be those at present available to the Fund.

35. During the interim period, exchange rates will continue to be a matter for international concern and consultation, and competitive depreciation or undervaluation will be avoided. For these purposes, during the present period of widespread floating, countries will be expected in their intervention and other policies to follow guidelines on the lines of Section B of Annex 4 and be subject to surveillance in the Fund as there described.

36. During the interim period, countries will be guided by the principles set out in paragraphs 14-17 in relation to controls and to cooperative action to limit disequilibrating capital flows. Particular importance will be attached during the interim period to avoiding the escalation of restrictions on trade and payments for balance of payments purposes. To this end, member countries of the Fund will be invited to pledge themselves on a voluntary basis, in addition to observing their obligations with respect to payments restrictions under the Fund’s Articles, for a period of two years, not to introduce or intensify trade or other current account measures for balance of payments purposes without a finding by the Fund that there is balance of payments justification for such measures.1 In this connection arrangements will be made for continuing close coordination between the Fund and the gatt.

37. (a) Countries will cooperate with the Fund during the interim period in seeking to promote the principle of better management of global liquidity as set out in paragraph 2(d). The Fund will assess global reserves and take decisions on the allocation and cancellation of SDRs in accordance with paragraph 25. The Fund will periodically review the aggregate volume of official currency holdings in accordance with paragraph 19 and, if they are judged to show an excessive increase, will consider with the countries concerned what steps might be taken to secure an orderly reduction.

(b) The Fund will also give consideration to substitution arrangements and examine whether an amendment of the Articles of Agreement would be desirable in this connection.

(c) There will be further international study in the Fund of arrangements for gold in the light of the agreed objectives of reform.

38. It is agreed that in present circumstances, and without prejudice to the method of valuation to be adopted in a reformed system, the valuation of the SDR will be based on a basket of currencies in accordance with the “standard basket” technique described in Section A, paragraph 1, of Annex 9, and that the rate of interest will be determined periodically by the Executive Board in the light of changing market interest rates. This arrangement will be reviewed by the Fund two years after it comes into operation.

39. In view of the serious difficulties that are facing many developing countries, it is agreed that their needs for financial resources will be greatly increased and that all countries with available resources should make every effort to supply these needs on appropriate terms. To this end countries with available resources and development finance institutions should make arrangements to increase the flow of concessionary funds, and should give consideration to various measures including the redistribution of aid effort in favor of countries in greatest need, interest subsidies, and short-term debt relief on official loans in the special case of countries without access to financial markets. The Committee is not unanimous on the question of establishing a link between development assistance and SDR allocation. The Committee is agreed that the Interim Committee should reconsider, simultaneously with the preparation by the Executive Board of draft amendments of the Articles of Agreement, which it is envisaged would be presented for the approval of the Board of Governors by February 1975, the possibility and modalities of establishing such a link. The Executive Board is urged to proceed to an early formulation and adoption of an extended Fund facility as referred to in paragraph 30. It is recommended that a joint ministerial Committee of the Fund and World Bank should be established, to carry forward the study of the broad question of the transfer of real resources to developing countries after the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues has completed its work, and to recommend measures to be adopted in order to implement its conclusions. It is further recommended that the joint ministerial Committee should give urgent attention to the problems of the developing countries most seriously affected by exceptional balance of payments difficulties in the current situation, bearing in mind the need for coordination with other international bodies, and that preparatory work on this aspect should be started immediately, in advance of the establishment of the Committee.

40. The Executive Board will consider possible changes in the General Account and in the rules governing the use of SDRs appropriate for the interim period. The Executive Board will complete the current general review of Fund quotas as soon as possible, bearing in mind the general purposes of the reform.

41. The Executive Board is asked to prepare draft amendments of the Articles of Agreement, as needed to give effect to this Part of the Outline or as otherwise desired, for further examination by the Interim Committee, and for possible recommendation at an appropriate time to the Board of Governors. In particular, draft amendments should be prepared on the following proposals:

  • (a) to establish the Council referred to in paragraph 31;

  • (b) to enable the Fund to legalize the position of countries with floating rates during the interim period;

  • (c) to give permanent force to the voluntary pledge described in paragraph 36 concerning trade or other current account measures for balance of payments purposes;

  • (d) to authorize the Fund to establish, as and when agreed, a substitution account;

  • (e) to amend the present provisions concerning gold;

  • (f) to authorize the Fund to implement a link between development assistance and SDR allocation; and

  • (g) to introduce improvements in the General Account and in the characteristics of and rules governing the use of the SDR, as well as any other consequential amendments.

It is envisaged that such draft amendments, if agreed, would be presented for the approval of the Board of Governors at latest by the date fixed for completion of the current general review of Fund quotas, i.e., by February 1975.

Appendix. Declaration of Trade Measures

The Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues has stressed the importance of avoiding the escalation of restrictions on trade and payments for balance of payments purposes. Accordingly, certain members of the Fund have expressed their wish to subscribe to a Declaration as follows to give effect to that recommendation.

Declaration

A. A member of the Fund that subscribes to this Declaration represents thereby that, in addition to observing its obligations with respect to payments restrictions under the Articles of Agreement of the Fund, it will not on its own discretionary authority introduce or intensify trade or other current account measures for balance of payments purposes that are subject to the jurisdiction of the gatt, or recommend them to its legislature, without a prior finding by the Fund that there is balance of payments justification for trade or other current account measures.

B. A member that subscribes to this Declaration will notify the Fund as far in advance as possible of its intention to impose such measures. If circumstances preclude the Fund from making the finding referred to in A above promptly after such notification, the member may nevertheless impose such measures, but will withdraw the measures, within such a period as may be fixed by the Fund in consultation with the member concerned, if the Fund finds that there is no balance of payments justification for trade or other current account measures.

C. In arriving at the findings referred to above, the Executive Directors are requested to take into account the special circumstances of developing countries.

D. In connection with this Declaration arrangements will be made for continuing close coordination between the Fund and the gatt.

E. This Declaration shall become effective among subscribing members when members having 65 per cent of the total voting power of members of the Fund have accepted it, and shall expire two years from the date on which it becomes effective unless it is renewed.

ANNEXES

As stated in the Preface to the Outline, a number of areas, within which agreement has not yet been reached on some important aspects, are treated more fully in the following Annexes, which have been prepared by the Chairman and Vice-Chairmen of the Deputies to record the state of the discussion in these areas, and to provide illustrative schemes and operational detail. It is envisaged that arrangements in these areas, as they may be agreed, should be implemented as and when the Fund judges it feasible to do so, and that the Fund might in some cases introduce such arrangements initially on an experimental basis with a view to subsequent agreement on full implementation.

