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IMF History (1972-1978) Volume 3
Chapter

Proposed Amendment of Articles of Agreement

Author(s):
International Monetary Fund
Published Date:
February 1996
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In March 1976 the Executive Directors submitted to the Board of Governors a comprehensive Proposed Second Amendment to the Articles of Agreement of the Fund. Although the amendment did not represent a total revision of the Articles, it was extensive. The Proposed Second Amendment was approved by the Board of Governors on April 30, 1976 and entered into force on April 1, 1978.

Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund

(March 1976)

A Report by the Executive Directors to the Board of Governors

TABLE OF CONTENTS

PART I: INTRODUCTION

In the Report to the Board of Governors by the ad hoc Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty), dated June 14, 1974, to which an Outline of Reform was attached, it was noted that in the conditions that had developed it had been recognized that priority should be given to certain aspects of reform. The Committee regarded it as of the highest importance that immediate steps should be taken to begin an evolutionary process of reform. Part II of the Outline sets out the immediate steps on which the Committee was agreed. Among them was the preparation of draft amendments of the Articles of Agreement of the International Monetary Fund.

In the Fourth Resolution (No. 29-10) of the Composite Resolution of the Board of Governors on the Work of the ad hoc Committee on Reform of the International Monetary System and Related Issues and on a Program of Immediate Action, Paragraph 9 requested that the consideration of possible amendments to the Articles of Agreement should be pursued with a view to the presentation of draft amendments to the Board of Governors in due course.

The Executive Directors began to consider possible draft amendments in mid-summer 1974 and have continued to work on them since that time. They have submitted reports on the progress of this work to the Interim Committee of the Board of Governors on the International Monetary System and have received guidance on a number of topics. As stated in the Communiqué issued by the Committee on January 8, 1976 after its fifth meeting, in Kingston, Jamaica, the Committee had considered and reached agreement on the remaining issues on which the Executive Directors had sought guidance. The Committee requested the Executive Directors to complete their work on amendment in the light of the guidance given by the Committee, and to submit a Comprehensive Draft Amendment for the approval of the Board of Governors, together with a Report. The numerous changes in the Proposed Amendment will make it necessary for the Executive Directors to review the By-Laws, Rules and Regulations, and general decisions of the Fund to ensure that they are compatible with the revised Articles and that they provide the necessary operating principles and procedures.

The rest of this Report consists of three parts. Part II is a Commentary on the Proposed Amendment of the Articles of Agreement. For the most part, the Commentary follows the order of the provisions in the proposed text. It should be noted that the sequence of provisions is slightly changed so that the Articles can follow a more logical order. An Annex is attached to the Commentary in Part II that sets forth in tabular form the special majorities of voting power that would be required for certain decisions under the amended Articles and the organs of the Fund that could take those decisions. Part III of this Report describes the procedure to be followed in order to give effect to the Proposed Amendment.

Part IV of this Report sets forth a proposed Resolution that the Executive Directors recommend for adoption by the Board of Governors. Annexed to the Resolution is the proposed text of the amended Articles of Agreement. In the Appendix to Part II, this text is shown in the left-hand column of the pages of the Appendix. The right-hand column sets forth the corresponding provisions of the present Articles, in an order therefore that does not follow the sequence of the present Articles.

The proposed modifications of the Articles are extensive, but the main themes can be summarized under six headings.

(a) Exchange arrangements of each member’s choice; the possible adoption of particular general arrangements, and the possible adoption of a system of par values that members will have an option to participate in; subject at all times to general obligations and firm surveillance by the Fund (Chapter C).*

The provisions on exchange arrangements recognize that the essential purpose of the international monetary system is to provide a framework that both facilitates the exchange of goods, services, and capital among countries and sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability. Members undertake a general obligation to collaborate with the Fund and with other members in order to assure orderly exchange arrangements and to promote a stable system of exchange rates. Members must perform this obligation by observing certain specified undertakings with respect to domestic and external economic and financial policies.

The general obligation and specified undertakings apply to all members at all times. Members are free, however, to apply the exchange arrangements of their choice. The Fund will be able, by decisions taken with an eighty-five percent majority of the total voting power, to recommend exchange arrangements that accord with the development of the international monetary system, but members will continue to have the right to choose their own arrangements.

The Fund is required to oversee the international monetary system in order to ensure its effective operation and to oversee the observance by each member of its obligations.

The Fund may determine, by the majority already referred to, that international economic conditions permit the introduction of a system based on stable but adjustable par values, whereupon provisions governing such a system will apply. Each member will then establish a par value unless it intends to apply other arrangements.

(b) A reduction in the role of gold, including the disposition of the Fund’s own holdings of gold (Chapter I).

The most important changes under this heading are as follows:

  • (i) the elimination of the function of gold as the common denominator of the par value system and as the unit of value of the special drawing right (Chapter I, section 2);

  • (ii) the abolition of the official price of gold (Chapter I, section 3);

  • (iii) the abrogation of obligatory payments in gold by members to the Fund and by the Fund to members (Chapter I, section 4), and elimination of authority for the Fund to accept gold except under decisions taken with a high majority of the total voting power (Chapter I, section 8(d));

  • (iv) the requirement that the Fund complete the disposition of fifty million ounces of gold (Chapter I, sections 5-7);

  • (v) the authorization of the Fund to dispose of the remainder of its gold holdings in various ways by sale on the basis of prices in the market or at the official price in effect before the second amendment (Chapter I, section 8);

  • (vi) “profits” on the sale of gold on the basis of prices in the market would be placed in a special account for use in the ordinary operations and transactions of the Fund or for other uses, including those for the special benefit of members with low per capita income (Chapter I, section 8(b) and section 13);

  • (vii) the requirement that the Fund, in its dealings in gold, avoid the management of the price, or the establishment of a fixed price, in the gold market (Chapter I, section 10); and

  • (viii) the undertaking of members to collaborate with the Fund and with other members in order to ensure that their policies with respect to reserve assets will be consistent with the objectives of promoting better international surveillance of international liquidity and making the special drawing right the principal reserve asset in the international monetary system (Chapter I, section 10).

Many of the powers that the Fund may exercise under this heading (b) are subject to a majority of eighty-five percent of the total voting power.

(c) Changes in the characteristics and expansion of the possible uses of the special drawing right so as to assist it to become the principal reserve asset of the international monetary system (Chapter Q).

Numerous changes have been made in the provisions dealing with the special drawing right in order to modify its characteristics and extend its usability. Some of the most important modifications are listed below:

  • (i) Participants will be able to enter into transactions by agreement without the necessity for decisions by the Fund (Chapter Q, section 2(v)), and a participant transferring special drawing rights in such a transaction need not observe the requirement of need that is included in the Articles (Chapter Q, section 2(viii)).

  • (ii) The Fund may authorize operations between participants that are not otherwise provided for by the Articles, subject to appropriate safeguards (Chapter Q, section 2(vii)).

  • (iii) The Fund may review the rules for reconstitution of participants’ holdings of special drawing rights at any time and may adopt, modify, or abrogate the rules by a lower majority of the total voting power than is necessary at present (seventy instead of eighty-five percent) (Chapter Q, section 2(xiii)).

  • (iv) The possible uses of special drawing rights in operations and transactions conducted through the General Department of the Fund have been expanded (Chapter Q, sections 2(i) and 3).

  • (v) The Fund may broaden the categories of other holders of special drawing rights, although not beyond official entities, and the operations and transactions in which they may engage (Chapter Q, section 2(ii) and (iii)).

(d) Simplification and expansion of the types of the Fund’s financial operations and transactions, particularly those conducted through the General Department (Chapters D, E, F, G, H, J, and L).

The opportunity has been taken to incorporate in the Articles certain policies and practices that experience has proved to be useful. A leading example is the Fund’s policy on repurchase, which is designed to ensure that the use of the general resources will not extend beyond three to five years, unless a longer period is permitted under a special policy on use. The detailed formulae of the present Articles on repurchase and on the calculation of monetary reserves that governed the accrual of repurchase obligations and distribution among reserves have been deleted (Chapter E, section 1).

Provisions have been adopted to ensure that the Fund’s holdings of the currencies of all members will be usable by the Fund in its operations and transactions in accordance with its policies. Similarly, members will be able to obtain the currencies of other members when they have been specified by the Fund for repurchase. Appropriate safeguards are adopted for members (Chapter D, sections 11-15, and Chapter E, section 2(x)).

Among other changes in relation to the use of the general resources of the Fund is the more extensive authority it will have to permit members to engage in transactions under special policies without at the same time foregoing their reserve tranche positions (formerly gold tranche positions) (Chapter D, section 9).

(e) The possible establishment of the Council as a new organ of the Fund (Chapter P).

The Board of Governors may decide, by an eighty-five percent majority of the total voting power, to call a new organ of the Fund, the Council, into being if this action is deemed appropriate. This organ would resemble the present Interim Committee of the Board of Governors in composition and terms of reference. It would differ from the Committee in that it would have powers of decision and not solely advisory authority. If the Board of Governors were to decide that the Council should be established, detailed provisions governing the Council would begin to apply.

(f) Certain improvements in organizational aspects of the Fund (Chapter O).

The provisions governing the election of Executive Directors have been brought up to date by the incorporation of the present number of elective Executive Directors in the Articles, together with authority to modify the number by a high majority of the total voting power. In addition, a member entitled to appoint an additional Executive Director in certain circumstances may decide to participate in the election of Executive Directors instead of making an appointment. It is also provided that if the member does make an appointment, it may arrange with individual members in its former “constituency” to have the Executive Director it appoints cast the number of votes alloted to them (Chapter O, section 2(b)).

Other major improvements under this heading are the clarification and simplification of the distribution and delegability of powers among the organs of the Fund and the reduction of the categories of special majorities to seventy percent and eighty-five percent (and in one instance an absolute majority). Special majorities would apply to a wide range of decisions beyond those that have been noted already under (b) above (Annex).

The complete text of the Articles incorporating the proposed revisions, rather than a series of proposed amendments of particular provisions, is attached to the Resolution. The reason for adopting this technique is that, although the amendment does not represent a total revision of the Articles, the second amendment is an extensive one, affecting many provisions of the Articles. Nevertheless, the proposed revision is an amendment of the existing Articles and does not constitute a new international treaty.

Various changes in nomenclature in use in the Fund have been made. Some of the changes are intended to convey more clearly the structure of the Fund, which will consist of the General Department and the Special Drawing Rights Department. There will be three Accounts in the General Department: the General Resources Account, the Special Disbursement Account, and the Investment Account. These changes do not involve changes of substance in the legal or operational organization of the Fund (Chapter A, section 1).

PART II: COMMENTARY ON THE PROPOSED AMENDMENT OF THE ARTICLES OF AGREEMENT

A. Structure of the Fund (Introductory Article and Article I)

1. In view of the creation of the Special Disbursement Account (see Article V, Section 12(f)) and the Investment Account (see Article XII, Section 6(f)), it has been thought appropriate to improve the nomenclature relating to the structure of the Fund, without however changing that structure. The General Account is renamed the General Department, and the Special Drawing Account is renamed the Special Drawing Rights Department. The General Department will consist of three Accounts, the General Resources Account, the Special Disbursement Account, and the Investment Account. The resources that are at present held by the Fund for use in the operations and transactions conducted through the General Account will be held in the General Resources Account. These resources are referred to in Article I and elsewhere as the general resources of the Fund. “Profits” on the sale of the Fund’s gold will be held after the date of the second amendment in the Special Disbursement Account for use in accordance with the provisions governing that Account. The resources used for and resulting from investment will be held in the Investment Account. The resources of the three Accounts will be kept separate from each other.

2. The Introductory Article declares that membership in the Fund gives the right to participation in the Special Drawing Rights Department, and that all operations and transactions authorized by the Articles of Agreement shall be conducted through the General Department, except that operations and transactions involving special drawing rights shall be conducted through the Special Drawing Rights Department. These operations and transactions are conducted through both Departments, however, if the Fund is a party to an operation or transaction involving special drawing rights.

3. “Transactions” of the Fund are defined in Article XXX(h) for the purposes of the Agreement as exchanges by the Fund of monetary assets for other monetary assets, and “operations” are defined as other uses or receipts of monetary assets by the Fund. “Transactions” in special drawing rights means exchanges of them for other monetary assets, and “operations” in special drawing rights means other uses of them (Article XXX)(i)).

4. The Fund is authorized by Article V, Section 2(b) to administer resources on behalf of members consistently with the purposes of the Fund, but operations and transactions in these resources are not conducted through the General Department as they are not on the account of the Fund. Special arrangements would be made for the administration of these resources, as have been made in connection with the Trust Fund and the Subsidy Account.

B. Membership and Subscriptions (Articles II and III)

1. The second sentence in Section 2 of Article II expresses the principle that the terms for membership should not be discriminatory. An applicant’s quota should be in the same range as the quotas of members of the Fund considered by the Fund to be in a comparable situation, and the other terms for membership should not discriminate in other respects between applicants and existing members in similar circumstances. Moreover, a basic objective of the provision is to preserve the principle that membership resolutions must not create permanent rights and obligations that vary among members. One purpose of the sentence is to ensure the continuation of the established practice that a new member pays an appropriate part of its original subscription in reserve assets. Therefore, as in the past, the Fund will take into account the size of an applicant’s reserves in determining the portion of the subscription to be paid in reserve assets. Under Article III, Section 1, as under the present Articles, the quotas of new members are determined by the Board of Governors, and the subscriptions of members, which are equal to their quotas, must be paid in full. The Board of Governors must decide the amount to be paid in an applicant’s own currency and the amount to be paid in reserve assets (special drawing rights or the currencies of other members), but this latter amount could not exceed twenty-five percent of quota in view of the last clause of Article II, Section 2. The level of the Fund’s holdings of a new member’s currency below which the Fund will pay remuneration is fixed by Article V, Section 9(b)(i). The Board of Governors may wish to take into account the effect of a payment in reserve assets on the remuneration that might be payable to the member. If the percentage payable by a new member in its own currency resulted in holdings below the level relevant for remuneration under Article V, Section 9(b)(i), the Fund would have to pay remuneration to the new member at once. The balance of the subscription beyond the part paid in reserve assets is payable in the member’s currency.

2. The reference to “government” in the corresponding provisions of the present Articles is deleted and “country” is used instead. This change is intended to reflect the fact that countries, and not governments, are members of the Fund.

3. The last sentence of Article III, Section 1, in equating subscriptions with quotas, states a principle that applies to all members. Inclusion of the sentence makes it possible to delete Article III, Section 3 of the present Articles, which applied solely to the initial subscriptions of original members. In keeping with Article V, Section 10(a), which requires all accounts of the Fund to be expressed in terms of the special drawing right, Article III, Section 1 now requires that quotas be expressed in terms of special drawing rights.

4. The words “the Board of Governors” in Article II, Section 2 and Article III, Section 1 have been substituted for “the Fund” in order to provide that the prescription of the terms of membership, including determination of the quotas of new members, is a power of the Board of Governors that may not be delegated to other organs of the Fund.

Adjustment of Quotas (Article III, Section 2)

5. Article III, Section 2(d) provides that, as at present, a member’s quota in the Fund can be changed only with the member’s consent. A second prerequisite has been adopted for all changes in quota: an adjustment in quota cannot become effective until payment has been made of the amount of the difference between the old subscription and the new subscription. The provision applies to both increases and decreases in quota, and, therefore, applies to payments both by members and by the Fund. This requirement incorporates in the Articles the principle that has been applied in practice in connection with increases in quotas pursuant to general reviews. The rule, which would also apply to increases by installments if they were permitted by a resolution of the Board of Governors, prevents an increase in potential uses of the general resources of the Fund before the resources themselves are increased. In connection with reductions in quota, the rule prevents the Fund from enjoying a temporary advantage by retaining assets for a time after a reduction in quota has occurred.

6. The words “the Fund” in Section 2(a) are replaced by “the Board of Governors” in order to specify that a general review and the proposal of adjustment of the quota of a member, whether as the result of a general or an individual review, are among the powers of the Board of Governors that may not be delegated to other organs of the Fund.