The Annexes are as follows:

Annex 1 Reserve indicators: possible operational provisions with an illustrative scheme

Annex 2 Pressures: possible forms and methods of activation

Annex 3 Exchange margins and intervention: possible operational provisions with illustrative schemes

Annex 4 Floating in particular situations: possible operational provisions

Annex 5 Control over the aggregate volume of official currency holdings: possible operational provisions with illustrative schemes

Annex 6 Elasticity: possible additional forms

Annex 7 A substitution account: possible operational provisions with an illustrative scheme

Annex 8 SDR allocation and cancellation: possible operational provisions

Annex 9 Valuation of the SDR: possible operational provisions

Annex 10 The special interests of developing countries

Annex 1. Reserve Indicators: Possible Operational Provisions with an Illustrative Scheme

It is agreed that a better working of the adjustment process is to be assisted by the use of objective indicators. In particular, reserve indicators will be established on a basis to be agreed in the Fund, for the purpose stated in paragraph 4(b) of the Outline.

A number of questions concerning reserve indicators remain unresolved. These include whether they should relate to the level of reserves (a stock indicator) or to changes in reserves (a flow indicator). If a stock indicator were adopted, there is a question as to how reserve norms (i.e., target levels of reserves) for individual countries would be chosen. In the case of either a stock or a flow indicator, it would have to be decided whether reserves were to be measured gross or net of reserve liabilities. Precise definitions of assets and liabilities and reporting requirements would need to be settled. There is also a major unresolved question as to whether there should be any link between reserve indicators and the presumptive or automatic activation of pressures.

More generally, it is recognized that, in the absence of operational experience, it is difficult to judge how arrangements involving the use of reserve indicators would work in practice. Particular reservations have been expressed concerning the possible effects of the use of reserve indicators on market expectations regarding exchange rates. (For a fuller discussion of reserve indicators, see the Reports of the Technical Groups on Indicators and on Adjustment.)2

A. Definitions

1. A “reserve indicator” is a measure of reserves on either a stock or a flow basis. A “reserve indicator structure” is a set of specified points or reserve levels. When one of the points in the structure was reached by the reserve indicator it would serve as a signal that a sizable imbalance existed which might require examination or the application of pressures. Whether the results shown by a flow and a stock indicator differed greatly would depend, inter alia, on whether the flow indicator measured changes in reserves continuously or whether the measure of the flow was interrupted under specified conditions. An interrupted flow indicator would call attention to payments imbalances as they occurred, whereas a stock indicator or a continuous flow indicator would, in addition, call attention to a developing imbalance in the distribution of reserves among countries. The illustrative scheme for a reserve indicator structure given below is based on a stock indicator.

2. Reserve assets for the purposes of the indicator could consist of official holdings of SDRs, reserve positions in the Fund, gold, and foreign exchange. The latter includes claims of all types that would normally be used to finance payments deficits. Claims that would not normally be so used (e.g., trade credits and development loans) would not be included. Information required for the determination of reserves of all members would be reported to the Fund within a specified period after the end of each month. The location of deposits and the currency of denomination might also need to be reported.

3. Reserve liabilities, which would be used to compute a partial or total net reserve indicator, could consist of all liabilities of the public or private sector that are included in the reserves of other countries; net debtor positions in the Fund; and also any liabilities to a substitution account or to an excess reserves account (see Annex 2, Section A(ii)) that may be established in the Fund. Reserve liabilities would not include certain liabilities of the private sector that are denominated in foreign currency (e.g., Euro-currency deposits).

4. In the illustrative scheme of a reserve indicator structure that follows, the reserve indicator for each country would be equal to reserve assets adjusted for cumulative changes in its reserve liabilities from the time of the implementation of the scheme. Hence, a country’s reserve indicator would always differ from its net reserves by the amount of its reserve liabilities at the time of implementation. Alternatively, reserves could be measured gross, i.e., without deducting liabilities. Insofar as official currency liabilities were small or did not vary much, the difference between the two measures would also be small. Conversely, the difference between a gross and net indicator would be significant insofar as official currency liabilities showed a sizable movement.

B. Illustrative Scheme

Reserve Indicator Structure

1. Provision would be made for the establishment of reserve norms in accordance with paragraphs 3-5 below and for the following reserve indicator points:

  • (a) Consultation points.—For the purpose of paragraph 6(a) of the Outline, the Fund could establish consultation points above and below the reserve norm which would be closer to the norm than the “first points” described below.

If it were decided to have pressures activated presumptively or automatically on the basis of a reserve indicator structure, the following indicator points with the functions described would be established.

  • (b) First point above the norm.—At this level for the reserve indicator, a country in surplus would become subject to examination if it was not already under examination. After a specified period during which its reserve indicator remained at or above this level, a country would be subject to pressures in accordance with Section B, paragraphs 3-4, of Annex 2, unless the Council or the Executive Board, as appropriate, decided, or had already decided, to override the indicator’s signal.

  • (c) Second point above the norm.—At this level for the reserve indicator, further above the norm than the first point, a country would be obliged to deposit all further accruals of reserves with the Fund and to forfeit all interest earned on the deposited reserves in accordance with Section B, paragraph 5, of Annex 2.

  • (d) First point below the norm.—At this level for the reserve indicator, a country in deficit would become subject to examination if it was not already under examination. After a specified period during which its reserve indicator remained at or below this level, a country would be subject to pressures in accordance with Section B, paragraphs 3-4, of Annex 2, unless the Council or Executive Board, as appropriate, decided, or had already decided, to override the indicator’s signal.

2. If it were decided to adopt a primary asset holding limit as described in Annex 6, another point in the indicator structure would be required, which would relate to the level of primary reserve assets rather than total reserves.

Placement of Norms and Indicator Points

3. Temporary norms equal to actual reserves on a date to be agreed would be established. As soon as feasible, longer-run norms, reflecting more appropriately than existing reserves the relative reserve needs of countries and summing to the agreed total of global reserves, would be established by international agreement in the Fund. (Further examination will be given to the desirability of basing norms on objective criteria and/or historical reserve holdings). Countries that considered their resulting norm to be inappropriate to their circumstances would be able to present their cases for revision to the Fund.

4. Over time, reserve changes in the direction of longer-run norms would be encouraged. As a country’s reserves moved from the temporary norm toward the longer-run norm, the temporary norm and indicator points would be adjusted accordingly.

5. Both longer-run and temporary norms for each country would be increased by the amount of its SDR allocations. Provision would also be made for changing norms in line with agreed changes in currency reserves over time. In addition, the norms of individual countries would be subject to periodic revision to reflect changes in the relative economic size of countries.

6. The reserve indicator points for each country would be established at specified distances from the temporary, and ultimately from the longer-run, norm, so as to maintain consistency between potential imbalances, the volume of reserves, and the operations of the convertibility system. Indicator points would be related to norms or to an objective key that reflects countries’ relative reserve variability. Distances would then be specified as multiples of norms or of the key, plus a small constant amount to provide additional flexibility in cases which would not normally have significant international repercussions. The key would be subject to periodic recomputation and revision by the Fund.

Participation

7. All countries would have defined norms and reserve indicator points. Countries whose exports of depletable resources account for more in value (after adjusting for value added in extraction, processing, and shipping) than the value of their current net domestic capital formation would be permitted to exclude foreign exchange holdings from their reserve indicator. Such holdings would similarly be excluded from the issuing country’s reserve liabilities.

Other Reporting Requirements

8. Additional data would be periodically required to supplement the reserve indicator as a check against its performance, and as further material for assessment, including judgments to override the reserve indicator. Such data might include the forward position of a country’s monetary authority (to be reported in confidence to the Managing Director), and foreign assets and liabilities of deposit money banks and other financial institutions to be specified. The Fund could also request additional data, e.g., the foreign assets or liabilities of governmental institutions.

Annex 2. Pressures: Possible Forms and Methods of Activation

It is generally agreed that provision should be made for graduated pressures in the reformed system to be available to the Fund for application to both surplus and deficit countries in cases of large and persistent imbalance. It is not agreed what forms these pressures should take; in particular it is not agreed whether there should be severer forms of pressure such as trade pressures and the publication of reports. Nor is it agreed how such pressures should be activated, and in particular whether some pressures should be activated presumptively or automatically on the basis of reserve indicators as in Section B below. (For a fuller discussion of pressures, see the Report of the Technical Group on Adjustment.)

A. Forms

Forms of pressure which have been suggested for the reformed system include the following:

Pressures that could be applied to countries in surplus

  • (i) A country could be subjected to a charge on reserve accumulations above a reserve norm or other specified level. The rate of charge could be graduated with respect to the size of the reserve accumulation and the duration of the imbalance.

  • (ii) Countries could be required to deposit reserves above a specified level with an Excess Reserves Account to be established in the Fund at zero interest. This pressure combined with the preceding one would amount to the payment of negative interest on excess reserve accumulations.

  • (iii) All or part of future SDR allocations of a country in surplus could be withheld for a specified or an indefinite period.

  • (iv) A report could be published on the external position and policies of a country in surplus.

  • (v) Countries could be authorized to apply discriminatory trade and other current account restrictions against countries in persistent large surplus, subject to any necessary modification in the rules or practice of the gatt. This would be the most extreme form of pressure on countries in surplus.

Pressures that could be applied to countries in deficit

  • (vi) A country could be subjected to a charge on reserve deficiencies below a reserve norm or other specified level. The rate of charge could be graduated with respect to the size of the deficiency and the duration of the imbalance.

  • (vii) The interest rate charged on borrowings from the Fund could be raised above the general schedule of charges.

  • (viii) A country’s access to the resources of the Fund could be restricted.

  • (ix) All or part of future SDR allocations of a country in deficit could be withheld for a specified or an indefinite period.

  • (x) A report could be published on the external position and policies of a country in deficit.

B. Methods of Activation

Three possible methods of activation of pressures have been considered: discretionary activation by a positive decision of the Fund, and presumptive or automatic activation on the basis of reserve indicators. These methods of activation, and the forms of pressure to which they are relevant, are discussed in the following paragraphs.

Activation by a Positive Fund Decision

1. As regards discretionary activation, it would be possible for the Fund to decide to apply any of the pressures described in A above if, following an examination under paragraph 7 of the Outline, it was found that a country that had previously been called upon to adopt or reinforce policies to correct an imbalance had failed to take appropriate action. Initial pressures would be of a mild form, but if the imbalance persisted and the country still failed to take appropriate action, more severe pressures could be applied.

2. Authority to apply pressures by positive decision of the Fund would rest with the Council. This authority might, however, be delegated to the Executive Board, except in the case of the pressure mentioned in A(v) above. Where any pressure had been applied to a country by decision of the Executive Board acting under such delegated authority, the country against which the pressure had been applied would have the right to appeal to the Council against continued application of that pressure.

Presumptive Activation

3. If it were decided that some pressures might also be activated presumptively on the basis of a reserve indicator structure, such activation could be developed on the following lines. The pressures described in A(i) and (vi) above could begin to be applied to a country whose reserves had remained for a specified period beyond the first reserve indicator point either above or below the norm as described in Annex 1, unless the Council or the Executive Board, as appropriate, following an examination under paragraph 7 of the Outline, decided, or had already decided, that such pressures should not be applied.

4. The charges, when applied, could be computed on the basis of the accumulation of reserves above the norm for countries in surplus and on the basis of the shortfall of reserves below the norm for countries in deficit. A schedule of charges would be established that could be progressive with respect to the size of such deviations and their duration.

Automatic Activation

5. It has been proposed that the pressure described in A(ii) above could be automatically applied to a country in surplus whose reserves increased beyond the second reserve indicator point above the norm as described in Annex 1. The Fund would pay no interest on the balances deposited and would return those balances to the country only as the country’s total reserves declined. This pressure combined with the pressure described in A(i) above would amount to the payment of negative interest on excess reserve accumulations.

C. Discontinuation of Pressures

Appropriate provisions would have to be made for pressures to be discontinued as the imbalance was corrected.

Annex 3. Exchange Margins and Intervention: Possible Operational Provisions with Illustrative Schemes

Arrangements for a more symmetrical system of exchange margins and intervention might be developed on the lines of either of the systems illustrated below or some variant of them. (For a fuller discussion of these questions, see the Report of the Technical Group on Intervention and Settlement.) In both the illustrations it is assumed that the maximum margins specified under paragraph 12 of the Outline would be 2¼ per cent on either side of par value expressed in terms of the SDR, implying that at any one time the rate of exchange between any pair of currencies should be maintained within a range of not more than 4½ per cent above or below parity.3 The maximum margins to be adopted at the time when the chosen system of exchange margins and intervention is actually implemented would need to be decided in the light of conditions prevailing at that time.

A. A System Based on Multicurrency Intervention

1. Under a margins and intervention system based on multicurrency intervention the general obligation under paragraph 12 of the Outline would be for a country to maintain the spot exchange rate for its currency within specified maximum margins of up to 4½ per cent on either side of parity against other currencies.

2. A number of countries (including those whose currencies were the most widely traded in world foreign exchange markets) would meet their obligations under paragraph 12 of the Outline by undertaking reciprocal responsibility to maintain the spot exchange rate for their currencies (the mci currencies) within maximum margins of 4½ per cent above or below parity against each other by interventing in each other’s currencies at the margins. For this purpose they would publish mutually consistent limit prices at which they would be prepared freely to buy, or to sell, or to both buy and sell, each other’s currencies.