7. Article III, Section 2(b) enables the Fund to propose increases in quotas equivalent to the “profits” on sales of gold transferred from the Special Disbursement Account to the General Resources Account of the Fund. The Special Disbursement Account is the account in which, according to Article V, Section 12(f), the Fund will hold the excess it receives over the present official price of gold when it sells gold under Article V, Section 12(c).

8. If the Fund decides under Article V, Section 12(f), (i) or (j) to transfer assets from the Special Disbursement Account to the General Resources Account for immediate use in the ordinary operations and transactions of the Fund as authorized by the Articles, the Fund may decide then or at a later date to “capitalize” the amount of the transfer or transfers by offering increases in quotas to members. The offer will be made to all members that were members of the Fund on August 31, 1975 and in proportion to their quotas on that date. No member will be required to accept an increase. If a member consents, the increase will take effect on consent, under Article III, Section 3(b), and its additional subscription will be deemed to have been paid. The decision to “capitalize” transfers may be taken by the Executive Board if this power is delegated to it by the Board of Governors. All decisions to permit the adjustment of quotas, whether resulting from a general or an individual review, and whether taken by the Board of Governors, or by the Executive Board under Article III, Section 2(b), will be taken by a majority of eighty-five percent of the total voting power. Under the present Articles, this proportion of the total voting power is required for adjustments proposed as the result of a general review, but eighty percent of the total voting power is required for adjustments that are proposed as the result of individual reviews. There is no provision in the present Articles corresponding to Article III, Section 2(b) under which “capitalization” can take place.

Payments When Quotas Are Changed (Article III, Section 3)

9. The requirement under the present Articles that an increase in subscription must be paid within thirty days after consent to an increase in quota has been replaced by the requirement that the payment must be made within a period determined by the Fund. This change is intended to provide flexibility for arranging payment.

10. Under Article III, Section 3(a), the portion of an increase in quota now payable in gold, equivalent to twenty-five percent of the increase, is payable in special drawing rights, but the Board of Governors can prescribe, in connection with any review, that payment may be made in whole or in part in the currencies of other members, with the concurrence of these members, or in the member’s own currency. Any prescription of the mode of payment must apply to all members on the same basis. This principle is subject to the qualification that nonparticipants in the Special Drawing Rights Department are permitted to pay the portion of the increase that must be paid by participants in special drawing rights in the currencies of other members specified by the Fund with the concurrence of these members. If the currencies of other members are specified as a means of payment by members, the proportion of each currency need not be the same for all members, but each member must pay the same total proportion of the increase in the currencies of other members.

11. If the Board of Governors prescribes that payment may be made in the currencies of other members, the particular currencies may be specified by the Executive Board by a majority of the votes cast under a delegated power. The Executive Board will be able to adopt policies with respect to the currencies that can be used for the payment of increases in subscriptions. In formulating these policies, the Fund would take into account the policies it had adopted under Article V, Sections 3(d), 6(c), 7(i), and 12(c). Payment in the currency of another member cannot be permitted if the Fund’s holdings would be increased above the level at which charges would be payable by the member under Article V, Section 8(b)(ii). This level would be the quota, unless purchases were outstanding under floating facilities, in which circumstances the level would be the quota plus the amount of the member’s currency obtained by the Fund in these purchases. Under Article V, Section 12(d), the Fund, by an eighty-five percent majority of the total voting power, could permit a member to pay the increase in its quota in gold at a price agreed between the Fund and the paying member on the basis of prices in the market.

12. Article III, Section 3(c), which deals with a reduction in quota, is designed to correspond to some extent to the provisions dealing with an increase in quota. Under the provision, the period for the payment by the Fund of the reduction in quota is sixty days after the consent to the reduction by the member. The payment must be made in the member’s currency to the maximum extent possible, but without reducing the Fund’s holdings of the currency below the new quota in any but exceptional circumstances. Examples of such exceptional circumstances might be the meagerness of the Fund’s holdings of special drawing rights or the fact that the member to be repaid was neither a participant nor an other holder of special drawing rights and it was not possible or advisable to use the currencies of other members. To the extent that the Fund did not make a payment in the member’s own currency, payment would be made in special drawing rights or in the currencies of other members that concurred in this use. The Executive Board would specify the currencies of other members for this purpose by a majority of the votes case under a delegated power.

Substitution of Securities for Currency (Article III, Section 4)

13. Any currency held by the Fund in the General Resources Account will be subject to Article III, Section 4. A member is able, therefore, to substitute nonnegotiable, noninterest-bearing notes or similar obligations issued by the member or by the depository designated by it under Article XIII, Section 2 for these holdings to the extent that the Fund does not currently need them for use in accordance with the provisions of the Articles. Article III, Section 4 does not apply to any cash balances in the Special Disbursement Account or the Investment Account. The reason for this limitation is that these holdings may be transitory. A member’s currency in these Accounts, however, may be invested by the Fund only with the member’s concurrence.

14. The words “face value” are substituted for the words “par value” in this section in order to avoid the confusion that might be created by the different meanings of the expression “par value.”

C. Exchange Arrangements (Article IV and Schedule C; Article VIII, Sections 2(a) and 4)

General Provisions

1. The provisions on exchange arrangements are based on the recognition that the essential purpose of the international monetary system is to provide a framework that both facilitates the exchange of goods, services, and capital among countries and sustains sound economic growth, and that a principal objective of the system is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability. The members of the Fund undertake, in Article IV, Section 1, a general obligation to collaborate with the Fund and with other members in order to assure orderly exchange arrangements and to promote a stable system of exchange rates.

2. Members must perform their general obligation by observing, in particular, the undertakings with respect to domestic and external economic and financial policies set forth in Article IV, Section l(i), (ii), (iii), and (iv). The particular undertakings referred to are general in scope and applicability. There is recognition, however, of the relevance of the circumstances of members in the formulation of the undertakings according to which members must “endeavor” or “seek” to pursue certain courses, as well as in the clause “with due regard to its circumstances” in Article IV, Section 1(i), the phrase “with due regard to its circumstances” does not represent a dilution of members general obligations under the Articles of Agreement, but refers to the differing economic needs and circumstances of members and the nature of the problems they face and the priorities they choose in the pursuit of their objectives consistently with the Articles of Agreement.

3. The obligations of members under Article IV, Section 1 apply to all members at all times and whatever their exchange arrangements may be. Under Article IV, Section 2(b) members may choose the exchange arrangements they wish to apply. This freedom of choice will continue to exist for all members even after the Fund has determined that conditions permit the introduction of a system of exchange arrangements based on par values and has notified members of the application of the provisions of Schedule C. In those circumstances, as explained in 6 to 13 below, Schedule C will apply to exchange arrangements of members.

4. Section 2(b) describes two of the principal types of exchange arrangements, and refers in a general way to all others as arrangements that members may apply in an international monetary system like the one prevailing at the beginning of 1976. The provision refers to the system as it existed on January 1, 1976 in recognition of the fact that it may develop in new directions thereafter. In the context of a different international monetary system, members may find it necessary or convenient to apply exchange arrangements other than those referred to in Section 2(b)(i) or (ii). Section 2(c) enables the Fund, by an eighty-five percent majority of the total voting power, to recommend general exchange arrangements that accord with the development of the system. This action of the Fund, however, could not limit in any way the right of members to have exchange arrangements of their choice consistent with the purposes of the Fund and the obligations of members under Section 1.

5. Under Section 3(a), the Fund is required to oversee the international monetary system in order to ensure its effective operation and to oversee the observance by each member of its obligations under Section 1. Each member is required to notify the Fund under Section 2(a) of the exchange arrangements it intends to apply in fulfillment of these obligations, and of any changes in its exchange arrangements. Section 3(b) emphasizes the functions of the Fund under Section 3(a) by directing it to exercise firm surveillance over the exchange rate policies of members and to adopt specific principles for the guidance of all members with respect to those policies whatever exchange arrangements a member may apply. The principles may be adapted from time to time in the light of experience and the development of the international monetary system. The principles will have to be based on, and respect, the general obligations of members under Section 1 regarding, for example, the pursuit of orderly economic growth and reasonable price stability, and must be consistent with the freedom of members to choose their exchange arrangements. In this connection, as well as in Section 2(b), there is special reference to cooperative arrangements by which the values of currencies are maintained between or among members. The principles must also respect the domestic social and political policies of members. In applying these principles, the Fund is required to pay due regard to the circumstances of members.

Par Values

6. Section 4 authorizes the Fund to make a determination, by an eighty-five percent majority of the total voting power, that international economic conditions permit the introduction of a par value system, that is, a widespread system of exchange arrangements based on stable but adjustable par values. The criteria that the Fund must take into account for making that determination are set forth in Section 4. If the Fund makes a determination, it must notify members that the provisions of Schedule C apply, and Schedule C is then operational. On the date of the second amendment, par values in existence under the present Articles will cease to be in effect for the purposes of the Articles of Agreement.

7. Application of the provisions of Schedule C will require a member to establish a par value for its currency unless it intends to apply other exchange arrangements. If it chooses the latter course, it must consult with the Fund and ensure that its exchange arrangements are consistent with the purposes of the Fund and are adequate to fulfill its obligations under Article IV, Section 1. A member wishing to establish a par value under the provisions of Schedule C can at any time propose a par value to the Fund, whether initially under Schedule C, paragraph 2 or subsequently under Schedule C, paragraph 4. The proposed par value will take effect if the Fund concurs in it. It is provided that the Fund shall not object because of the domestic social or political policies of the member proposing the par value.

8. Under Schedule C, paragraph 5, the margin for spot exchange transactions between currencies for which par values are maintained is four and one-half percent on either side of parity. Members can maintain narrower margins consistently with this provision if they wish to do so. The Fund will be able, by an eighty-five percent majority of the total voting power, to establish a different margin, which might be either wider or narrower than four and one-half percent, for all spot exchange transactions, or to permit, for example, the application of one margin for the currencies of members participating in a multi-currency intervention system and another margin for spot exchange transactions between these currencies and other currencies. The authority of the Fund under the present Articles to establish specific margins for other exchange transactions, including forward exchange transactions, has been eliminated. In view of the greater width of margins, it has been made clear that the Fund’s jurisdiction over multiple currency practices and discriminatory currency arrangements applies to rates within or outside margins observed by members under Article IV or prescribed by or under Schedule C, paragraph 5 (Article VIII, Section 3). The Fund will be able to develop a body of principles on what practices are to be regarded as multiple currency practices or discriminatory arrangements, subject to the practices authorized by the provisions of the Articles. This is the way in which these concepts have been applied under the present Articles.

9. A change in the par value of a member’s currency for the purposes of the Articles of Agreement may occur only if the member proposes the change in order to correct, or prevent the emergence of, a fundamental disequilibrium and if the Fund concurs in the change. The concept of preventing the emergence of a fundamental disequilibrium goes beyond the text of the present Articles. If a change in par value is proposed by a member, the Fund must concur in or object to it within a reasonable period. The Fund must concur if it is satisfied that the change is necessary to correct, or prevent the emergence of, a fundamental disequilibrium. As in the present Articles, it is provided, in Schedule C, paragraph 7, that the Fund shall not object because of the domestic social or political policies of the member proposing the change. It will continue to be possible, therefore, for the Fund to object because of other policies. If the Fund does object, the proposed change will not take effect for the purposes of the Articles. If nevertheless the member were to make the change, the Fund would be able to apply the measures of Article XXVI, Section 2 against the member, i.e., ineligibility to use the general resources of the Fund and compulsory withdrawal. The Fund is not required to apply these measures.

10. Only the member is authorized to propose a change in the par value of its currency, which is the position under the present Articles. Although the Fund is not authorized to propose a change, it is required to discourage the maintenance of an unrealistic par value by a member.

11. A par value ceases to exist for the purposes of the Articles of Agreement if the member terminates it or if the Fund finds that the member is not maintaining rates for a substantial volume of exchange transactions in accordance with Schedule C, paragraph 5. These provisions eliminate the principle under the present Articles that a par value continues to exist for the purposes of the Articles even though it has been completely out of touch with actual rates for many years and there is no prospect that the par value will be made effective again. The Fund may object to the termination of a par value, but only by a decision taken by eighty-five percent of the total voting power. The member may terminate the par value for its currency despite the objection of the Fund, but such an action will make the member subject to the application by the Fund of the measures included in Article XXVI, Section 2.

12. If the par value of the currency of a member ceases to exist, the member has the same choice as upon the initial application of Schedule C. It can establish a new par value or apply other exchange arrangements (Schedule C, paragraphs 9 and 10). If it does not have an effective par value it must consult the Fund and must ensure that its exchange arrangements are consistent with the purposes of the Fund and adequate to fulfill its obligations under Article IV, Section 1.

13. Under Schedule C, paragraph 1, the Fund will choose the common denominator of the par value system under that Schedule. It may be the special drawing right or some other common denominator except gold or a currency. If the special drawing right were chosen as the common denominator, the Fund might wish from time to time to make uniform proportionate changes in par values. For this purpose Schedule C, paragraph 11 authorizes the Fund to decide, by a seventy percent majority of the total voting power, to make uniform proportionate changes in all par values if the changes will not affect the value of the special drawing right. These changes would not be made in order to increase or decrease global liquidity, because this effect could be achieved by the allocation or cancellation of special drawing rights, but in order to bring par values into line with the values of the currencies in terms of the value of the special drawing right in transactions as determined under Article XV, Section 2. A member will have the right, which it has under the present Articles, to decide that the par value of its currency will not be changed, but it must give the Fund notice of this decision within seven days after the Fund’s action.

Convertibility Under Article VIII

14. Article VIII, Section 2(a) constitutes what has become the basic convertibility provision of the Articles of Agreement. The mechanism of convertibility under this provision is available to all parties, whether private or governmental, and under it holders of currency balances recently acquired as a result of current transactions must be allowed to transfer those balances through the exchange markets.

15. The basic convertibility mechanism of Article VIII, Section 2(a) was supplemented, in the original Articles, by another form of convertibility under Article VIII, Section 4 to which the monetary authorities of members, and only those authorities, could have recourse. This supplemental mechanism for monetary authorities was provided for by the drafters of the original Articles on the basis of certain assumptions about the character and operation of the monetary system after 1944, which has, however, developed in other directions. They assumed, for example, that conversions through the market might be moderate, but that governments might centralize all foreign exchange receipts, with the result that official balances might be enormous and conversion impossible without the use of the Fund’s resources.

16. The obligation of members to convert under Article VIII, Section 4 is a closely defined obligation and subject to certain conditions. One important condition is that the balances presented for conversion have been recently acquired as a result of current transactions, or that conversion of the balances is needed for making payments for current transactions. Another important condition is that the member asked to convert must be entitled to use the Fund’s resources. The theory of Section 4 is convertibility of official balances through the mechanism of the Fund, and a member is under no obligation to convert official balances of its currency, whether through the use of the Fund’s resources or with other assets, unless it can purchase from the Fund the currency of the member requesting conversion

17. The world has not developed along the lines expected by the drafters of Article VIII, Section 4, and the convertibility mechanism envisaged in that provision has never been applied. Section 2(a) of Article VIII, and not Section 4, has provided the mechanism for conversion, and the Fund has supported this form of convertibility with its resources.

18. The second amendment has been agreed on the understanding that the situation as described above will continue to prevail, so that no obligation will be applied for a member so long as exchange markets for the currency held normally serve this function. Members are, of course, free to agree to convert balances of their currency held by other members, as they have done on occasions in the past, or can, by agreement, transfer special drawing rights to other members for this purpose. It has been considered unnecessary, therefore, to attempt to modify the provision at this time, taking into account the fact that circumstances similar to those that the drafters of the original Articles had in mind might possibly emerge, thus justifying more reliance on the provisions of Article VIII, Section 4. Any study of a possible future modification of the provision could be undertaken more usefully in the light of developments in connection with exchange arrangements under Article IV.

D. Use of Fund’s General Resources (Article V, Sections 2, 3, 4, 5, and 6; Article XXX(c))

1. The provisions of the Articles dealing with the use of the Fund’s general resources (Article V, Sections 2 to 6) are revised, largely in order to give expression to the practices, including those relating to the selection of currencies for use in the transactions of members with the Fund, that have evolved in the course of the years on the basis of the present provisions. The new provisions, however, are not confined to the modernization of the Articles but also introduce improvements in them, for example with respect to the usability of the Fund’s holdings of currencies in the General Resources Account.

2. Under Section 2(a) the Fund’s authority to enter into operations and transactions on its own account is limited to those included in the Articles. Special mention is made of the sale to a member, on its initiative, of special drawing rights or the currencies of other members held in the General Resources Account for the member’s own currency. Under Section 2(b) the Fund, if requested, may decide to perform financial or technical services that are not on the account of the Fund, provided that they are consistent with its purposes. Decisions under this provision would be taken by a majority of the votes cast in the Executive Board. The technical services include technical assistance within the Fund’s sphere of interest. It is expected that the Fund would not make its services available to assist members to conduct their transactions in gold. The financial services include the administration of resources contributed by members or by others. The Trust Fund, and the Subsidy Account established in 1975 to assist members that were most seriously affected by the prevailing situation to meet the cost of using the Fund’s oil facility, are examples of this kind of service. Operations and transactions involved in the performance of these financial services would not be on the account of the Fund. That is to say, the assets in the Accounts of the General Department or any assets in the Special Drawing Rights Department would not be available to meet obligations or liabilities incurred in the course of these services. The assets administered by the Fund under this provision might be owned by the Fund if certain legal techniques, such as a trust, were employed, and, therefore, to take one example, the assets would be assets of the Fund for the purposes of the immunities and privileges of Article IX even though they would not be held within the General Department (Article XVI, Section 2). Services rendered by the Fund under Article V, Section 2(b) cannot impose obligations on a member unless it agrees to assume them. As in the past, the Fund would be able to absorb the administrative costs of the services or agree with members on some other arrangement.

3. Article V, Section 3(a) refers to “stand-by or similar arrangements.” The concept of the “stand-by arrangement,” which is defined in Article XXX(b), is an important development in the practice of the Fund but is not referred to in the present Articles. An example of a “similar arrangement” would be an extended arrangement granted by the Fund under its decision establishing the “Extended Fund Facility” (Decision No. 4377-(74/114), September 13, 1974). Article V, Section 3(a) directs the Fund to adopt policies on the use of its general resources, including the use under stand-by or similar arrangements. The Fund would continue to be able to adapt its policies with respect to stand-by or similar arrangements, and to adopt special policies for the use of its resources, subject to the provisions of the Articles, including the requirements with respect to the majorities for decisions.

4. The entitlement of members to use the Fund’s general resources is not formulated in terms of particular currencies, subject to the exception in the last clause of Article V, Section 3(d). The particular currencies to be sold to a member making a purchase would be selected by the Fund in accordance with policies and procedures to be adopted by the Fund (Section 3(d)). These policies and procedures must take into account, in consultation with members, the balance of payments and reserve position of members and developments in the exchange markets, as well as the desirability of promoting over time balanced positions among members in the Fund. Developments in the exchange markets have been included because they may signal an improving or deteriorating payments position. Section 3(d) will provide an express legal basis for currency budgets comparable to the designation plans for special drawing rights under Article XIX, Section 5. The Fund will apply similar criteria in the preparation of both the budgets and the plans. Under the exception in the last clause of Section 3(d), however, a member will be entitled to purchase a specific currency if it represents that it needs that currency in order to redeem an equivalent amount of its own currency held by another member and offered by the holder for redemption. This exception is subject in turn to the qualification that a member will not be entitled to purchase the currency of another member under Section 3(d) if the Fund has given notice under Article VII, Section 3 that its holdings of the currency have become scarce.

5. In order to be entitled to make a purchase, a member must satisfy four conditions:

  • (i) The member’s use of the resources in the General Resources Account would be in accordance with the Articles and the Fund’s policies.

  • (ii) The member represents that it has a need to make the purchase because of its balance of payments or reserve position or because of developments in its reserves.

  • (iii) The proposed purchase would be a reserve tranche purchase or would not cause the Fund’s holdings of the purchasing member’s currency to exceed two hundred percent of its quota.

  • (iv) The Fund has not declared the member ineligible to use the Fund’s general resources under any of the provisions under which the Fund can take this action.

6. With respect to condition (i), the Fund is directed to examine a request for a purchase in order to determine that the request is in all respects in conformity with the Articles and with the Fund’s policies (Article V, Section 3(d)). If the Fund decides that, for whatever reason, the condition is not met, the Fund will refuse to comply with the request, subject to the qualification that the Fund cannot refuse a request for a reserve tranche purchase by a member that is eligible to use the Fund’s general resources (see 9 below).

7. The Fund will continue to be able to challenge for good cause a member’s representation of need under condition (ii). The provision relating to the requirement of “need” has been formulated in a manner that brings it into line with the comparable requirement of “need” under Article XIX, Section 3(a) for the use of special drawing rights by participants. Under the concept of need in Article V, Section 3(b)(ii), a member will be able to purchase the currencies of other members from the Fund if its balance of payments position or its reserve position is unfavorable, or if there is an unfavorable development in its reserves, e.g., because of an impending discharge of liabilities, even though it does not have a deficit in its balance of payments according to accepted definitions of the balance of payments.

8. In condition (iii), the limit on purchases formulated in the present Articles in terms of an increase in the Fund’s holdings of a member’s currency equivalent to twenty-five percent of quota has been deleted. The needs of members have necessitated frequent waivers of this limit under Article V, Section 4 of the present Articles even though the drafters of the provision appear to have contemplated that waivers would be uncommon. The Fund’s policies on the use of its resources have been more adequate safeguards of the Fund’s resources than the deterrence implied in the necessity for waivers. The limit of two hundred percent of quota has been retained. This limit refers to the Fund’s total holdings of a currency. That is to say, holdings obtained under a special policy are not deducted, so that a waiver is necessary for any proposed purchase, other than a reserve tranche purchase, that would increase the Fund’s holdings in the General Resources Account above two hundred percent of quota.

9. In condition (iii), the concept of “gold tranche purchase” has been replaced by the concept of “reserve tranche purchase” in order to reflect more accurately the character of the right of members to make purchases that are not subject to challenge by the Fund. A “reserve tranche purchase” is defined in Article XXX(c) as a purchase by a member of special drawing rights or another member’s currency in exchange for the member’s own currency if the Fund’s holdings of the member’s currency in the General Resources Account will not be increased above its quota. For this purpose, however, the Fund, by a general decision taken by a majority of the votes cast, may calculate holdings by excluding currency obtained as a result of purchases under the facility for the compensatory financing of export fluctuations or under the facility for the financing of contributions to international buffer stocks of primary products. The Fund will be able to exclude purchases under other policies on the use of its general resources but only by decisions taken by an eighty-five percent majority of the total voting power. If the Fund makes an exclusion in respect of purchases under a particular policy, a member will be able to make a purchase under that policy without losing any part of a reserve tranche position that is available to it. Under the present Articles, this result is possible only with respect to purchases under the compensatory financing facility. With respect to purchases under other policies, it has been possible only to ensure that they do not affect the purchases that can be made under the credit tranche policies. The Fund will continue to have this authority under the amended Articles.

10. Article V, Section 4 enables the Fund to waive conditions (iii) and (iv) in Article V, Section 3(b). It is made clear that the Fund cannot waive the condition that requires the consistency of a request with the Articles and with the policies of the Fund and the condition that the member must have a need to make the purchase it requests. The Fund may accept collateral security to safeguard its interests when granting a waiver. Particular types of collateral are no longer mentioned. There is a general reference to “acceptable assets,” which would include, for example, special drawing rights. The provision, therefore, would authorize members to use, and the Fund to accept, special drawing rights for this purpose. The Fund’s practice, however, has been not to require collateral. It is not expected that this practice will be changed.

11. In order to make it possible for the Fund to use all currencies held in the General Resources Account in transactions conducted through that Account in accordance with the Fund’s policies, Article V, Section 3(e) sets forth certain provisions intended to ensure that a member purchasing another member’s currency from the Fund will be able to use it, directly or indirectly, to meet its balance of payments needs. These provisions supplement Article V, Section 3(d), which empowers the Fund to select the currencies to be sold to members making purchases from the Fund. Article V, Section 3(e) gives expression in the form of an obligation of members to a practice that hitherto has rested solely on the collaboration of members. Members must perform this obligation, as well as the parallel obligation imposed by Article V, Section 7(j), to the satisfaction of the Fund. Article V, Section 3(d) reflects the consensus that the ability of the Fund to use all its general resources for the benefit of members should be based on a clear legal foundation. In accordance with the purpose of this provision, members must perform all necessary steps promptly. The Fund will make arrangements designed to ensure that all steps can be carried out on the same day or, if this is not practicable, as expeditiously as possible.

12. A member whose currency is not a freely usable currency has the obligation to ensure that balances of its currency purchased from the Fund can be exchanged for a freely usable currency selected by the member whose currency is purchased at an exchange rate between the two currencies corresponding to their values in terms of the special drawing right under Article XIX, Section 7(a). This obligation applies only if the purchasing member requests the exchange at the time of the purchase. The purchasing member must make the exchange with the monetary authorities of the issuing member, unless the two members agree on some other procedure. The provision means, therefore, that either of the two members involved can insist on an official exchange. If the currency purchased from the Fund is a freely usable currency and the purchasing member wishes to exchange it for another freely usable currency, the purchasing member is not entitled to demand an official exchange, but it must exchange the currency purchased from the Fund with the monetary authorities of the issuer of the currency if the issuer so requests. In that event, the issuer also has the choice of the freely usable currency that it will deliver, and the exchange must be made at an exchange rate between the two currencies corresponding to their values in terms of the special drawing right under Article XIX, Section 7(a). Under the collaboration clause, discussed in 13 below, it is expected that the issuer would take into account the preference that the purchasing member may express for a particular freely usable currency.

13. In addition, each member, whether its currency is or is not a freely usable currency, is required to collaborate with the Fund and other members to enable balances of its currency that another member holds as the direct or indirect result of a purchase from the Fund to be exchanged, at the time of the purchase, for the freely usable currencies of other members. This provision assists a purchasing member in either of two ways in the situation in which the freely usable currency selected by the member whose currency is purchased is not the currency that the purchaser wants. The purchaser can ask the issuer to collaborate by exchanging its currency into a currency that the purchaser does want, or the purchaser can accept the currency selected and ask the issuer of that currency to collaborate in the exchange of that currency for another freely usable currency. Whichever course is adopted, the obligation applies only if the exchange is sought at the time of the purchase. The obligation of collaboration is not the same as an obligation to provide the currency wanted by the purchasing member through an official exchange, but instead members must do what can reasonably be expected of them. The Fund would be able to decide whether a member was performing the obligation of collaboration, and in this connection the Fund will consult with members in order to reach understandings on ways in which collaboration would be made effective.

14. The definition of a freely usable currency is set forth in Article XXX(f). This definition and all other definitions in Article XXX are designed for the purpose of applying the provisions of the Articles. A currency that does not fall under Article XXX(f) for the Fund’s purposes because it is not widely used for international payments may nevertheless be freely exchangeable for other currencies in some of the principal exchange markets. Under the definition in Article XXX(f), a member’s currency will be regarded as freely usable by the Fund only if the Fund determines that the currency meets two criteria: (a) the currency is, in fact, widely used to make payments for international transactions, and (b) it is widely traded in the principal exchange markets. The Fund will apply this definition and establish which currencies are to be deemed freely usable for the purposes of the Articles. The Fund would be able to add to or subtract from the list should changing circumstances make these modifications necessary. It can be expected that the Fund would consult a member before placing its currency on the list or removing it, but the final decision would rest with the Fund.

15. The concept of freely usable currency appears in the following provisions:

  • Article V, Sections 3(e) and 7(j);

  • Article XIX, Section 4(a);

  • Article XX, Section 5;

  • Article XXIV, Sections 3, 5, and 6;

  • Article XXX(f);

  • Schedule G, paragraph 1(a)(iv);

  • Schedule H, paragraphs 1 and 2;

  • Schedule I, paragraph 1;

  • Schedule J, paragraphs 2 and 4.

16. The Fund may agree to provide a member, if it is a participant in the Special Drawing Rights Department, with special drawing rights held in the General Resources Account, instead of the currencies of other members, in return for the purchasing member’s currency. Article V, Section 3(f) requires the Fund to adopt policies and procedures for these transactions. On the basis of this authority, the Fund may give general approval for purchases of special drawing rights by participants under general policies, or may limit its agreement to specific cases. The agreement of the Fund is required for various reasons. For example, the Fund might wish to retain its holdings of special drawing rights in order to replenish its holdings of currency under Article VII, Section l(ii), or because the Fund’s holdings of special drawing rights in the General Resources Account might be inadequate to meet all requests.

17. Under Article V, Section 6, the Fund can provide a member with the currencies of other members in return for special drawing rights. Similarly, the Fund can provide a participant, at its request, with special drawing rights held in the General Resources Account for an equivalent amount of the currencies of other members. These transactions cannot be entered into without agreement between the Fund and the member. It was concluded that the Fund should be empowered to enter into these transactions because participants will be able to enter into similar transactions between themselves under Article XIX, Section 2(b). Neither kind of transaction under Article V, Section 6 is a “credit” transaction comparable to the transactions, other than reserve tranche purchases, in which a member makes purchases under Article V, Section 3 in return for its own currency. Therefore, there is no condition that the member must have a need to enter into the transaction. There are, however, certain limitations on transactions under Article V, Section 6:

(a) The Fund’s holdings of a member’s currency that it receives in the General Resources Account must not be increased above the level at which the member would have to pay charges on them under Article V, Section 8(b)(ii).

(b) The Fund may not enter into a transaction unless the member whose currency is provided or accepted by the Fund concurs in the use of the currency.

(c) The currencies provided or accepted by the Fund must be in accordance with policies of the Fund, and these policies must take account of the principles set forth in Article V, Section 3(d) for the selection of currencies in transactions under Article V, Section 3(b).

E. Repurchase (Article V, Section 7 and Schedule B, Paragraphs 1 to 5)

General Provisions

1. The provisions on repurchase in the amended Articles differ substantially from the provisions of the present Articles under which members incur repurchase obligations on the basis of complex and rigid rules that determine the amounts to be repurchased, the assets with which repurchases are to be made, and the timing of the repurchases. The accrual of repurchase obligations under the present Articles depends to a large extent on a definition of types of assets held by the central and official authorities of members that no longer accords with actual practice. In spite of the complexity of the provisions, repurchase obligations have not accrued in sufficient amounts to ensure that members would always make a temporary use of the Fund’s resources. Sometimes, repurchase obligations have accrued at inconvenient times. In order to ensure temporary use, the Fund has had to augment the provisions with policies on repurchase, although it has not been possible to make policies obligatory in all circumstances. The policies have been simpler and more effective, but concurrent application of both the provisions and the policies has created complications. It has not been possible to resolve them by the waiver of the provisions, because the Fund has no authority to take that action. Article V, Section 7 of the amended Articles eliminates the formulae of the present Articles that govern the accrual of repurchase obligations and the calculation of monetary reserves on the basis of which the obligations arise. The provision largely reflects the supplementary policies on repurchase that the Fund has developed over the years, but it retains certain of the principles underlying provisions of the present Articles, such as the duty to repurchase on the basis of increases in reserves.

2. The new rules in Article V, Section 7, which apply only to currency held in the General Resources Account, are as follows:

  • (i) Under subsection (a), a member is entitled, as it is under the present Section 7(a), to repurchase at any time the Fund’s holdings of its currency that are subject to periodic charges under Article V, Section 8(b). In this way, a member can be certain that it will be able at any time to terminate its obligation to pay charges. This right may be exercised in respect of holdings of a member’s currency that result from purchases or from any other operation or transaction.

  • (ii) Under subsection (b), a member that has made a purchase will be expected normally to repurchase the Fund’s holdings that result from the purchase and are subject to charges under Article V, Section 8 as its balance of payments and reserve position improves. The repurchase should keep pace with the improvement and should not await total recovery from the problem for which the purchase was made. The word “normally” indicates that there may be exceptional circumstances that the Fund will recognize as justification for not repurchasing according to the criterion of improvement in the balance of payments and reserve position. That criterion is a combined one that can be satisfied if the improvement in one element compensates for a slower improvement in the other. The expectation that repurchase will be made according to the criterion is not an obligation, but observance of it would be relevant to the member’s relations with the Fund. If, in the opinion of the Fund, the member has failed to repurchase in accordance with the criterion, the Fund, after consultation with the member, may represent to the member that it should repurchase, whereupon the member will be under an obligation to make the repurchase. The representation would be made in accordance with general policies adopted by the Fund with respect to repurchase.