3. Other countries would meet their obligations under paragraph 12 of the Outline by undertaking a unilateral responsibility freely to buy and sell a single intervention currency, which should normally be an mci currency, at margins of not more than 2¼ per cent on either side of parity.

4. Other countries, which in the evolution of their exchange market and intervention practices had reached an intermediate position, could meet their obligations under paragraph 12 of the Outline in either of the following ways:

  • (a) Countries which wished to intervene in more than one mci currency could undertake a unilateral responsibility to maintain their exchange rates within maximum margins specified in relation to their intervention currencies. Specifically they could undertake either freely to buy the weakest and sell the strongest of their named intervention currencies at margins of 2¼ per cent on either side of the arithmetic mean between the weakest and strongest of those currencies or, if they wished to intervene in all or nearly all the mci currencies, freely to buy and sell their named intervention currencies at margins of 4½ per cent on either side of parity.

  • (b) Countries which wished to intervene in one or more mci currencies could undertake a unilateral responsibility to maintain their exchange rates within maximum margins specified in relation to the mci currencies as a whole. Specifically they could undertake freely to buy the weakest and sell the strongest of their named intervention currencies at margins of either 2¼ per cent, or 3¼ per cent, on either side of the arithmetic mean between the weakest and strongest mci currencies, or at margins of 4½ per cent on either side of parity against each mci currency.

5. Countries would be entitled to enter into arrangements, e.g., regional arrangements, to maintain margins among themselves narrower than the maximum prescribed under paragraph 12 of the Outline, provided that such arrangements and their general rules were notified to the Fund to assure their consistency with Fund obligations.

6. Countries undertaking the obligations under paragraph 2 above would not intervene intramarginally in each other’s currencies except in accordance with rules on the following lines:

  • (a) Intramarginal intervention should not take place without the agreement, normally to be obtained in advance, of the country whose currency was to be used for intervention.

  • (b) Intramarginal intervention should not widen the spread between the two currencies concerned.

  • (c) The further the two currencies concerned were away from their margins against each other, the stronger the presumption against intramarginal intervention.

  • (d) Where a country undertook intramarginal intervention, it should normally do so in the currency furthest from parity with its own currency.

  • (e) Information about intramarginal intervention should be available through the Fund (with proper regard for confidentiality) to third countries, so that they could make representations if they felt their own position to be damaged.

7. Countries meeting their margins obligations in accordance with paragraphs 3 and 4 above would choose their intervention currency or currencies in consultation with the issuers; these consultations would aim to arrive at understandings covering standing arrangements for intramarginal intervention but would not impose any limitation upon a country’s intervention to maintain its margins obligations. Where a country had an effective choice of intervention currency for intramarginal intervention, it should preferably buy the weakest and sell the strongest of its intervention currencies.

8. The Fund would keep the operation of the arrangements with respect to margins and intervention, including intramarginal intervention, under continuous review. In particular, participation in arrangements under paragraph 2 above would be subject to a special review within an agreed period (e.g., two years) from their introduction. Countries would cooperate with the Fund to ensure that appropriate intervention facilities were available to all member countries, and the Fund would help in establishing a standard framework of rules or guidelines as a basis for the understandings referred to in paragraph 7 above.

B. A System Based on SDR Intervention

1. Under a margins and intervention system based on SDR intervention the general obligation under paragraph 12 of the Outline would be for a country freely to buy and sell SDRs against its own currency at 2¼ per cent on either side of par value in transactions directly with monetary authorities, or in transactions with commercial banks on condition that the SDRs were to be transferred directly to or from other monetary authorities. This would be designed to ensure that the exchange rates between any two currencies did not diverge by more than 4½ per cent from parity. Countries undertaking this obligation would not generally intervene in currencies at the margins. They might intervene intramarginally in SDRs, subject to any rules which might be agreed, and also in currencies, subject to rules such as those set out in paragraph 6 of the system described in Section A above.

2. Countries which remained closely attached to a single intervention currency, which should normally be a currency undertaking the obligations in paragraph 1 above, could meet their obligations under paragraph 12 of the Outline by undertaking freely to buy and sell that currency at margins of not more than 2¼ per cent on either side of parity.

3. Countries meeting their margins obligations in accordance with paragraph 2 above would choose their intervention currency in consultation with the issuer; these consultations would aim to arrive at understandings covering standing arrangements for intramarginal intervention, but would not improve any limitation upon a country’s intervention to maintain its margins obligations.

4. Countries would be entitled to enter into arrangements, e.g., regional arrangements, to maintain margins among themselves narrower than the maximum prescribed in paragraph 12 of the Outline, provided that such arrangements and their general rules were notified to the Fund to assure their consistency with Fund obligations.

5. The Fund would keep the operation of the arrangements with respect to margins and intervention, including intramarginal intervention, under continuous review. Countries would cooperate with the Fund to ensure that appropriate intervention facilities were available to all member countries, and the Fund would help in establishing a standard framework of rules or guidelines as a basis for the understandings referred to in paragraph 3 above.

Annex 4. Floating in Particular Situations: Possible Operational Provisions

A. Authorization

The criteria and procedures in accordance with which, in the reformed system, the Fund will authorize countries to adopt floating rates in particular situations are not agreed. An illustrative example is set out below. Under another, more liberal, approach a country might propose to the Fund the adoption of a floating rate for its currency, and provided that the country undertook to conform with agreed guidelines for conduct the Fund would approve such a proposal. Suggestions have also been made for a more restrictive approach than the one illustrated below, under which the Fund might authorize a country to float only if, inter alia, it was satisfied that the fixing or maintenance of a par value would be inconsistent with the international interest.

Illustrative Example

1. The Fund would be empowered to authorize a country to adopt a floating exchange rate:

  • (a) if the Executive Board decided, after taking account of all the factors relevant to a country’s particular situation, that floating would be consistent with the international interest and more likely to contribute to international payments equilibrium than an attempt to fix, or to continue to maintain, a par value; and

  • (b) provided that the country undertook to conform with agreed guidelines for conduct as discussed in Sections B and C of this Annex.

2. In arriving at its decision under paragraph 1(a) above, the Executive Board would give special consideration to:

  • (a) conditions of particular uncertainty regarding the future development of the country’s balance of payments, in which floating might facilitate transition to a new par value;

  • (b) very large disequilibrating capital flows; and

  • (c) a rate of price inflation which was, and which was expected to continue for some time to be, substantially different from that of the country’s main trading partners or competitors.

3. The Fund might establish simplified procedures for authorizing the adoption of floating rates by a country whose official reserves were at inappropriate levels or had moved inappropriately, as determined by reference to a reserve indicator. If such simplified procedures did not require a prior examination of the country’s particular situation by the Executive Board, they would provide for such examination within a specified period after authorization to adopt a floating rate was given.