  • (iii) In addition to the expectation and obligation with respect to repurchase as a member’s balance of payments and reserve position improves, the member has an obligation under subsection (c) to repurchase not later than five years from the date of a purchase the Fund’s holdings of its currency that result from the purchase and are subject to charges under Article V, Section 8. This period for repurchase is the one that the Fund has regarded as basic for many years. The Fund may prescribe that repurchase shall be made in installments beginning three years, and ending five years, after the purchase. A member must discharge its obligation under subsection (c) even if its balance of payments and reserve position has not improved. The Fund, by an eighty-five percent majority of the total voting power, may change the maximum period for repurchase by all members under subsection (c), either by lengthening or by shortening it. The Fund may decide, by the same high majority, that all members shall repurchase by installments beginning sooner, or later, than three years after a purchase. The Fund may determine the installments in which repurchase shall be made during the period of three to five years, or within a different period substituted for this period, by a majority of the votes cast. The Fund may adopt general policies on the spacing of installments within the general periods. These policies may permit different schedules of installments for different circumstances, including the different circumstances of particular members, as is the present practice.

  • (iv) Subsection (c) applies to the Fund’s policies on the use of its resources in the credit tranches. Under subsection (d), the Fund may decide, by an eighty-five percent majority of the total voting power, that the periods for repurchase under special policies on the use of its resources shall be other than the three to five years, or the periods substituted for them, that apply to the credit tranche policies. The periods may differ as among special policies, but they must be the same for all members under any one policy. Examples of special policies on the use of the Fund’s resources are the oil facility and the extended Fund facility, for which repurchase periods different from those that apply to the credit tranche policies that are already in effect.

  • (v) Article V, Section 7 does not prescribe a period for the repurchase by members of the Fund’s holdings of their currencies that are not acquired as a result of purchases (e.g., as a result of the payment of charges) and are subject to charges under Article V, Section 8(b)(ii). Instead, the Fund is required by subsection (e) to adopt policies on the repurchase of these holdings. These policies can be adopted by a seventy percent majority of the total voting power. The policies need not be the same for all the ways in which currency is acquired, but the policies adopted for any particular kind of acquisition will be applicable in the same way to all members.

  • (vi) Subsection (f) provides that if the Fund prescribes a period for repurchase in respect of the use of its resources under its credit tranche policies that is shorter than the period in effect under subsection (c), the new period can be applied only to holdings obtained by the Fund under the policies after the effective date of the decision adopting the new period. If the period is longer, the Fund may apply it to holdings already acquired under the policies. These principles apply whether the change is made in the date at which the first installment is payable or in the period by which repurchase must be completed. The same principles apply to changes in periods for repurchase in effect under subsection (d) in respect of purchases under special policies. Subsection (f) protects members against the application of more stringent repurchase obligations to purchases already made, but the Fund is authorized to give members the benefit of more lenient repurchase obligations by applying them to outstanding purchases.

  • (vii) Under subsection (g) the Fund is authorized to postpone, on the request of a member, the date for the discharge by the member of a repurchase obligation or any installment that is due. Under this authority, the Fund, by a majority of the votes cast, can extend the period for the discharge of a member’s repurchase obligation incurred in respect of a purchase, but not beyond the maximum period for repurchase in respect of the purchase under subsection (c) or (d), as the case may be, or under the Fund’s policies for the repurchase of balances not acquired by purchase (subsection (e)). The Fund can postpone the date of the discharge of a repurchase obligation with respect to purchases beyond the maximum period under the applicable subsection only if the Fund determines that discharge on the due date would result in exceptional hardship for the member and if the longer period for repurchase would be consistent with the temporary use of the general resources of the Fund. A decision to postpone in these circumstances requires a seventy percent majority of the total voting power.

  • (viii) The Fund may adopt policies supplementing those adopted under Article V, Section 3(d) for the sale of those holdings of a member’s currency that have not been repurchased in accordance with the member’s obligation (subsection (h)). The Fund must consult with the member before any such sale in order to enable the member to explain the delay and possibly arrange a new date for the repurchase that is overdue. The member cannot veto the sale of the member’s currency if the Fund decides to sell it more promptly than would be justified according to the criteria in Article V, Section 3(d). The sale is without prejudice to other actions that are available to the Fund because of the member’s failure to perform its repurchase obligation. These actions include the imposition under Article V, Section 8(c) of higher charges on the holdings that should have been repurchased and a declaration, under Article V, Section 5 or Article XXVI, Section 2(a), of ineligibility to use the Fund’s general resources.

  • (ix) Subsection (i) provides that repurchases must be made with special drawing rights or with the currencies of other members specified by the Fund. The selection of currencies to be used in repurchase will be based on policies and procedures that the Fund will have to adopt. The policies and procedures must take account of the principles governing the selection of currencies to be used in purchases under Article V, Section 3(d). These principles take into account, in consultation with members, the balance of payments and reserve position of members and developments in the exchange markets, as well as the desirability of promoting over time balanced positions among members in the Fund. No distinction will be made between the currencies of members that have accepted the obligations of Article VIII, Sections 2, 3, and 4 and the currencies of members that have not yet done so. The Fund’s holdings of the currency of a member that is used in repurchase may not be increased by repurchase above the level at which they would be subject to charges under Article V, Section 8(b)(ii).

  • (x) Under subsection (j), which parallels the provisions of Article V, Section 3(e) on the exchange of currencies purchased from the Fund, the issuer of a currency that has been specified by the Fund for use in a repurchase and is not a freely usable currency has the obligation to ensure that the repurchasing member can obtain the necessary amounts of the currency in exchange for a freely usable currency selected by the issuer of the currency at a rate of exchange between the currencies that is consistent with Article XIX, Section 7(a). This obligation applies only if the repurchasing member requests the exchange at the time of the repurchase. A repurchasing member wishing to obtain the currency of a member that is not freely usable for use in repurchase must obtain it from the issuer of that currency, unless the two members agree on some other arrangement. If the currency to be used in repurchase is freely usable, the repurchasing member must obtain it from the issuing member only if requested to do so by the issuing member. The exchange will be made at a rate of exchange that is consistent with Article XIX, Section 7(a). The Fund will adopt regulations to determine which currency should be made available by a repurchasing member in exchange for a freely usable currency to be used in repurchase. It may be expected that the regulations will provide that the two members involved would be able to agree on the currency to be made available by the repurchasing member and that the Fund would be called upon for a determination only if the two members could not agree. All exchanges that are requested pursuant to Article V, Section 7(j) must be carried out promptly, as explained in Chapter D, section 11. In addition to the obligation as described above, each member whose currency has been specified by the Fund for use in a repurchase by another member, whether the currency is freely usable or not, must collaborate with the Fund and other members to enable the repurchasing member to obtain, at the time of repurchase, the necessary amounts of the specified currency in exchange for the freely usable currencies of other members.

  • (xi) Members are not permitted to repurchase with gold unless the Fund, by an eighty-five percent majority of the total voting power, decides to accept gold in repurchases (Article V, Section 12(d). Any such payment would have to be at a price agreed for each transaction on the basis of prices in the market.

Transitional Provisions on Repurchase

3. The transitional provisions of paragraphs 1 to 5 of Schedule B deal with the repurchase of currency acquired by the Fund under the present Articles and held by it on the date of the second amendment. Repurchase obligations that have accrued under Article V (Section 7(b)) of the present Articles before the date on which the second amendment takes effect, but remain undischarged at the date, must be discharged not later than the dates that apply to them under the provisions of the present Articles that gave rise to these obligations. Currency held by the Fund in excess of seventy-five percent of quota on the date of the second amendment resulting from purchases made before that date but not subject to accrued obligations under Article V, Section 7(b) of the present Articles must be repurchased in accordance with the policy under which the purchase was made. Other holdings in excess of that level and not subject to accrued obligations, such as holdings that result from the payment of charges by a member in its own currency, must be repurchased not later than four years after the date of the second amendment. The provisions with respect to the calculation of repurchase obligations under the present Articles will not apply to currency held at the date of the amendment that are not the subject of accrued obligations at that date. The transitional arrangements are designed to deal equitably among all members in connection with the repurchase of holdings subject to repurchase under the present Articles.

4. With respect to the assets to be used in making the repurchases referred to in 3 above, it is provided that repurchase obligations that accrued in gold shall be discharged with special drawing rights, but the Fund may prescribe that payment can be made, in whole or in part, in the currencies of other members specified by it on the basis of SDR 35 per ounce of fine gold and the value of currencies in terms of the special drawing right at the date of discharge. A nonparticipant in the Special Drawing Rights Department may discharge a repurchase obligation that accrued in gold with the currencies of other members specified by the Fund. Other repurchases must be made in the assets acceptable to the Fund in repurchase under the amended Articles.

F. Charges (Article V, Section 8)

1. Article V, Section 8 of the present Articles makes express provision for three types of charges: a service charge on the purchase by a member of currencies of other members in exchange for its own currency, a handling charge that may be levied on purchases of gold from, or sales of gold to, the Fund, and periodic charges on a member’s currency held by the Fund in excess of quota. In addition, the Fund levies, under decisions it has adopted, a commitment charge in respect of stand-by arrangements and extended arrangements, which, however, is credited against service charges on purchases under these arrangements. Under Article XXV, Section 7(g) of the present Articles the Fund has authority to impose reasonable charges uniform for all participants on operations and transactions in special drawing rights conducted through the General Resources Account, but the Fund has not levied charges under this provision. Under Article XXV, Section 7(f) of the present Articles the Fund, by agreement with a participant, may use special drawing rights held in the General Resources Account in any operations or transactions authorized by the Articles. This provision enables the Fund to sell special drawing rights to a participant when the Fund can sell the currency of another member to the participant under Article V, Section 3(a). In these transactions, the Fund has levied a service charge under Article V, Section 8(a).

2. Under the present Articles, a member buying the currency of another member from the Fund in exchange for its own currency is required to pay, in addition to the parity price, a service charge of not less than one-half of one percent and not more than one percent as the Fund may determine. The present service charge is one-half of one percent. The Fund has the power to reduce the service charge to a level below one-half of one percent, including the level of zero, on gold tranche purchases. Under a decision adopted in 1969, the Fund has reduced the service charge to zero on these purchases.

3. Under Article V, Section 8(a)(i) of the amended Articles a service charge is levied at a uniform rate on the purchase by members of special drawing rights as well as on the purchase of another member’s currency held in the General Resources Account in exchange for the purchaser’s own currency. This provision corresponds in effect to the practice under the present Articles, but is simpler in relation to sales of special drawing rights because these sales do not rest on the assumption that the transaction is substituted for a sale of currency. The Fund has no authority under the amended Articles to levy charges on other operations or transactions of the Fund involving special drawing rights.

4. The Fund has authority to determine the rate of the service charge subject only to one limitation: the charge on reserve tranche purchases may not exceed one-half of one percent. The Fund continues to be able to levy a service charge on reserve tranche purchases that is lower than the charge on other purchases or to dispense altogether with a service charge on reserve tranche purchases. The service charge on purchases of special drawing rights in return for the purchasing member’s currency must be the same as that levied on purchases of currencies.

5. Under Article V, Section 8(a)(ii), the Fund is expressly authorized to levy a charge for stand-by and similar arrangements. The levy of such a charge is discretionary. In addition, it is left to the Fund’s discretion to offset this charge against the service charge levied on purchases under the arrangement.

6. There is no provision in the amended Articles authorizing the Fund to levy a handling charge on purchases of gold from it or on sales of gold to it, because any transactions in gold that the Fund may undertake pursuant to Article V, Section 12(c) or (d) will be at prices agreed for each transaction on the basis of prices in the market. A handling charge, therefore, can be incorporated in the price.

7. The provisions of the amended Articles dealing with the charges that the Fund must levy on its average daily balances of members’ currencies held in the General Resources Account in excess of a certain level differ from the corresponding provisions of the present Articles. Under the present Article V, Section 8(c), the Fund is required to levy periodic charges on the average daily balances of a member’s currency in excess of quota. The rates are those set forth in the Articles or prescribed by the Fund under a decision taken by a seventy-five percent majority of the total voting power. Under Article V, Section 8(b) of the amended Articles, the Fund is required to levy charges on its average daily balances of a member’s currency in the General Resources Account, but this provision does not apply to holdings of currency in the Special Disbursement Account or in the Investment Account. Charges must be levied on holdings in the General Resources Account to the extent that these balances (i) have been acquired under a special policy on the use of the Fund’s resources that has been the subject of a decision under Article XXX(c), i.e., holdings that are excluded when determining whether a purchase is a reserve tranche purchase, or (ii) exceed the member’s quota after deducting holdings acquired by the Fund under a policy that has been the subject of a decision under Article XXX(c). In other words, charges must be levied on holdings acquired as a result of the special policies that are referred to in Article XXX(c) and on other holdings to the extent that they are in excess of a member’s quota. Article XXX(c) allows the Fund to take decisions to exclude holdings resulting from purchases under the compensatory financing or buffer stock financing facilities, as well as holdings resulting from purchases under the policies that the Fund decides, by an eighty-five percent majority of the total voting power, to treat in the same way.

8. One consequence of the provisions referred to in 7 above is that charges will be payable on balances of a member’s currency acquired by the Fund as a result of purchases under a policy that is the subject of an exclusion under Article XXX(c) even though the Fund’s total holdings in the General Resources Account are less than the member’s quota. A deduction for an amount equal to the balances subject to exclusion will be made, however, from the currency held above the member’s quota when determining the balances above quota that are subject to charges under Article V, Section 8(b)(ii).

9. Article V, Section 8 requires that “normally” the rates of charge on balances of currency should rise during the period in which the balances are held. The word “normally” indicates that the Fund can determine, in some circumstances, rates of charge that would not progress over time. That is to say, it is not mandatory that there shall be a progression of the periodic rates over time, as is required under the present provisions, although it is assumed that a progression will be the normal practice. There is no requirement that the rates of charge must progress according to the proportion by which the Fund’s holdings of a member’s currency exceed its quota. This progression was a feature of the Fund’s practice for many years, but it was eliminated in 1974. It continues to be a requirement of the Articles that the rates of charge must be uniform for all members under a policy on the use of the Fund’s resources. A seventy percent majority of the total voting power is necessary for the determination of rates of charge, instead of the seventy-five percent majority required by the present Articles.

10. Under Article V, Section 8(c), if a member fails to make a repurchase in accordance with its obligations, the Fund may decide, by a seventy percent majority of the total voting power, to impose such charges as it deems appropriate on its holdings of the member’s currency that should have been repurchased. Before imposing such charges, the Fund must consult with the member on the reduction of the Fund’s holdings of its currency. Any charges that the Fund may impose under this provision are not subject to the requirement of uniformity. This provision of the amended Articles represents a simplification of the rules of the present Articles with regard to the charges that the Fund may apply if a member makes an unjustifiably protracted use of the Fund’s resources. Under the present Articles, the Fund may apply such charges as it deems appropriate, which normally means charges at levels that provide an incentive for the member to repurchase only when, through progression over time, the rates of charge have reached certain levels. Under the amended Articles, the power to apply charges that will encourage a member to repurchase is tied not to any rate of charge but to a failure to repurchase at the proper time. The power enables the Fund to provide an incentive for repurchase by means of higher charges.

11. The Fund has no power to levy charges on transactions in which it agrees under Article V, Section 6 to buy or sell special drawing rights in transactions with a member in return for the currency of another member. These transactions involve no element of “credit” for the member engaging in the transaction.

12. All charges must be paid in special drawing rights, but in exceptional circumstances the Fund can permit a member to pay in the currencies of other members specified by the Fund after consultation with them, or in the member’s own currency. The concurrence of other members is not required, because it is necessary to be sure that charges can and will be paid with reserve assets. Examples of exceptional circumstances may be the inability of a member to pay in special drawing rights because it is not a participant or a prescribed other holder, or because it has an insufficient amount of special drawing rights. The Fund may not accept payment of charges by a member in the currency of another member in an amount that would increase the Fund’s holdings of that currency above the level at which the other member would have to pay charges. Gold is eliminated as an obligatory medium for the payment of charges, but under Article V, Section 12(d) the Fund may decide, by an eighty-five percent majority of the total voting power, to accept gold instead of special drawing rights or currency in payment of charges if a member wishes to pay in gold. The payments made in gold would be made at a price agreed for each operation on the basis of prices in the market.

13. The provisions of the amended Articles with regard to charges apply to all balances of currency held by the Fund after the effective date of the amendment that fall within the two categories subject to charges under Article V, Section 8(b), whether these balances were acquired as a result of transactions that took place before or after the effective date of the amendment. Therefore, a member will have to pay charges on balances of its currency acquired by the Fund before the effective date of the amendment as a result of purchases in respect of which an exclusion is made under Article XXX(c) even if the total amount of the Fund’s holdings of that currency in the General Resources Account is less than the member’s quota. It also follows that a member will no longer be subject to charges on balances of its currency acquired by the Fund as a result of reserve tranche purchases made before the amendment, whether or not the Fund’s holdings exceed the member’s quota. Charges are payable at the rates in effect on the date of the amendment until they are changed by decisions taken under the amended Articles (Schedule B, paragraph 6). The Fund will have to take prompt action to determine rates of charge on holdings that have been acquired under a policy that is the subject of an exclusion under Article XXX(c) but have not been subject to charges under the present Articles because the Fund’s total holdings of a member’s currency have not exceeded its quota.

G. Remuneration (Article V, Section 9)

1. There are important differences between the provisions on remuneration in the present Articles and those in the amended Articles. Under the existing provisions, remuneration is paid on the amount by which seventy-five percent of a member’s quota exceeds the average daily balances of the member’s currency held by the Fund. The rate is set in the present Articles at one and one-half percent per annum, but the Fund is able to increase or reduce this rate, subject to the condition that an increase above or a decrease below specified limits requires a three-fourths majority of the total voting power. Remuneration is payable in gold or in a member’s own currency, as determined by the Fund, but the Fund and a participant may agree that payment may be made in special drawing rights.

2. Under the provisions of Article V, Section 9 of the amended Articles, remuneration is payable on the amount by which a specified percentage of a member’s quota, which could be between seventy-five and one hundred percent of quota, exceeds the average daily balances of the member’s currency held in the General Resources Account of the Fund, other than balances of that currency acquired under a policy that has been the subject of a decision on exclusion under Article XXX(c).

3. Balances of a currency acquired as a result of “excluded” purchases under Article XXX(c) do not enter the calculation of holdings on which remuneration is paid in order to prevent the inequitable treatment of the member that would result from the requirement, under the amended Articles, that it must pay charges on balances acquired by the Fund as a result of “excluded” purchases even though the Fund’s total holdings of the member’s currency in the General Resources Account are less than the member’s quota. If the exclusion from holdings were not made for the purpose of the calculation under Article V, Section 9, the member would receive a reduced amount of remuneration because of the balances resulting from these purchases, while at the same time it would be paying charges on these balances.

4. Under Article V, Section 9(b) remuneration will be payable to a member if the average daily balances of the member’s currency held in the General Resources Account (other than those that are excluded) are below a percentage of the member’s quota determined as follows:

(a) For each member that joined the Fund before the amendment, the applicable percentage will correspond to

  • (i) seventy-five percent of its quota on the date of the amendment; plus

  • (ii) the amounts that the member has paid to the Fund in its own or another currency or in special drawing rights as subscriptions on increases in its quota under Article III, Section 3(a) after the amendment; and minus

  • (iii) any amounts that it has received from the Fund in its own or another currency or in special drawing rights in connection with a reduction in its quota under Article III, Section 3(c) after the amendment.

(b) For a member that joined the Fund after the date of the amendment, the determination will be made on the same basis as for other members, with the exception that the seventy-five percent of quota referred to in (a)(i) above will be replaced by a percentage based on a weighted average of the percentages of quotas that are applicable to the other members on the date on which the member joined the Fund.

5. The Fund, acting by a seventy percent majority of the total voting power, can raise the latest percentage of quota that is being applied for the purpose of computing remuneration to a new level not in excess of one hundred percent of quota. Under this power, the Fund may increase a percentage to a higher percentage for each member according to a formula or principle that may result in different levels among members, provided that these new percentages of quota for individual members are determined on the basis of the same criteria for all members. An example of a criterion for this purpose would be the determination of a higher level by taking into account that portion of the amounts of currency paid by members in exchange for gold sold to them by the Fund under Article V, Section 12(c) or (e) that represents the capital value of the gold. The Fund may also prescribe one hundred percent of quota as the applicable percentage of quota for all members. The power of the Fund to raise, but not to lower, the applicable percentage of quota and also to set it irreversibly at the quota level for all members suggests the possibility that eventually the same level as is applicable for other purposes under the amended Articles may apply to the calculation of remuneration. The reason why the level of quota is not adopted at once is that such a solution would impose too heavy a financial burden on the Fund for an indeterminate period ahead.

6. The rate of remuneration must be the same for all members and on all portions of a member’s reserve tranche position on which remuneration is paid. The rate may not be more than the rate of interest on holdings of special drawing rights, nor less than four-fifths of that rate. In determining the rate of remuneration, the Fund is required to take into account the rates of periodic charge on the Fund’s holdings of currencies, but there is no fixed relationship between the rate of remuneration and the rates of charge. Remuneration is payable in special drawing rights, but either the Fund or the member may decide on payment in the member’s own currency. Gold may not be used to pay remuneration, and the Fund has no discretionary authority in this respect, because Article V, Section 12(d) enables the Fund to accept payments in gold by an eighty-five percent majority of the total voting power, but not to make payments in gold.

7. Under paragraph 6 of the transitional provisions of Schedule B, the rate of remuneration at the time of the amendment will remain in effect until modified by a decision taken under the amended Articles. The calculations for determining whether and in what amounts remuneration will be payable will be made, however, on the basis of the percentages of quota specified by or under Article V, Section 9(b) or (c) of the amended Articles and on the basis of the average daily balances of currency in the General Resources Account to be taken into account pursuant to Article V, Section 9(a).

H. Rates for Computations and Maintenance of Value (Article V, Sections 10 and 11)

1. Under Article IV, Section 1 of the present Articles, all computations involving the currencies of members for the purpose of applying the provisions of the Articles must be made on the basis of par values, i.e., the values of currencies in terms of gold. This rule applies to all calculations under the present Articles, including those relating to exchange rates and margins around parity for exchange transactions, as well as those relating to the operations and transactions of the Fund. If the par value of any currency is not being maintained, the Fund determines the gold value of the currency in accordance with Article IV, Section 8 for the purpose of applying the provisions of the Articles. This value is the rate at which the Fund accounts for its holdings of the currency and makes all calculations for conducting its operations and transactions in that currency. In the last few years, the rates applicable under Article IV, Section 8 have been based on the gold value of the special drawing right as specified by Article XXI, Section 2 (i.e., 0.888 671 gram of fine gold per special drawing right) and the rate of each currency in terms of the special drawing right on the basis of Rule O-3 of the Rules and Regulations. This way of determining gold value for the purpose of applying the provisions of the Articles was adopted by the Fund when members ceased to maintain effective par values for their currencies and there was no longer any member that bought and sold gold freely for the settlement of international transactions.

2. The provision on computations in the amended Articles (Article V, Section 10) is different in two respects: First, it declares expressly that computations must be made in terms of the special drawing right on the basis of the rates for each currency determined for the purposes of transactions in special drawing rights. This aspect of the rule is in conformity with the objective of reducing the role of gold and making the special drawing right the principal reserve asset in the international monetary system. Second, the provision does not apply to computations relating to exchange rates and margins for exchange transactions under Article IV and Schedule C. One reason for this exception is that under the provisions relating to par values the common denominator need not be the special drawing right. The basic rule in the provision applies, however, to all other computations under the Articles, such as those relating to quotas, subscriptions, operations and transactions of the Fund, and maintenance of the value of the currencies of members held in the General Resources Account.

3. In line with the role of the special drawing right and its use for computations under the amended Articles, Section 10(a) of Article V provides that the value of the assets of the Fund in the General Department must be expressed in terms of the special drawing right. This provision means that all assets that have a monetary value, including gold, must be accounted for by the Fund in terms of special drawing rights.

4. Article V, Section 11(a) provides that the value of the currencies of members held in the General Resources Account, i.e., all currencies held in the General Department except those held in the Special Disbursement Account and in the Investment Account, must be maintained in terms of the special drawing right in accordance with rates under Article XIX, Section 7(a). This requirement creates an obligation of adjustment for members when a currency depreciates, and for the Fund when a currency appreciates, in terms of the special drawing right. The members will pay more of their currency to the Fund on a depreciation, and the Fund will return some of their currency on an appreciation. The requirement of maintenance of value will continue to apply to (a) securities that have been substituted for currency in the General Resources Account under Article III, Section 4, and (b) accounts receivable or payable by the Fund in connection with its General Resources Account, i.e., amounts in currency that are due and payable, which will be deemed to be currency held in the General Resources Account for the purposes of maintenance of value.

5. The calculations for determining whether an adjustment is necessary in order to maintain the value of the Fund’s holdings of a currency in the General Resources Account will be made on the basis of the exchange rates for that currency in terms of the special drawing right as determined in accordance with Article XIX, Section 7(a) for the purposes of transactions. If any such calculation shows that the value of the Fund’s holdings of a currency has decreased or increased, the obligation of adjustment referred to in 4 above will have to be discharged by the payment of currency to or by the Fund.

6. Under Section 11(b) an adjustment in the Fund’s holdings of a member’s currency in the General Resources Account will have to be made immediately on the occasion of the use of the currency in an operation or transaction between the Fund and another member (e.g., a sale of the currency or its use in repurchase). The Fund is authorized to decide on adjustments on other occasions, for example when it repays a loan to a non-member with a member’s currency, and adjustments will be made at any time at the member’s request. The adjustment is made with respect to all of the Fund’s holdings of that currency in the General Resources Account. The purpose of this requirement is to ensure that the Fund’s holdings of a member’s currency are valued at a realistic rate when that currency is used in an operation or transaction involving another member, and in order to ensure that the Fund does not suffer an exchange loss or make an exchange profit with respect to its holdings of currencies in the General Resources Account.

7. Adjustment of the rate at which the Fund accounts for a currency in accordance with Section 11 will establish a claim of the Fund for additional currency or a claim of a member for the return of currency, and will have to be followed by settlement within a reasonable period. What constitutes a reasonable period will be determined by the Fund.

8. The amended Articles do not contain a provision similar to Article IV, Section 8(d) of the present Articles, under which the Fund can decide not to call for additional amounts of currency or not to return amounts of currency on the occasion of uniform proportionate changes in the par values of all currencies. A provision of this kind is no longer necessary because, under the amended Articles, maintenance of the value of the Fund’s holdings of currencies in the General Resources Account will be determined on the basis of the exchange rates used for transactions involving special drawing rights. Furthermore, the Fund may make uniform proportionate changes in all par values under Schedule C, paragraph 11 if the special drawing right is the common denominator and the changes do not affect the value of the special drawing right (Chapter C, section 13).

I. Gold (Article V, Sections 11 and 12; Article VIII, Section 7; Schedule B, Paragraphs 2, 3, and 7; Schedule C, Paragraph 1; Schedule K, Paragraphs 1 and 2)

1. The role of gold in the international monetary system has been both central and pervasive under the present Articles of Agreement. The amendment makes numerous changes and contains a comprehensive set of new provisions that in combination are designed to achieve the objective of the gradual reduction of the role of gold in the system. The most important changes in the Articles, which are discussed in detail below, are:

  • (a) the elimination of the function of gold as the common denominator of the par value system and as the unit of value of the special drawing right;

  • (b) the abolition of the official price of gold;

  • (c) the abrogation of obligatory payments in gold by members to the Fund and by the Fund to members, and the necessity for decisions taken with a high majority of the total voting power to enable the Fund to accept gold in payments;

  • (d) the requirement that the Fund complete the disposition of fifty million ounces of gold;

  • (e) the authorization of the Fund to dispose of the remainder of its gold holdings and to place the “profits” in a special account;

  • (f) the requirement that the Fund, in its dealings in gold, avoid the management of the price, or the establishment of a fixed price, in the gold market; and

  • (g) the undertaking of members to collaborate with the Fund and with other members with respect to reserve assets so that better international surveillance of international liquidity and the role of the special drawing right as the principal reserve asset in the international monetary system will be promoted.

In addition, consequential or related changes are made in various other provisions.

2. Under Article IV, Section 1(a) of the present Articles, gold is the common denominator in terms of which the par values of the currencies of members must be expressed. Under the amended Articles there will be no par values unless the Fund determines in accordance with Article IV, Section 4 that international economic conditions permit the introduction of a widespread system of exchange arrangements based on stable but adjustable par values. When the Fund takes that decision, par values will be expressed in terms of the special drawing right or such other common denominator as the Fund may prescribe, but neither gold nor a currency can be prescribed as the common denominator (Schedule C, paragraph 1). Similarly, the definition of the unit of value of the special drawing right in terms of gold in the present Articles has been eliminated. The Fund is authorized to adopt decisions on the method of valuation of the special drawing right (Article XV, Section 2).

3. The amended Articles, unlike the present Articles, do not prescribe the price at which members may deal in gold, and therefore the limitations in Article IV, Section 2 and Article V, Section 6 of the present Articles on the freedom of members to enter into gold transactions among themselves or in the market are abrogated. Both the Fund and members are subject, however, to requirements reflecting continued international concern with official dealings in gold, as described in 8 below. The objective set forth in Article V, Section 12(a) of avoiding the establishment of a fixed price for gold is recognized in the last sentences of Article V, Section 12(c) and (d), under which sales of gold by the Fund to a member, or the acceptance by the Fund of payments in gold by a member, would be voluntary on both sides, and would have to take place at a price agreed for each operation or transaction on the basis of prices in the market. The reference to “price … on the basis of prices in the market” in these provisions, and the requirement under Article V, Section 12(a) that the Fund be guided by the objective of avoiding the management of the price of gold, impose on the Fund the duty, when entering into operations or transactions in gold, to seek to follow and not to set a direction for prices in the gold market.

4. Obligatory payments of gold by members to the Fund, and by the Fund to members, are abrogated, with the exception that the Fund is required to sell a specified quantity of gold to members at the present official price under the transitional arrangements described in 6 below and with the exception of the distribution of gold under the provisions on the liquidation of the Fund. The abrogation is achieved by the deletion of references to gold from all other provisions of the existing Articles in which such obligations appear, and by the transitional provisions set forth in Schedule B, paragraphs 2 and 3 under which accrued obligations to pay gold to the Fund must be discharged with special drawing rights, or in the currencies of other members if the Fund prescribes them for this purpose. The computation for determining the amount of special drawing rights or currencies to be paid is to be made on the basis of the gold value of the special drawing right under the present Articles, i.e., one special drawing right equals 0.888 671 gram of fine gold, and the value of the currencies in terms of the special drawing right on the date of payment.

5. In accordance with the understandings reached in the Interim Committee of the Board of Governors on the International Monetary System (paragraph 6(3) of the Press Communiqué issued by the Committee on August 31, 1975 and paragraph 4 of the Communiqué of June 12, 1975), the Fund is expected to make arrangements, before the effective date of the amendment, that is, on the basis of the present Articles, for the disposal of fifty million ounces of its gold, as follows: (a) one half of this amount will be transferred against payment at the present official price to all members that were members on August 31, 1975 in proportion to their quotas on that date; and (b) the other half of this amount will be sold for the benefit of developing members that were members on that date.

6. If the disposal of the fifty million ounces of the Fund’s gold referred to in 5 above is not completed by the effective date of the amendment, the Fund is required by a provision of the amended Articles to complete the disposition of the balance. The Fund is bound to make arrangements for this purpose, and a further decision will not be necessary. The provision referred to is Schedule B, paragraph 7, which directs the Fund to dispose of any balance by

  • (a) selling up to twenty-five million ounces, at the present official price, to those members that were members on August 31, 1975, in proportion to their quotas on that date and in exchange for their currencies, and

  • (b) selling up to another twenty-five million ounces at a price based on prices in the market and using the proceeds in excess of the capital value (i.e., the balance over the official price of 0.888 671 gram of fine gold per special drawing right under the present Articles) for the benefit of developing members that were members on August 31, 1975. The Fund must transfer directly to developing members a part of the profits or surplus value of the gold that represents the proportion of a developing member’s quota on August 31, 1975 to all quotas on that date. The reference to profits or surplus value will enable the Fund to make the transfers required by this provision in an appropriate manner. The profits from the sale of this second twenty-five million ounces that have not been transferred directly to developing members are to be used to provide balance of payments assistance on concessionary terms to developing members with low per capita income.