B. Guidelines for Countries Authorized to Adopt Floating Rates

Countries authorized to adopt floating rates would be guided by the same principles governing adjustment action as countries maintaining par values. In particular, in choosing among different forms of adjustment action, domestic or external, they would take into account repercussions on other countries as well as internal considerations. Countries authorized to adopt a floating exchange rate would be subject to surveillance in the Fund, in accordance with the procedures described in paragraphs 5-8 of the Outline; in this connection, a sizable movement in the exchange rate for a floating currency might be taken as prima facie evidence for the purpose of paragraph 6(b) of the Outline. Such countries would also, if appropriate, be liable to the pressures provided for in paragraph 10 of the Outline.

In relation to its policy for intervention in exchange markets, a country authorized to adopt a floating rate would observe guidelines designed to promote exchange market stability and the international consistency of policies affecting exchange rates and reserves. Guidelines for the reformed system will need to be developed by the Fund, taking account of experience in the interim period. The following guidelines for the interim period,4 which provide the basis for a meaningful dialogue between the Fund and member countries with a view to promoting international consistency during a period of widespread floating, have been established as a starting point.

  • (1) A member with a floating exchange rate should intervene on the foreign exchange market as necessary to prevent or moderate sharp and disruptive fluctuations from day to day and from week to week in the exchange value of its currency.

  • (2) Subject to (3)(b), a member with a floating rate may act, through intervention or otherwise, to moderate movements in the exchange value of its currency from month to month and quarter to quarter, and is encouraged to do so, if necessary, where factors recognized to be temporary are at work. Subject to (1) and (3)(a), the member should not normally act agressively with respect to the exchange value of its currency (i.e., should not so act as to depress that value when it is falling, or to enhance that value when it is rising).

  • (3) (a) If a member with a floating rate should desire to act otherwise than in accordance with (1) and (2) above in order to bring its exchange rate within, or closer to, some target zone of rates, it should consult with the Fund about this target and its adaptation to changing circumstances. If the Fund considers the target to be within the range of reasonable estimates of the medium-term norm for the exchange rate in question, the member would be free, subject to (5), to act aggressively to move its rate toward the target zone, though within that zone (2) would continue to apply.

  • (b) If the exchange rate of a member with a floating rate has moved outside what the Fund considers to be the range of reasonable estimates of the medium-term norm for that exchange rate to an extent the Fund considers likely to be harmful to the interests of members, the Fund will consult with the member, and in the light of such consultation may encourage the member, despite (2) above (i) not to act to moderate movements toward this range, or (ii) to take action to moderate further divergence from the range. A member would not be asked to hold any particular rate against strong market pressure.

  • (4) A member with a floating exchange rate would be encouraged to indicate to the Fund its broad objective for the development of its reserves over a period ahead and to discuss this objective with the Fund. If the Fund, taking account of the world reserve situation, considered this objective to be reasonable and if the member’s reserves were relatively low by this standard, the member would be encouraged to intervene more strongly under (2) to moderate a movement in its rate when the rate was rising than when it was falling. If the member’s reserves were relatively high by this standard it would be encouraged to intervene more strongly to moderate a movement in its rate when the rate was falling than when it was rising. In considering target exchange rate zones under (3), also, the Fund would pay due regard to the desirability of avoiding an increase over the medium term of reserves that were recognized by this standard to be relatively high, and the reduction of reserves that were recognized to be relatively low.

  • (5) A member with a floating rate, like other members, should refrain from introducing restrictions for balance of payments purposes on current account transactions or payments and should endeavor progressively to remove such restrictions of this kind as may exist.

  • (6) Members with a floating rate will bear in mind, in intervention, the interests of other members including those of the issuing countries in whose currencies they intervene. Mutually satisfactory arrangements might usefully be agreed between the issuers and users of intervention currencies, with respect to the use of such currencies in intervention. Any such arrangements should be compatible with the purposes of the foregoing guidelines. The Fund will stand ready to assist members in dealing with any problems that may arise in connection with them.

The Executive Board may decide to amend these guidelines in the light of experience or to adapt them to the circumstances of individual member countries, and in particular will give special consideration to the manner in which they should be applied by developing countries, taking account of the stage of evolution of their exchange markets and intervention practices.

C. The Choice of Intervention Currency and Settlement

In the reformed system it will be necessary to establish guidelines in relation to both the choice of intervention currency by a floating country and intervention by other countries in a floating currency, as well as arrangements for the settlement of balances of a floating currency acquired through intervention. Such guidelines might be developed on the following lines:

  • (a) A floating country which has an effective choice of intervention currencies should normally buy the weakest of those currencies and sell the strongest. If the country wishes to intervene in any other currency the agreement of the issuer would be required.

  • (b) Intervention by other countries in a floating currency should not take place (except possibly for smoothing operations on a limited scale to maintain orderly market conditions and other small transactions) without the agreement of the issuer.

  • (c) Where intervention in a floating currency takes places with the agreement of the issuer, the official balances arising out of such intervention will be subject to settlement in accordance with paragraph 20 of the Outline. Countries which intervened to buy a currency during a specified period (e.g., one working day) immediately before approval was requested for that currency to float will be entitled to present the balances acquired during that period to the issuer for conversion.

It is recognized that, in connection with (b) and (c) above, a special situation arises in the case of countries which regularly intervene in a currency that floats. It is envisaged that this situation would be covered by arrangements similar to those set out in Section A, paragraphs 7 and 8, of Annex 3.

Annex 5. Control over the Aggregate Volume of Official Currency Holdings: Possible Operational Provisions with Illustrative Schemes

The principle that the aggregate volume of official currency holdings should be kept under international surveillance and management in the Fund is generally agreed. Important questions concerning the arrangements to give effect to this principle, however, remain to be decided. (For a fuller discussion of these questions, see the Report of the Technical Group on Intervention and Settlement.) Appropriate arrangements might be developed on the lines of one of the three approaches illustrated below.

The main difference between the approaches in Sections A and B concerns the precision with which they aim to secure international control over aggregate official currency holdings, which in turn would determine the degree of asset settlement by countries whose currencies are held in reserves. The more mandatory system in Section A involves international agreement in advance on the aggregate level of official currency holdings, currency by currency, and provides for specific action by the Fund to be taken automatically if the agreed level is exceeded. The “on demand” system in Section B does not involve precise limits agreed internationally in advance but provides for Fund surveillance over the longer-term trend of currency reserves and ultimately envisages some form of action by the Fund on a discretionary basis if that trend is found to be excessive. The third approach in Section C seeks to bridge the gap between these approaches; it involves international agreement in advance on an appropriate level of aggregate official currency holdings, currency by currency, as in the more mandatory system, and provides for specific action by the Fund, but in the first instance on a discretionary basis and then, if the agreed level is exceeded by more than a predetermined amount, on a presumptive basis.

A. A More Mandatory System

1. To ensure close control over aggregate official currency holdings and to promote full asset settlement, the Fund would periodically agree appropriate levels for the official liabilities in domestic currency of countries whose currencies had a significant reserve role. If, on the basis of monthly calculations, a country’s aggregate liabilities increased beyond this agreed level (which could initially be the level existing at the restoration of general convertibility), the issuing country would redeem the increase by transferring reserve assets in exchange for its own currency.

2. Any such transfer of reserve assets would be made in the first instance, in the case of countries for whose currencies substitution facilities had been established under paragraph 22 of the Outline, to the substitution account, and otherwise to countries which volunteered or in the last resort were designated by the Fund to present the currency in question to the issuer for conversion. In choosing countries for designation the Fund could take account of any increase in countries’ holdings of the currency concerned, particularly increases reflecting a reduction in holdings of other reserve assets, and might also take account of the absolute level of countries’ holdings of the currency.

3. Reliance on the procedures in paragraphs 1 and 2 above would be reduced to the extent that intervention took place in SDRs. If a multicurrency intervention system were adopted, a group of countries (which would include mci countries but which need not be restricted to them) would undertake to present immediately to the issuing country for settlement official currency balances acquired through intervention or other transactions apart from official settlements within the group or the use of credit facilities.

4. For the purpose of paragraph 1 above, the official liabilities in domestic currency of countries whose currencies had a significant reserve role would be calculated on a monthly basis by the Fund, using monthly returns from those countries and also regular reports of official assets from all member countries. Official liabilities would consist of all liabilities in domestic currency of the public or private sector that are included in the reserves of another member country and also any liabilities to a substitution account or an excess reserves account that may be established in the Fund, but would exclude liabilities arising out of the use of credit facilities.

5. In connection with official currency balances held outside the territory of the issuing country, e.g., in Euro-currency markets, which are excluded from the definition in paragraph 4 above, supplementary arrangements—such as those suggested in paragraph 23(c) of the Outline—would be needed.

B. An On Demand System

1. To ensure sufficient control over the long-term trend of aggregate official currency balances, the Fund, in the context of its general surveillance of the long-term trend of global reserves, would be prepared, if necessary, to recommend procedures for orderly reductions in currency reserves.

2. Issuing countries would have the right to request other countries to limit further accumulation of balances of their currencies, on the lines suggested in paragraph 23(a) of the Outline, and countries would respect such requests.

3. In connection with official currency balances held outside the territory of the issuing country, e.g., in Euro-currency markets, supplementary arrangements—such as those suggested in paragraph 23(c) of the Outline—might be desirable.

C. A Third Possible Approach

1. To ensure sufficient control over aggregate official currency holdings and to promote a sufficient degree of asset settlement, the Fund would periodically agree appropriate levels for the official liabilities of countries whose currencies had a significant reserve role. If, on the basis of quarterly calculations, a country’s aggregate liabilities increased beyond this agreed level, the Fund would examine the situation and, if it were found to reflect longer-term rather than temporary and reversible factors, the Fund could decide that the issuing country should redeem the increase by transferring reserve assets in exchange for its own currency.

2. In any event, if the country’s aggregate liabilities exceeded the agreed level by more than a predetermined amount, the issuing country would redeem the increase by transferring reserve assets in exchange for its own currency, unless the Fund decided otherwise.

3. Any such transfer of reserve assets would be made in the first instance, in the case of countries for whose currencies substitution facilities had been established under paragraph 22 of the Outline, to the substitution account, and otherwise to countries which volunteered or in the last resort were designated by the Fund to present the currency in question to the issuer for conversion. In choosing countries for designation the Fund could take account of any increase in countries’ holdings of the currency concerned, particularly increases reflecting a reduction in holdings of other reserve assets, and might also take account of the absolute level of countries’ holdings of the currency.

4. Reliance on the procedures in paragraphs 1-3 above would be reduced to the extent that intervention took place in SDRs. If a multicurrency intervention system were adopted, a group of countries (which would include mci countries but which need not be restricted to them) would undertake to present immediately to the issuing country for settlement official currency balances acquired through intervention or other transactions apart from official settlements within the group or the use of credit facilities.

5. For the purpose of paragraphs 1-2 above, the official liabilities in domestic currency of countries whose currencies had a significant reserve role would be calculated on a monthly basis by the Fund, using monthly returns from those countries and also regular reports of official assets from all member countries. Official liabilities would consist of all liabilities in domestic currency of the public or private sector that are included in the reserves of another member country and also any liabilities to a substitution account or an excess reserves account that may be established in the Fund, but would exclude liabilities arising out of the use of credit facilities.

6. In connection with official currency balances held outside the territory of the issuing country, e.g., in Euro-currency markets, which are excluded from the definition in paragraph 5 above, supplementary arrangements—such as those suggested in paragraph 23(c) of the Outline—would be needed.

Annex 6. Elasticity: Possible Additional Forms

Besides credit facilities the following additional forms of elasticity have been suggested, but are not agreed. (For a fuller discussion, see the Report of the Technical Group on Intervention and Settlement.)

A. Under a More Mandatory System

Normal settlement arrangements might be temporarily suspended or relaxed by international agreement in the Fund.

B. Under an On Demand System

The right of a member country to present currency balances for conversion into primary reserve assets would be suspended if its primary reserves exceeded a predetermined level (primary asset holding limit) and the settlement obligation of the issuer would be correspondingly suspended. For this purpose, primary asset holding limits would be established beyond which the right of countries to acquire primary reserves other than by SDR allocations would be suspended.

C. A Possible Third Approach

Unless the Executive Board decided otherwise, the right of a member country to present currency balances for conversion into primary reserve assets would be suspended if its primary reserves exceeded a predetermined level (primary asset holding limit) and the settlement obligation of the issuer would be correspondingly suspended. (This approach differs from B above in that the primary asset holding limit is presumptive rather than automatic.)

Annex 7. A Substitution Account: Possible Operational Provisions with an Illustrative Scheme

In order to promote the resumption and maintenance of general convertibility, the reduction of the role of reserve currencies, the development of the SDR as the principal reserve asset, and the achievement of a more stable pattern of reserve composition, it is agreed that the Fund would have authority to establish a substitution account through which SDRs may be issued in exchange for reserve currencies. A number of important questions would need to be resolved before such an account was established. In particular, it would be necessary to agree upon the precise limits for the total amount of SDRs which could be issued through the account and upon the factors mentioned in paragraph 6 below concerning the terms and conditions to be applied to the substituted currency balances. (For a fuller discussion of the question of substitution, see the Reports of the Technical Groups on Intervention and Settlement and on Global Liquidity and Consolidation.) One possible form of a substitution account—which provides for a continuing facility for substitution up to the amount of balances outstanding at the time that the account is established—could be developed on the lines illustrated in the following paragraphs. It has also been suggested that it might be appropriate to have a once-for-all substitution rather than a continuing facility.