7. It is expected that the assistance on concessionary terms to be provided to the developing members with low per capita income from the profits of the sale of a part of the Fund’s gold (see last sentence of 6(b) above) will be channeled through temporary arrangements adopted before amendment, such as a Trust Fund administered by the Fund. If, upon termination of these arrangements and the satisfaction of all debts and liabilities of the Trust Fund, any assets remain that could be disposed of by the Fund, these assets will be transferred to the Special Disbursement Account that is described in 8 and 13 below.

8. Under Article V, Section 12(c), (d), (e), (f), and (g), the Fund is given a range of powers with respect to gold that it can exercise by an eighty-five percent majority of the total voting power (except for the power in (b)(i) below). The powers include those set forth below.

(a) The Fund will be able to sell at the present official price any part of the balance of the gold held on the date of the amendment, that is, the gold left after the disposition of the fifty million ounces referred to in 5 and 6 above, to those members that were members on August 31, 1975, in proportion to their quotas on that date and in exchange for their currencies (Section 12(e)). Sales under subsection (e) and distributions under subsection (f)(iii) to a member would be suspended while the member was ineligible under Article V, Section 5 to use the resources in the General Resources Account, unless the Fund decided otherwise.

(b) The Fund will be able to sell any part of the balance of the gold held on the date of the amendment to members or to others at a price based on prices in the market (Section 12(c)), to transfer a part of the proceeds in excess of the capital value to the Investment Account (Section 12(g)) for investment in accordance with the provisions of Article XII, Section 6(f), and to place the remainder of the proceeds in excess of the capital value in a Special Disbursement Account until used for any or all of the following purposes:

  • (i) to make transfers to the General Resources Account for use in the operations and transactions authorized by the other provisions of the Articles, but these transfers must be for immediate use in order that they will not affect the positions of members as calculated for various purposes under the Articles (Section 12(f)(i));

  • (ii) for the benefit of members in need, on a uniform basis, by using the assets in the Special Disbursement Account in operations and transactions other than those authorized by other provisions, provided that the operations and transactions are consistent with the Fund’s purposes and are for balance of payments assistance. The Fund may make assistance available, however, on special terms to developing members in difficult circumstances. When making this latter assistance available, the Fund will have to take into account the level of the per capita income of developing members, and may take into account other appropriate criteria as well (Section 12(f)(ii)). Balance of payments assistance on concessionary terms can include, for example, subsidies for the payment of charges levied in connection with the use of the resources in the General Resources Account;

  • (iii) if the Fund intends to use any of the assets in the Special Disbursement Account in accordance with (ii) above, it may decide to distribute directly to developing members a portion of the assets that the Fund intends to devote to the purpose under (ii) above, on the basis of the relationship that the quota of a developing member bears to the quotas of all members on August 31, 1975 (Section 12(f)(iii)).

(c) Instead of making a distribution to developing members of currency in the Special Disbursement Account in accordance with Section 12(f)(iii), the Fund will have the power under Article V, Section 12(e) to sell to these members, at the present official price, a part of the gold held on the effective date of the amendment that, if sold at a price based on market prices, would produce the same amount of profits as would be distributable to these members under Section 12(f)(iii). The Fund will be able to sell the gold to developing members under Section 12(e) only if the Fund has decided that a sale of gold under Section 12(c) is for the purpose of raising proceeds to be utilized under Section 12(f)(ii). If sales have been made under Section 12(c) without the specific intention of raising proceeds for the purpose of Section 12(f)(ii), but the Fund decides later to devote the proceeds to purposes authorized by Section 12(f)(ii), the Fund will be able to transfer currency to developing members under Section 12(f)(iii) but not gold.

(d) The Fund will have the power to accept payments from a member in gold (Section 12(d)), and to sell the gold so acquired at a price based on prices in the market (Section 12(c)). This gold would not be gold held by the Fund on the date of the amendment. Any profits or losses on sales of this gold would be taken into account in determining the Fund’s annual income.

Decisions of the Fund to use the profits from the sales of gold held on the date of the amendment for the regular operations and transactions of the Fund will require a seventy percent majority of the total voting power, while decisions to use the profits for any of the other purposes described in (b) above will be subject to an eighty-five percent majority of the total voting power (see last sentence of Article V, Section 12(f) and subsection (g)).

9. Before the Fund sells gold under Article V, Section 12(c), it must consult the member for whose currency the gold is sold. If the sale would increase the holdings of the member’s currency in the General Resources Account above the level at which they would be subject to charges under Article V, Section 8(b)(ii), the member’s concurrence must be obtained before the sale can take place. The member may concur in the retention of its currency in excess of that level in the General Resources Account, or it may require the Fund to exchange for the currency of another member such part of the currency received in the sale as would prevent the increase above the level at which charges would be payable. Any such exchange may be made only after consultation with the member whose currency would be obtained in the exchange (Section 12(c)) and only if the exchange would not increase the holdings of that currency in the General Resources Account above the level at which charges would be payable under Article V, Section 8(b)(ii). The Fund’s choice of currency for an exchange would take into account the principles under Article V, Section 7(i) for the selection of currencies to be received in repurchase.

10. Under Article V, Section 12(a), the Fund must be guided in all its policies and decisions regarding its operations and transactions in gold by the objectives of:

  • (a) promoting better international surveillance of international liquidity,

  • (b) making the special drawing right the principal reserve asset in the international monetary system, and

  • (c) avoiding the management of the price, or the establishment of a fixed price, in the gold market.

Members undertake on their part, pursuant to Article VIII, Section 7, to collaborate with the Fund and with other members in order to ensure that their policies with respect to reserve assets (including gold, special drawing rights, and currencies held in monetary reserves) will be consistent with the objectives set out in (a) and (b) above.

11. Under Article V, Section 11, the value of the currencies held by the Fund in its General Resources Account must be maintained in terms of the special drawing right. Under the present Article IV, Section 8, that value must be maintained in terms of gold.

12. Gold held by the Fund at the time of liquidation would continue to be used as an asset of the Fund for meeting the Fund’s liabilities at a value based on prices in the market (Schedule K, paragraph 1). After the discharge of the Fund’s liabilities, the Fund would distribute its holdings of gold as follows:

  • (a) An amount of gold corresponding to any unrealized appreciation on any gold remaining of the Fund’s holdings on August 31, 1975 would be distributed to those members that were members on that date in proportion to their quotas on that date (Schedule K, paragraph 2(a)(i)). The appreciation would be calculated by comparing the value of the gold at the present official price and its value on the date of liquidation. Any such distribution would be separate from, and would not affect, any other distribution in respect of amounts due to members (Schedule K, paragraph 2(d)(i)).

  • (b) The remaining gold holdings of the Fund would be distributed to members whose currencies in the General Resources Account and in the Investment Account (Article XII, Section 6(f)(vii)) were held by the Fund in total amounts less than their quotas, in proportion to, but not in excess of, the amounts by which their quotas exceed the Fund’s holdings of their currencies in the two accounts (Schedule K, paragraph 2(b) and Article XII, Section 6(f)(vii)). Assets other than currency held in the Investment Account would be treated as currency according to rules adopted by the Fund under Article XII, Section 6(f)(vi).

  • (c) If there should remain any gold holdings of the Fund after these distributions, they would be divided, together with the remainder of the Fund’s currency holdings, among all members in proportion to, but not in excess of, the amounts due to them (Schedule K, paragraph 2(d)(i)). If there should remain any gold in the hands of the Fund after all these steps had been completed, the assets (including gold) would be distributed to all members in proportion to their quotas (Schedule K, paragraph 2(d)(ii)).

For the purposes of all the distributions referred to above, gold would be valued in accordance with a price determined by the Fund on the basis of prices in the market (Schedule K, paragraph 9).

13. Under Article V, Section 12(f), a Special Disbursement Account will be established as the financial framework for the disposition of the gain realized upon the sale of gold under Article V, Section 12(c). This Account will be operated as follows:

(a) Any gain realized upon the sale of any part of the gold held by the Fund on August 31, 1975 will be placed in the Special Disbursement Account, with the exception of any amounts that the Fund may decide to transfer to the Investment Account pursuant to Article V, Section 12(g). The realized gain will be the difference between the book value of the gold in terms of the special drawing right under the present Articles (i.e., one special drawing right per 0.888 671 gram of fine gold) and its realized value at the time of sale. The Special Disbursement Account will be established in the General Department, and, therefore, the institutional provisions of the Articles that apply to the Fund in general, and to the General Department in particular, will apply to it. The assets in the Special Disbursement Account, however, will be kept separate from the other assets of the General Department, so that the assets in the Special Disbursement Account will not affect computations for the purpose of determining the levels of the Fund’s holdings of currencies under the provisions based on those levels (Article V, Section 10). Furthermore, there will be no obligation under Article V, Section 11 to maintain the value of the assets in the Special Disbursement Account in terms of the special drawing right. Members will not be entitled to substitute non-negotiable, non-interest bearing notes under Article III, Section 4 for currency held in the Account.

(b) When currency held in the Special Disbursement Account is used in accordance with Article V, Section 12(f)(i), that is, for transfer to the General Resources Account for immediate use in the regular operations and transactions of the Fund, the transfer will not affect the level of that currency held in the General Resources Account because of the pre-arranged immediate use. The transfer, however, will provide a basis for capitalization by means of increases in the quotas of members pursuant to Article III, Section 2(b).

(c) When the assets in the Special Disbursement Account are used in accordance with Article V, Section 12(f)(ii), that is, for special operations and transactions, any resulting loan claims will be included in the resources of the Special Disbursement Account, and will produce a flow of repayments and payments of interest to that Account that can be used by the Fund in accordance with the provisions regulating the use of the resources held in the Account.

(d) Pending use of the assets held in the Special Disbursement Account, the Fund may invest them in accordance with Article V, Section 12(h). The investment can be made in income-producing and marketable obligations of members or of international financial organizations. No investment can be made without the concurrence of the member whose currency is used to make the investment. The obligations must be denominated in special drawing rights or in the currency used to make the investment. The purpose of the investment will be to secure a reasonable return, to be placed in the Special Disbursement Account, and not to give financial assistance to members or to international financial organizations, or, unlike the purpose of the Investment Account, to produce income to meet possible deficits in the operation of the General Resources Account. The income of investment could be used, as in (c) above, in accordance with the provisions regulating the use of the resources held in the Special Disbursement Account.

(e) Expenses of administration of the Special Disbursement Account will be paid normally from the General Resources Account, which will be reimbursed from time to time by transfer from the Special Disbursement Account on the basis of a reasonable estimate of such expenses. This technique is comparable to the rules for reimbursement that apply under Article XVI, Section 2 with respect to the expenses of the Special Drawing Rights Department.

(f) The Special Disbursement Account can be terminated at any time by a decision taken by a seventy percent majority of the total voting power, and it would be terminated necessarily on the liquidation of the Fund. If the Special Disbursement Account were terminated on the liquidation of the Fund, the assets held in it at that time would be distributed to those members of the Fund that were members on August 31, 1975, in proportion to their quotas on that date. The distribution of each type of asset would be made in proportion to the quotas of those members on that date (Schedule K, paragraph 2(a)(ii)). If the Special Disbursement Account is terminated while the Fund continues in operation, the assets in the account will be added gradually to the General Resources Account for immedidate use, as under (b) above. The Special Disbursement Account would be kept in existence solely in order to permit transfers to be made to the General Resources Account. The Special Disbursement Account would be closed when no assets remained in it. If the Investment Account is terminated or the amount of the investment is reduced prior to the termination of the Special Disbursement Account and the liquidation of the Fund, a portion of the assets available for disposition, in the proportion that the cumulative transfers of funds to the Investment Account under Article V, Section 12(g) bears to the total assets transferred to the Investment Account, will be placed in the Special Disbursement Account.

J. Replenishment (Article VII, Section 1)

The provisions of the amended Articles on replenishment of the Fund’s holdings of currencies in the General Resources Account differ from the provisions of the existing Articles in a number of respects.

1. In order to make it clear that the criterion for replenishment is not the “scarcity” of the currency to be replenished in the sense of the other provisions of Article VII but the Fund’s need to obtain additional amounts of a currency for use in present or prospective transactions, the order of Sections 1 and 2 of the present Article VII has been reversed, and the word “scarce” has been omitted from the heading of Section 1 of the new Article VII. In addition, the heading of Article VII has been changed to “Replenishment and Scarce Currencies.”

2. The text of what is now Section 1(ii) reflects the change in the roles of gold and the special drawing right under the Articles. The Fund will no longer have the authority to use gold for replenishment. It will have only the power to require a participant to sell to the Fund its currency in exchange for special drawing rights held in the General Resources Account, a power that it has under Article XXV, Section 7(d) of the present Articles. The Fund’s authority under the new provision is less extensive than the Fund’s power under the present Article VII, Section 2(ii) in various respects:

(a) Only a participant can be required to sell its currency to the Fund in replenishment. The Fund will not be able to require a nonparticipant to make its currency available in replenishment when that currency is needed in connection with the transactions of the Fund.

(b) A participant’s obligation to sell its currency for replenishment is subject to the acceptance limit in Article XIX, Section 4, which requires a participant to accept special drawing rights only up to the point at which its holdings are three times its net cumulative allocation or up to such higher point as may be agreed between the participant and the Fund. Although a participant cannot be required to do so, it is able, if it wishes, to accept special drawing rights, and provide currency, in excess of either limit.

(c) The Fund is required to pay due regard to the principles of designation in or under Article XIX, Section 5 and Schedule F. This does not mean, however, that the Fund is legally precluded from replenishing the currency of a participant that could not be designated at the time of replenishment.

3. The Fund will not have to consult with a participant on alternative ways of replenishment, which is mandatory under the present Article XXV, Section 7(d), before requiring the participant to sell its currency for special drawing rights.

4. The Fund will continue to be able to borrow currency for replenishment under Article VII, Section l(i).

K. Immunities and Privileges (Article IX, Section 8)

1. Article IX, Section 8 is revised in the light of developments involving international organizations since the present provision became effective. In connection with immunities and privileges, the general tendency has been to cover most or all of the persons involved in the substantial business of an international organization. The provision also takes into account the existence of Committees of the Board of Governors and the provisions authorizing the establishment of the Council. The change consists of broadening the categories of persons who have the benefit of immunities and privileges under the Articles, but without any change in the content of the immunities and privileges.

2. The new categories of persons to whom Article IX, Section 8 applies are members of committees of the Fund, representatives appointed by members under Article XII, Section 3(j), their advisors, and the advisors of Governors, Executive Directors, and Alternates. The rationale of the change is to provide the same immunities and privileges in relation to the Fund’s functions for all persons whose attendance at meetings of the Fund is required for the effective operation of the Fund. If the Council is established, Schedule D, paragraph 5(d) would add Councillors, their Alternates and Associates, and any other persons that would have the right to attend a meeting of the Council. They would be entitled to immunities and privileges without the need for further decision by the Fund.

L. Distribution of Net Income, Reserves, and Investment (Article XII, Section 6)

1. Article XII, Section 6 of the amended Articles deals with the disposition of the net income of the General Resources Account, the establishment and uses of the general reserve and the special reserve, and the investment of certain assets by the Fund.

2. The present Articles require the Board of Governors to determine annually what part of the Fund’s income shall be placed to reserve and what part, if any, shall be distributed to members. If the Fund distributes the net income of any year, it must first distribute to members eligible to receive remuneration for that year an amount by which two percent per annum exceeded any remuneration paid for that year. Any further distribution of net income for the year must be made to all members in proportion of their quotas at the end of the year in which the net income was earned. Payments to each member are made in its currency or, at the option of a participant, in special drawing rights under a decision adopted by the Fund under the authority of Article XXV, Section 7(f) of the present Articles, which allows the Fund and a participant to agree on the use of special drawing rights by the Fund in operations and transactions with a participant conducted through the General Resources Account.

3. Under Article XII, Section 6(a) of the amended Articles, the Fund must make a determination with respect to the net income earned during each year following the end of that year, as is required under the present provisions. The reference in the existing Article XII, Section 6(a) to “reserve” has been replaced by a reference to “general reserve or special reserve” in order to make it clear that net income may be placed to either the general reserve or the special reserve. As is explained in 11 below, a major difference between the two reserves is that the general reserve can be distributed to members but the special reserve can not.

4. As the rate of remuneration has been raised in practice to more than two percent per annum and it seemed unlikely that it would be reduced below that rate, the provision for the preferential distribution of net income to bring the total of remuneration and distribution up to two percent is not retained. Only the principle of the distribution to all members in proportion to their quotas has been preserved. Under Article XII, Section 6(a) and (d), the Fund is able to make distributions to members not only of the net income of the immediately preceding year, but also of the general reserve, which consists of the accumulation of the Fund’s undistributed net income of the General Resources Account earned in earlier years. The general reserve is available for meeting operational or administrative losses or expenses, as well as for making distributions.

5. Under the present Articles, members that had had positions in a past year that would have entitled them to a preferential distribution of net income but for the fact that the Fund did not make a preferential distribution or a full preferential distribution for that year, retained the right to the preferential distribution if the Fund were to decide at a later date to distribute the net income of the earlier year. This preferential right is not retained under the amended Articles, so that it becomes unnecessary to determine what remains of the undistributed net income of each of the preceding years. This determination would have been difficult if it had ever been necessary, because various amounts have been charged against the general reserve without allocating the resulting reductions in the reserve against the net income of specific years.

6. Any distribution of net income or of the general reserve will be made on the basis of quotas at the time of distribution. The assets in which distributions must be made are governed by Section 6(e). The payments to each member under a distribution must be made in special drawing rights, but a member or the Fund may decide that the payment to the member will be made in its currency. This power would enable the Fund to make a distribution in currency to a member that is not a participant, or to all members, if, for example, the Fund considered that the amount of special drawing rights it held in the General Resources Account should not be depleted.

7. Decisions regarding the disposition of the Fund’s net income or the distribution of the general reserve are no longer reserved to the Board of Governors, as they are under the existing Articles. The decisions can be taken by the Executive Board. Decisions to make distributions from the general reserve require a seventy percent majority of the total voting power (Section 6(d)). Decisions to place net income to either reserve or to distribute net income that has not yet been placed to reserve may be taken by a majority of the votes cast.

8. The special reserve is available for all but one of the uses that can be made of the general reserve, e.g., to meet administrative or operational expenses of the Fund, including the expenses involved in the payment of remuneration. The exception is distribution to members (Section 6(b)).

9. In 1956, faced with a continuous excess of the Fund’s expenditure over income, the Fund initiated an investment program under a decision of the Executive Board based on an interpretation of the Articles under the present Article XVIII. According to this interpretation, the Fund had an implied power to sell part of its gold and invest the proceeds in United States Government securities in order to make good the impairment of capital that had resulted from an accumulation of administrative deficits. Gold was used for the purpose of the investment because this use would not change the Fund’s holdings of currencies and therefore would not affect the rights and obligations of members that are determined by the levels of the Fund’s holdings. Certain legal difficulties arising under the present Articles impeded the investment of the Fund’s holdings of currencies. Investment of the proceeds of the sale of gold was subject to certain conditions, such as the necessity for the Fund to retain the right to reacquire the gold.

10. After the elimination of the deficit, the Executive Board amplified the original decision on investment in order to provide a reserve against possible future deficits of the same character. Under the new decision, the income of the investment was placed to a special reserve. Any administrative deficit for any fiscal year of the Fund was to be written off first against this reserve. Although the amount of income was placed to a special reserve, the United States dollars received as income of the investment were not kept separate from the Fund’s other holdings of dollars, and therefore they affected the position of the United States in the Fund under various provisions.

11. Under the decisions governing the investment, the income was credited directly to the special reserve and did not enter into the calculation of the Fund’s “net income.” As a result, it could not be distributed under Article XII, Section 6(b) of the present Articles.

12. Article XII, Section 6(f) of the amended Articles, in creating express authority for the Fund to undertake investment, avoids the difficulties occasioned by the legal limitations of the present Articles. Investment under the provision is distinct from the investment of currencies held in the Special Disbursement Account, which the Fund may undertake pursuant to Article V, Section 12(h).

13. Article XII, Section 6((f))(i) authorizes the Fund to establish an Investment Account in the General Department. The decision to establish this Account can be taken by a majority of the votes cast. The assets in the Investment Account must be held separately from the General Resources Account. Therefore, the assets of the Investment Account will not be usable in any of the operations and transactions of the Fund, except those provided for in Section 6((f)), and their value will not be covered by the provision on maintenance of value in terms of the special drawing right (Article V, Section 11). Under Article III, Section 4, members will not be entitled to substitute non-negotiable, non-interest-bearing notes or similar obligations for the currency in the Investment Account that, in the judgment of the Fund, is not needed for the purpose of investment or for use in meeting the expenses of conducting the business of the Fund in accordance with Section 6((f))(iv). It is improbable, however, that there would be substantial amounts of currency that would not be needed for investment or expenses for more than a brief period, although, as noted below, investment cannot be made without the concurrence of the member whose currency is to be used for investment (Article XII, Section 6((f))(iii)). The assets held in the Investment Account, together with all other assets of the Fund, will be covered by the provisions on the immunities and privileges of the Fund in relation to its property and assets.

14. Under Section 6((f))(ii) and (iv), the assets that can be used for investment can be derived from the following sources:

  • (a) the portion of the profits from the sale of the Fund’s gold that the Fund may decide to transfer to the Investment Account in accordance with Article V, Section 12(g) by an eighty-five percent majority of the total voting power;

  • (b) currencies held in its General Resources Account that the Fund may decide, by a seventy percent majority of the total voting power, to transfer to the Investment Account for immediate investment;

  • (c) the income of investment; and

  • (d) the proceeds of matured or liquidated investments.

15. No transfer from the profits of gold sales or from the General Resources Account can be made if at the time of the decision to make the transfer the total amounts already transferred from these two sources exceed the total amount of the general reserve and the special reserve. The income of the investment is not taken into account in applying this limit. If the total amount of the investment has been reduced and any of the proceeds returned to the source from which they were obtained originally, as is possible under Section 6((f))(vi), a deduction must be made for the sums returned when establishing how much may be transferred to the Investment Account at any given time. A reduction in the total value of the general and special reserves after the date of transfer does not require a corresponding reduction in the amount of the investment. If, however, the amount of the investment had been reduced at an earlier date, and it was decided at a later date to increase it, the total of the reserves at that later date would determine the maximum amount that could be transferred to the Investment Account.

16. Investments may be made only in income-producing and marketable obligations of international financial organizations, such as the World Bank or the regional development banks, or of the members whose currencies are used for the investment, including the obligations of their central banks and official agencies. Whether an obligation is marketable is a determination to be made by the Fund. Obligations acquired with a currency must be denominated in that currency or in special drawing rights. As noted already, no investment may be made without the consent of the member whose currency is invested. Investments may be renewed or sold before maturity, however, without the consent of the issuer of a currency.

17. Income from investment may be invested, held in the Investment Account, or used to meet currency expenses of the Fund, including both operational and administrative expenses. To enable the Fund to use the income to meet expenses, Section 6((f))(v) authorizes the exchange of the currencies held in the Account for the currencies needed for this purpose. The use of the income in this way would reduce or prevent any deficits that the Fund might otherwise incur, or would increase the net income of the Fund and, therefore, the amounts available as net income for distribution to all members on the basis of quotas under Article XII, Section 6(a).

18. Article XII, Section 6((f))(vi), (vii), (viii), and (ix) govern the disposition of the assets in the Investment Account if the amount of the investment is reduced or the Investment Account is terminated. Under Section 6((f))(vi), the Fund, by a seventy percent majority of the total voting power, may decide to reduce the amount of the investment or terminate the Investment Account, and by the same majority it may adopt rules and regulations to supplement the basic principles of disposition described below. The Investment Account must be terminated on the liquidation of the Fund, in which event the provisions of Schedule K apply. For the purposes of these provisions, a portion of the assets of the Investment Account corresponding to the proportion of the assets previously transferred to it from the profits on the sale of the Fund’s gold to the total assets transferred to the Investment Account will be distributable in accordance with paragraph 2(a)(ii) of Schedule K, as if they were assets of the Special Disbursement Account, to members that were members on August 31, 1975, in proportion to their quotas on that date. Distribution of this portion of the assets will be made to these members in accordance with Schedule K, paragraph 2(a)(ii) even if the Special Disbursement Account had been terminated. Upon an earlier termination of the Investment Account or reduction in the amount of the investment, the amount available for disposition will be apportioned. The portion that corresponds to the proportion of the amounts transferred to the Account under Article V, Section 12(g) to the total of the assets transferred to the Account will be placed in the Special Disbursement Account if it has not been terminated, or, if the Special Disbursement Account has been terminated, will be treated as part of the residue referred to in the next sentence. The residue will go gradually to the General Resources Account for immediate use in operations and transactions. The Fund will adopt rules and regulations for the administration of the Investment Account by a seventy percent majority of the total voting power.

M. Distribution and Delegation of Powers in the Fund (Article XII and Schedule D)

1. Two major changes are made in the amended Articles in connection with the distribution and delegation of powers in the Fund. The first is the clarification of the distribution and delegability of powers under the Articles. They can be classified as follows:

  • (a) Powers expressed as directly conferred on

    • (i) the Board of Governors

    • (ii) the Council if established

    • (iii) the Executive Board (so renamed in order to eliminate confusion between the organ and the individual Executive Directors)

    • (iv) the Managing Director

  • (b) Powers not expressed as directly conferred on any organ but expressed as powers of the Fund.

The consequences of this classification are as follows:

  • (a)(i) Powers directly conferred on the Board of Governors are exercisable solely by the Board of Governors and cannot be delegated to any other organ of the Fund.

  • (a)(ii), (iii), (iv) Powers directly conferred on these organs cannot be delegated by them to some other organ of the Fund. Because the powers are not delegated by the Board of Governors, the powers cannot be withdrawn by the Board of Governors.

  • (b) Powers not expressly conferred on any organ are vested in the Board of Governors so that it can decide whether and to which organs to delegate them. The Board of Governors can delegate any of these powers to the Executive Board exclusively or to the Council exclusively or to the two concurrently. The Board of Governors can change a delegation of powers whenever it sees fit. Delegations are made by a majority of the votes cast.

2. The second major change is based on the Fund’s experience in connection with the exercise of powers and the desirability of maximum operating efficiency. Therefore, the powers exercisable exclusively by the Board of Governors are confined to those that have a special institutional importance in the Fund. As a result, most of the powers under the amended Articles are subject to delegation. The nondelegable powers of the Board of Governors that are subject to special majorities are shown in the last column of the Annex to the Commentary in Part II of this Report. The following powers of the Board of Governors are not subject to special majorities but are also directly conferred on the Board of Governors:

  • (a) admission of new members and determination of the conditions of their admission (Article II, Section 2);

  • (b) liquidation of the Special Drawing Rights Department (Article XXV(a));

  • (c) liquidation of the Fund (Article XXVII, Section 2(b));

  • (d) approval of proposed amendments (Article XXVIII(a)); and

  • (e) delegation of authority to the Council (Schedule D, paragraph 3(a)) or to the Executive Board (Article XII, Section 2(b)).

In addition, the Board of Governors will have certain directly conferred organizational powers (see Article XII, Section 2(a), (c), (f), (g), (i), and (j); and Article XXIX(k)).

N. Special Majorities for Adoption of Decisions and for Amendment

Decisions

1. The basic rule in the present Articles that decisions of the Fund are taken by a majority of the votes cast remains unchanged (Article XII, Section 5(c)). In accordance with this provision, votes not cast because of abstention or because, in the Executive Board, no Executive Director is entitled to cast the number of votes allotted to a member continue to be excluded from the calculation and are not treated as negative votes.

2. A special majority, i.e., a majority other than a majority of the votes cast, is necessary only when expressly required by a provision. The categories of special majority in the present Articles have been reduced. Subject to one exception and one qualification, only two special majorities are required: seventy percent and eighty-five percent of the total voting power. The tendency has been to confine the smaller majority to operational decisions that are not routine but are nevertheless not of the same importance as the decisions for which the larger majority is required. This distinction has not been applied with mechanical precision because of the necessity for compromise on certain provisions, and in any event opinions may differ in some instances about the application of the distinction. The exception referred to is the requirement of an absolute majority (that is, a majority of the total voting power) under Article XXVII, Section 1(c) (termination of the suspension of the operation of certain provisions). The qualification is the requirement not only of an eighty-five percent majority of the total voting power but also a majority of the Governors for the compulsory withdrawal of a member under Article XXVI, Section 2(b). In the present Articles, the special majorities, although confined to fewer categories of decision, are absolute majority, two-thirds, three-fourths, four-fifths, and eighty-five percent, of the total voting power, and a unanimous vote under two provisions. In these two provisions in the amended Articles, Article XXIII, Section 1 and Article XXVII, Section 1(a), eighty-five percent of the total voting power has been substituted for the requirement of a unanimous vote. No change has been made in the principle that when a decision pertains exclusively to the Special Drawing Rights Department, only the voting power of participants is taken into account.

3. The special majorities under the amended Articles are tabulated in the Annex to the Commentary in Part II of this Report.

Amendment

4. The acceptance of proposed amendments is not covered by the provisions described in 2 and 3 above, because it is an action of members and not of an organ of the Fund. The requirements for amendment, however, involve the acceptance of proposals by members having certain proportions of the total voting power as well as acceptance by a certain proportion of members. For proposals to amend all but three provisions, acceptance by three-fifths of the members, having eighty-five percent of the total voting power, is necessary under Article XXVIII(a). The requirement of eighty-five percent of the total voting power represents an increase over the eighty percent of the present Article XVII(a). The change has been made to correlate the majority based on voting power with the special majority for certain decisions of organs of the Fund. For proposals to amend the three exceptional provisions specified in the present Article XVII(b), acceptance by all members continues to be necessary under Article XXVIII(b) of the amended Articles.

O. Organizational Matters (Article XII and Schedules D and E)

1. Certain changes have been incorporated in the Articles with respect to organizational aspects of the Fund. The following changes affect the Board of Governors:

(a) Each Governor and each Alternate will serve until a new appointment is made (Article XII, Section 2(a)). The present Article XII, Section 2(a) provides for a term of five years subject to the pleasure of the member appointing the Governor or the Alternate, and the possibility of reappointment. The provision is changed because the stipulation of a specific term of office has been found unnecessary and sometimes inconvenient.

(b) Under the present Articles the Board of Governors must hold annual meetings and may provide for other meetings. In addition, the Executive Board may call meetings of the Board of Governors. The Council, also, if established under the amended Articles, would be able to call meetings of the Board of Governors under Schedule D, paragraph 5(a). It is expected that the Board of Governors will continue the established practice of holding annual meetings, but it will no longer be required to hold them.

(c) Meetings of the Board of Governors must be called under the amended Articles whenever requested by fifteen members of the Fund or by members having one quarter of the total voting power. Five members suffice for this purpose under the present Articles. The change recognizes the great increase in the Fund’s membership since the original Articles became effective.

(d) The Fund will no longer be required under Article XII, Section 2(h) to pay Governors and Alternates reasonable expenses incurred in attending meetings of the Board of Governors, but the Fund will be authorized to continue these payments. The change is designed to make the provision more flexible.

2. Various changes have been made in the provisions with respect to the Executive Board.

(a) The present Article XII, Section 3(b) prescribes that the number of Executive Directors shall be not fewer than twelve, of whom five must be appointed by the five members having the largest quotas, two must be elected by the American Republics not entitled to appoint Executive Directors, and five must be elected by the other members not entitled to appoint Executive Directors. Under the last sentence of the provision, the Fund, acting by a four-fifths majority of the total voting power, may increase the numbers of Executive Directors to be elected by the American Republics and by the other members beyond the numbers stated in the provision when members not listed in Schedule A enter the Fund. Under Article XII, Section 3(d) of the present Articles, the Fund must issue regulations changing the proportion of votes required to elect Executive Directors when the numbers are increased beyond those in the Articles.