Illustrative Scheme

Access by Holders of Reserve Currency Balances

1. Member countries that wished to exchange official holdings of currencies (for which substitution facilities had been established) for SDRs would be entitled to buy SDRs from the substitution account in exchange for such currency balances subject to any rules which may be agreed. If appropriate at the time when such an account was established, a substantial initial use of the account might be negotiated. Countries would not, however, be able to acquire currency balances in exchange for SDRs from the substitution account. If the substitution account’s holdings for a currency at any time exceeded the agreed level mentioned in paragraph 2 below, the issuing country would redeem the excess by tranferring SDRs to the substitution account.

Access by Issuing Countries

2. Issuers of currencies for which substitution facilities were established would be entitled to buy SDRs from the substitution account in exchange for their own currency to the extent of any decrease in their official liabilities in their own currency below a maximum level to be agreed, which would be the level existing at the time that the account is established. Official liabilities would consist of all liabilities in domestic currency of the public or private sector that are included in the reserves of another member country and also any liabilities in domestic currency to a substitution account or an excess reserves account that may be established in the Fund, but would exclude liabilities arising out of the use of credit facilities.

3. Provision could be made for the issuers to amortize balances of their currency held by the substitution account; and to the extent that such amortization resulted in a reduction in the total of liabilities as defined above, the agreed level in paragraph 2 above would be correspondingly reduced.

General Provisions

4. In accordance with the above, the Fund would be authorized to create SDRs and issue them through the substitution account in exchange for currency balances either to the holders or to the issuers of such balances.

5. The substitution account would further be authorized to engage in the following operations:

  • (a) to pay interest in SDRs on the SDRs issued;

  • (b) in consultation with issuers of the currency balances received, to employ those balances in appropriate forms of investments; and

  • (c) to receive amortization payments in SDRs from the issuers of currency balances held in the account and to return equivalent amounts of their currency to the issuers against such payments.

6. Prior to establishment of the account, agreement would have to be reached between the Fund and issuing countries regarding:

  • (a) interest on Fund holdings of substituted balances;

  • (b) the denomination of Fund claims on issuing countries arising from the account’s operations;

  • (c) the disposition of any profits and losses arising from the account’s operations; and

  • (d) arrangements for amortization of substituted balances.

7. Procedures will be drawn up regulating the liquidation of the account and termination of an individual country’s relationship with the account.

Annex 8. SDR Allocation and Cancellation: Possible Operational Provisions

1. It is envisaged that the existing Articles of Agreement relating to the principles governing SDR allocations and cancellations would remain unchanged. The determination of global reserve needs and of appropriate rates of change over time would continue to be based on the use of statistical indicators subject to a process of assessment that would give due weight to symptoms of reserve stringency or ease.

2. It is recognized that the determination of global reserve needs will need to be consistent with other provisions of the reform, in particular the arrangements for convertibility and adjustment, and that the criteria used to assess appropriate levels and rates of change in global reserves must remain the subject of study. (For a fuller discussion of the determination of global reserve needs, see the Report of the Technical Group on Global Liquidity and Consolidation.)

3. It has been suggested, but not agreed, that there are a number of factors to which additional emphasis may need to be given in the future. Such factors mentioned in the Report of the Technical Group on Global Liquidity and Consolidation are the following:

  • (a) the distribution of reserve holdings, in particular when large reserve holdings are heavily concentrated in countries that are unlikely to face commensurate deficits in the near term;

  • (b) short-term capital flows and, in particular, shifts between private and official holdings;

  • (c) foreign indebtedness and the level of debt service payments, to the extent that these factors contribute to the vulnerability of countries to swings in their net external positions; and

  • (d) the possibility that the low degree of monetization of the economies of less developed areas might lead to an underestimation of their reserve needs.

Other factors are mentioned in the Report of the Technical Group on the Transfer of Real Resources.

Annex 9. Valuation of the SDR: Possible Operational Provisions

Four possible techniques for determining the value of the SDR in transactions against currencies have been elaborated, as described below.

A. The “Standard Basket’’ Technique

1. This would involve setting the transactions value of the SDR as equal to that of a basket of currencies. The amounts of each currency in the basket would be specified for a considerable period ahead, and the value of SDR 1.00 in terms of any one currency would be the value of the amounts of each of the currencies in the basket expressed in terms of this one currency at the prevailing spot rates. Under this approach an appreciation (depreciation) of any currency in the basket in terms of other currencies would raise (lower) the value of the SDR in terms of each other currency.

2. If it were desired to give the SDR a stronger capital value than would result from this approach, it would be possible to introduce regular, small and uniform increases in the amount of each currency in the basket. The effect of the resulting appreciation in the capital value of the SDR on its total yield could be offset by a corresponding reduction in the interest rate.

B. The “Asymmetrical Basket” Technique

The asymmetrical basket would set the value of the SDR equal to that of a basket of currencies; but whenever any currency in the basket was devalued, the number of units of that currency in the basket would be increased in proportion to the deviation of the new par value from the previous par value. When a currency in the basket floated downward, the number of units of that currency in the basket would be increased in a similar way.5 This would prevent exchange rate changes associated with devaluations or downward floating resulting in reductions of the transactions value of the SDR in terms of other currencies. However, a revaluation or upward float of any currency in the basket would still raise the value of the SDR in terms of other currencies as under the standard basket.

C. The “Adjustable Basket” Technique

1. Under the third technique, the value of the SDR would be set equal to that of a basket of currencies; but the treatment given to devaluations and downward floats under the asymmetrical basket would be extended to revaluations and upward floats as well. This would prevent the exchange rate changes associated with all par value changes and all floats from influencing the value of the SDR in terms of other currencies. Under this approach the long-term evolution of the value of the SDR in terms of currencies would be determined by the balance between revaluations and devaluations, so that the role of the basket would be to define where, within the margins, the precise value of the SDR would be on any day.

2. If it were desired to give the SDR a stronger capital value than that produced by the balance between revaluations and devaluations, it would be possible to introduce regular, small and uniform increases in the amount of each currency in the basket. The effect of the resulting appreciation in the capital value of the SDR on its total yield could be offset by a corresponding reduction in the interest rate.

D. The “Par Value” Technique

1. The fourth technique would involve setting the transactions value of the SDR at par, or at some specified distance (e.g., half the established margin) away from par. This would mean that an exchange rate change that corresponds to a par value change would be fully reflected in the transactions value of the SDR against the currency whose par value had been changed, and would leave the transactions value of the SDR in terms of all other currencies unchanged. Hence the change over time in the value of the SDR in terms of currencies would be determined under this approach, as under the previous one, by the balance between devaluations and revaluations. To give statistical content to this “balance” it would be necessary to make a selection of currencies and to assign weights to them, but this approach differs from the three other approaches discussed in that it would not require for its introduction agreement on a basket.

2. If it were desired to give the SDR a stronger capital value than that produced by the balance between revaluations and devaluations, it would be possible to do so by provision for uniform par value changes. The effect of the resulting appreciation in the capital value of the SDR on its total yield could be offset by a corresponding reduction in the interest rate.

Annex 10. The Special Interests of Developing Countries

It is generally agreed that one of the important objectives of reform of the world monetary and economic order should be the promotion of economic development, and that to this end the net flow of real resources to developing countries should be given positive encouragement. This objective is given specific recognition in the arrangements proposed at various points throughout the Outline, as noted further in Section A below. However, the Outline is concerned essentially with the monetary aspects of the world economic system, and it has been recognized that, in relation to this objective particularly, the attainment of the purposes of the reform depends also upon consistent arrangements being made in other areas, as discussed in Section B below. (For a fuller discussion of questions concerning the transfer of real resources to developing countries, see the Report of the Technical Group on the Transfer of Real Resources.)

A. Special Provisions in International Monetary Arrangements

1. In discussion of the better working of the adjustment process, it has been agreed that all countries should be guided by the same principles concerning adjustment action. At the same time it has been recognized that there are special characteristics of developing countries which make it difficult for them to achieve prompt adjustment without seriously damaging their long-term development programs. Such characteristics include the dependence of many developing countries upon a limited range of exports, often of primary commodities for which the elasticities of both supply and demand are low, which can give rise to particularly sharp fluctuations in their external payments positions. It has also been recognized that in many instances an imbalance in the external position of an individual developing country will not have significant international repercussions. While it would be inconsistent with a one-world approach to international monetary reform and with international payments equilibrium to exclude developing countries from the adjustment procedures on these grounds, it has been agreed that these special characteristics should be taken into account in assessing both the need for adjustment action and the possible application of graduated pressures and in considering the forms of policy action which developing countries feel it necessary to take.

2. It has been agreed that other countries should apply adjustment measures in a manner designed to protect the net flow of real resources to developing countries, by maintaining or where possible increasing aid flows to them, and by ensuring as far as possible the free access of developing countries to both the goods and financial markets of developed countries. Provision is also made for the regular review of the aggregate flow of real resources to developing countries and its financing in the context of Fund surveillance of the adjustment process.

3. Account has been taken of the special concerns of developing countries in relation to global liquidity. In particular, it has been envisaged that better international management of international liquidity should ensure the equitable distribution of official reserves and of access to official credit facilities among all Fund members. Note has been taken of the arguments pointing toward special needs for balance of payments financing, and it has been suggested that these arguments should be further considered in the context of future assessments of global reserve needs. Further consideration is being given to the Fund’s compensatory finance and buffer stock facilities. The Executive Board has been urged to proceed to an early formulation and adoption of a new facility under which developing countries might receive longer-term balance of payments finance.

4. It has been argued that developing countries may have a particular need for some degree of freedom to choose the composition of their reserves, for example to enable them to hold currency balances against their official borrowings in certain private markets, and it is agreed that such freedom should be accommodated in the future settlement arrangements insofar as it is consistent with the overall objectives of the reform. For their part, the developing countries have recognized the need for international cooperation in the management of currency reserves and the importance of avoiding disequilibrating movements of official funds.

5. Finally, the possibility of establishing a link between development assistance and SDR allocation in the context of the reform has been closely examined and the technical feasibility of different possible forms of such a link has been thoroughly explored. (For a fuller discussion of these questions, see the Report of the Technical Group on the SDR/Aid Link and Related Proposals.) The establishment of a link has not been agreed. It is, however, generally agreed that if a link were to be established the amount of SDR allocations and the principal characteristics of SDRs should continue to be determined solely on the basis of global monetary requirements and that these characteristics should be the same for all SDRs whether distributed through normal allocations or through a link.

B. The Consistency of Arrangements in Other Areas

1. As noted above, it has been recognized that, to attain the objective of promoting economic development, consistent arrangements are needed in other areas of the world economic system.6 Specifically, this would involve arrangements for international trade under which commercial policies would be designed to encourage developing countries’ exports of manufactures as well as of primary commodities. It would also involve an increasing flow of capital to developing countries, both through steps to ensure that the access of developing countries and development finance institutions to world financial markets was as free as possible from legal or administrative constraints and through an increase in official development assistance on concessionary terms to those countries which are unable to borrow in private financial markets.

2. These aspects of the world economic order go beyond the work on reform of the international monetary system which the Committee has undertaken and concern other international institutions. It is recommended that further work should be undertaken on the following:

  • (a) the amounts and quality of official development assistance;

  • (b) a review of the policies and procedures of multilateral development finance institutions;

  • (c) the improvement of access to financial markets in general; and

  • (d) international financing schemes for commodity regulation and price stabilization.

It is also recommended that a joint ministerial Committee of the Fund and the World Bank should be established to carry forward the study of these questions after the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues has completed its work, and to recommend measures to be adopted in order to implement its conclusions. It is further recommended that the proposed Committee should give urgent attention to the problems of the developing countries most seriously affected by exceptional balance of payments difficulties in the current situations, bearing in mind the need for coordination with other international bodies. It has been suggested that the proposed Committee should be set up by parallel resolutions of the respective Boards of Governors, and that these resolutions should provide for the participation of other international agencies, so as to ensure a coordinated approach. Among the questions that will need to be settled are the composition and procedures of the Committee, as well as arrangements for carrying out work at the technical level.

This pledge will take the form of a Declaration, as set out in the Appendix to this Part of the Outline, pp. 176-77 below.

These and the other Reports of the Technical Groups were published in International Monetary Reform: Documents of the Committee of Twenty (Washington: International Monetary Fund, 1974).

See footnote 2, p. 178 above.

See footnote 2, p. 178 above.

The parity of one currency with respect to another refers to the ratio of their par values.

These guidelines have been adopted by Executive Board Decision No. 4232-(74/67), adopted June 13, 1974. They are contained in a memorandum referred to in that Decision and should be understood in the light of the commentary in that memorandum. The decision and accompanying memorandum [are reproduced below, pp. 487-91].

See footnote 2, p. 178 above.

See footnote 2, p. 178 above.

See footnote 2, p. 178 above.

See footnote 2, p. 178 above.

See footnote 2, p. 178 above.

Various formulas might be constructed to approximate the desired result. For example, the number of units of a downward floating currency in the basket might be increased in proportion to a weighted average of the depreciation of the market rate from the former parity as against each of the nonfloating currencies in the basket.

See footnote 2, p. 178 above.

See footnote 2, p. 178 above.

This question was also the subject of discussion during the Sixth Special Session of the General Assembly of the United Nations.

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