In exercising its powers under the provisions referred to above, the Fund has been guided by the objectives of ensuring that the size of the Executive Board will contribute to the effective despatch of its business, that a desirable balance will be maintained in the composition of the Executive Board, that the size of constituencies will not place undue burdens on Executive Directors and hinder the efficient conduct of the business of the Executive Board, that members will be as free as possible within the provisions of the Articles and the regulations for the elections to form the constituencies of their choice, and that a relative equilibrium will be achieved in the voting power of the constituencies electing Executive Directors. Some of these objectives and considerations were made explicit in the Report of the Executive Board to the Board of Governors of July 24, 1972 entitled Size and Structure of the Executive Board, which was noted by the Board of Governors, with particular reference to paragraphs 2 and 6, in Resolution No. 27-12 of the Board of Governors, adopted August 31, 1972. For the future, the objectives and considerations referred to will be relevant not only for the composition of the Executive Board but also for the Interim Committee and the Council on its establishment.

The Executive Board has agreed that the objectives and considerations referred to above should continue to guide the Fund. The Executive Board has concluded that the present number of elective Executive Directors, i.e., fifteen, gives effect to these objectives and considerations under present circumstances, and has agreed that this number of elective Executive Directors should be incorporated in the amended Articles in order to reflect the existing balance of areas and interests in the Executive Board.

Under the amended Article XII, Section 3(b) all members eligible to elect Executive Directors will participate in one election of all fifteen elective Executive Directors because the distinction made between the elections under Section 3(b)(iii) and (iv) of Article XII of the present Articles has been eliminated. The Board of Governors may increase or decrease the number of fifteen elective Executive Directors by an eighty-five percent majority of the total voting power. The exercise of this power is not limited by any criteria, such as the entry of new members into the Fund, in view of the broad objectives and considerations described above, by which the Fund would continue to be guided.

(b) The provisions of the present Articles require the appointment of one or two additional Executive Directors in certain circumstances. The five members having the largest quotas in the Fund are required to appoint Executive Directors, but if these members do not include the two members that have made available the largest absolute amounts of resources utilized by the Fund, on the average over the two years preceding a regular election of Executive Directors, these two members also are required to appoint Executive Directors. The obligation of a member to appoint an additional Executive Director if it qualifies can create inconvenience for the member and for other members because the consequence may be the disbandment of a constituency for the next biennial period or the necessity for the other members to refrain from participating in the election so as not to have to join another constituency with which they may have no community of interest. The present Articles do not permit an appointed Executive Director to cast the number of votes allotted to any member other than the member appointing him. The new text of Article XII, Section 3(c), while preserving the existing privilege of a member to appoint an additional Executive Director if it qualifies, will grant the member the option of not appointing an Executive Director and of participating instead in the election of Executive Directors. If the member participates in the election, the Executive Director elected by the constituency to which the member belongs will cast the number of votes allotted to all members in that constituency. If the member decides to appoint an Executive Director, however, it will be possible under the amended provisions for the member to agree with individual members in the constituency to have the appointed Executive Director cast the number of votes allotted to these other members. The five members having the largest quotas will continue to have the duty to appoint Executive Directors.

(c) Under Article XII, Section 3(b), when one or two Executive Directors are appointed under Article XII, Section 3(c), the total number of Executive Directors will be maintained by reducing by one or two, as the case may be, the number of Executive Directors to be elected. In order to avert, however, the impact that such a reduction might have on other members in the constituency to which the appointing member formerly belonged, or on other members, Article XII, Section 3(b) authorizes the Board of Governors to prevent a reduction if the Board concludes that the reduction would hinder the effective discharge of the functions of the Executive Board or of Executive Directors or would threaten to upset a desirable balance in the Executive Board. The decision of the Board of Governors would require an eighty-five percent majority of the total voting power.

(d) In view of the objectives and considerations referred to in (a) above, and the authority referred to in (c) above, the Executive Board has agreed that if one or two additional Executive Directors were appointed under Article XII, Section 3(c) for the period of two years between any two regular elections, and the appointment were to threaten to upset a desirable balance in the Executive Board or to expand unduly the size of constituencies, it would recommend action under Article XII, Section 3(b) to prevent a reduction in the number of elective Executive Directors during the two-year period.

(e) Schedule E (which replaces the present Schedule C) has been revised to accord with the change of the number of elective Executive Directors in Article XII, Section 3(b). The percentages of the eligible votes for the purposes of election, i.e., four and nine, are based on the present situation with respect to the fifteen elective Executive Directors. These percentages can be changed, however, by the Board of Governors by a majority of the votes cast for the purpose of any regular election of Executive Directors.

(f) Article XII, Section 3(c) of the present Articles has given rise to the need for a number of interpretations and conventions with respect to the calculation that determines whether a member has achieved the right to appoint an additional Executive Director. The problems result from the complexity of the Fund’s operations and transactions. It is intended that existing interpretations and conventions would continue to apply.

(g) In the light of the changes in nomenclature that have been made in order to convey more clearly the structure of the Fund (Chapter A, section 1), a reference to the General Resources Account has been included in Article XII, Section 3(c).

3. The present Articles refer only to the authority of the Executive Board to appoint committees. The amended Articles make it explicit that the Board of Governors, the Council if established, and the Executive Board have this authority (Article XII, Section 2(j)).

P. The Council (Article XII, Section 1 and Schedule D)

1. The Board of Governors will be authorized by Article XII, Section 1 to establish the Council by a decision, taken by an eighty-five percent majority of the total voting power, declaring that the provisions of Schedule D shall begin to be applied. This decision can be taken at any time. The establishment of the Council will, in effect, continue the Interim Committee of the Board of Governors on the International Monetary System, which is an advisory body, in the form of a permanent organ of the Fund composed of persons of ministerial or comparable rank with decision-making authority under powers almost all of which would be delegated to it by the Board of Governors.

2. The Council will be composed of the same number of Councillors as there are Executive Directors, because each member that appoints and each group of members that elects an Executive Director will appoint one Councillor under Schedule D, paragraph 1(a). A Councillor must be a Governor of the Fund, Minister in the government of a member, or person of comparable rank, such as the head of a member’s central bank. In addition, each member or group of members that appoints a Councillor can appoint up to seven Associates, and must appoint an Alternate, who will have full power to act for the Councillor when the Councillor is not present (Schedule D, paragraph 1(b)). A Councillor and an Associate serve until a new appointment is made or until the next regular election of Executive Directors, whichever is sooner. The next election is chosen as the terminal date because the composition of the groups of members electing Executive Directors may change. A Councillor, however, may be reappointed. The number of Associates who may be appointed can be increased or decreased at any time by the Board of Governors by an eighty-five percent majority of the total voting power. Executive Directors, or, if they are not present in that capacity, their Alternates will be entitled to attend meetings of the Council, except when the Council decides to hold a restricted session.

3. The Council will be able to exercise two categories of powers: powers directly conferred on it by Schedule D, paragraph 2 and paragraph 5(a) and (c); and powers delegated to it by the Board of Governors under Schedule D, paragraph 3(a). Paragraph 2(a) defines the general functions of the Council as the supervision and adaptation of the international monetary system, including the continuing operation of the adjustment process and developments in global liquidity; and in this connection the Council must review developments in the transfer of real resources to developing countries. The reference to adjustment, which appears also in Article IV, Sections 1 and 4 and in Article XVIII, Section 1(b), makes it explicit that effective balance of payments adjustment is an important objective of the Fund. Similarly, the reference to developing members makes it apparent that their interests are of special concern. Schedule D, paragraph 2(b) provides that a function of the Council will be the consideration of proposals for amendment of the Articles.

4. The Executive Board would propose to the Board of Governors a revision of the present Section 15 of the By-Laws dealing with the delegation of authority in order to provide for the delegation of appropriate powers to the Council when the establishment of the Council by the Board of Governors was in view. Any powers of the Board of Governors that are not directly conferred on it could be delegated to the Council. Powers could be delegated exclusively to the Council or concurrently to both the Council and the Executive Board. The exercise of powers by the Council is governed by the scope of its competence as defined in Schedule D, paragraph 2(a). Delegations of authority by the Board of Governors could be changed from time to time. The Council will not be able to delegate any powers to the Executive Board, but the Executive Board would prepare the work of the Council in the same way that it prepares the work of the Board of Governors. Schedule D, paragraph 3(c) regulates the concurrent exercise of authority by organs of the Fund by providing that the Council must not take any action pursuant to delegated powers that is inconsistent with any action taken by the Board of Governors, and by providing further that the Executive Board must not take any action pursuant to powers delegated by the Board of Governors that is inconsistent with any action taken by either the Board of Governors or the Council.

5. Decisions of the Council will be taken by the procedure of weighted voting according to which each Councillor is entitled to cast the number of votes allotted under Article XII, Section 5 to the member or group of members appointing him. On matters pertaining exclusively to the Special Drawing Rights Department, a Councillor will be able to cast the number of votes allotted to the participants in his constituency. A Councillor appointed by a single member must cast the number of votes allotted to the member as a single block, but a Councillor appointed by a group of members may cast separately the number of votes allotted to each member in the group (Schedule D, paragraph 3(b)). This is a departure from the principle that applies to the Executive Board. The rationale of “split voting” by a Councillor appointed by a group of members is that the Council is conceived of as an organ composed of persons with political responsibility. It is closer in character, therefore, to the Board of Governors, in which Governors vote individually. For this reason it has been concluded that the voting procedure in the Council should approximate the procedure in the Board of Governors.

6. Schedule D, paragraph 3(b) enables a member whose votes did not count toward the election of an Executive Director to agree on arrangements with a Councillor for casting the number of votes allotted to the member. This principle also differs from the principle applicable to the Executive Board. A member whose votes did not count toward the election of an Executive Director may request an Executive Director to represent its interests, but that Executive Director cannot cast the number of votes allotted to the member. In this respect also, the intention is to make the situation in the Council resemble the situation in the Board of Governors, in which all Governors may vote even though the member appointing a Governor does not have the number of votes allotted to it cast by an Executive Director in the Executive Board. The Council will adopt regulations to provide for the orderly conduct of its business. It is assumed that the regulations will take account of the fact that a Councillor may need to be in contact with members that are not in its constituency if the Councillor casts the number of votes allotted to these members. It is assumed, further, that the arrangements for these contacts would not be allowed to impede the Council in the exercise of its functions.

7. The Council is authorized by Schedule D, paragraph 5(c) to establish a procedure for voting on a specific question without meeting when in the judgment of the Executive Board an action must be taken by the Council that should not be postponed until the next meeting of the Council and that does not warrant the summoning of a special meeting. The Executive Board is authorized to call meetings of the Council, and the Council itself may establish additional rules according to which a meeting of the Council may be called. It is apparent that the normal business of the Council must be conducted in session and that decisions without meeting should not become routine. The procedure for voting without meeting will be similar to the established practice under Section 13 of the By-Laws, which provides for voting by the Board of Governors without meeting. A Councillor appointed by a group of members will be free to make his own arrangements to canvass the views of the group before any such voting.

8. The Council may adopt the regulations that it deems necessary or appropriate for the performance of its functions and may determine any aspect of its procedure. It must select a chairman, who must be a Councillor. He will not have a deciding vote in case of an equal division of votes, as has the Managing Director as chairman of the Executive Board (see Article XII, Section 4(a)).

Q. Special Drawing Rights (Articles XV, XVII, XIX, XX, XXI, and XXII)

1. In the amended Articles, the unit of value of the special drawing right is no longer defined in terms of gold. The Fund is empowered to determine the method of valuation. It may do so by the double majority of seventy percent of the total voting power of both members and participants, but a double eighty-five percent majority is required for a change in the principle of valuation or a fundamental change in the application of the principle in effect at the time of the change (Article XV, Section 2 and Article XXI(a)(iii)). A special majority is not prescribed for deciding whether a proposed change requires the lower or the higher majority, and therefore the decision can be taken by a majority of the votes cast. With this rule, there is virtual assurance that a decision on classification can always be taken. The method of valuation in effect at the date of the amendment will continue in effect unless it is decided at some time thereafter to change it (Schedule B, paragraph 6). The amended Articles require the value of the Fund’s assets to be expressed (Article V, Section 10(a)), and the currency holdings in the General Resources Account to be maintained, in terms of the special drawing right (Article V, Section 11). Most computations involving currencies must be made at rates at which the Fund accounts for them in relation to the special drawing right (Article V, Section 10(b)).

2. The general obligation of participants to collaborate with the Fund and with each other to facilitate the operation of the Special Drawing Rights Department and the proper use of special drawing rights has been broadened by adding the objective of making the special drawing right the principal reserve asset of the international monetary system (Article VIII, Section 7; Article XXII). The principles for the allocation and cancellation of special drawing rights remain unchanged, but a number of changes have been made in the characteristics and usability of special drawing rights:

  • (i) The Fund is able under the amended Articles to engage in operations and transactions through the General Resources Account with prescribed other holders of special drawing rights, whereas under the present Articles it can do so only with participants (Article XVII, Section 2).

  • (ii) The categories of possible other holders that the Fund can prescribe have been enlarged by the addition of the general class of official entities (Article XVII, Section 3(i)). A majority of eighty-five percent of the total voting power is still necessary for the prescription of other holders.

  • (iii) The Fund may permit prescribed holders to enter into operations and transactions with other prescribed holders, as well as with participants, whereas under the present Articles other holders can be permitted to enter into operations and transactions only with participants (Article XVII, Section 3(ii) and (iii)).

  • (iv) The majority for the prescription of terms and conditions on which prescribed holders may engage in operations and transactions in special drawing rights and on which the Fund and participants may enter into operations and transactions with them has been reduced from eighty-five percent of the total voting power to a majority of the votes cast (Article XVII, Section 3(ii) and (iii)).

  • (v) Under the present Articles, a participant can enter into a transaction in special drawing rights by agreement with another participant, i.e., without designation, only if the transferor of special drawing rights is exchanging them for its own currency held by the transferee or if the Fund authorizes the transaction. The Fund can authorize other transactions by agreement by a majority of the votes cast if they fall into certain limited categories, and by an eighty-five percent majority of the total voting power if they fall outside these categories. One of the most important extensions in the use of special drawing rights under the amended Articles is the freedom of participants to enter into transactions by agreement in all circumstances without the necessity for authorization by the Fund (Article XIX, Section 2(b)).

  • (vi) The transactions referred to in (v) above must be conducted at rates of exchange compatible with the principle of equal value in Article XIX, Section 7(a). The Fund is authorized, however, to adopt policies, by a majority of eighty-five percent of the total voting power, under which in exceptional circumstances it can permit transactions by agreement at other exchange rates. The Fund can apply these policies to specific transactions by a majority of seventy percent of the total voting power (Article XIX, Section 7(b)).

  • (vii) The Fund can decide by a majority of seventy percent of the total voting power to prescribe operations in special drawing rights entered into by agreement between participants that are not otherwise expressly authorized by the Articles. Only “operations” (i.e., dealings that do not involve the exchange of special drawing rights for currency) can be prescribed. “Transactions,” which involve such an exchange (see Article XXX(i)), are not included because they may be entered into freely by agreement. Participants entering into these operations must observe any terms and conditions that the Fund adopts in prescribing the operations. The Fund may make representations to a participant that enters into any of these operations (or into the transactions by agreement referred to in (v) above) if the effect may be prejudicial to the process of designation or inconsistent with the effective functioning of the Special Drawing Rights Department. If the participant persists in entering into such operations (or transactions by agreement), the Fund may suspend the participant’s right to use the special drawing rights that it acquires after the Fund’s decision on suspension (Article XIX, Section 2(c) and (d); Article XXIII, Section 2(b)).

  • (viii) A participant using special drawing rights in a transaction by agreement with another participant ((v) above) is not subject to the expectation that it will comply with the requirement of need in Article XIX, Section 3(a) when using its special drawing rights in these transactions. This provision considerably enhances the freedom of participants to engage in transactions by agreement, because they are subject to neither the necessity for designation by the Fund nor the requirement of need. They remain subject, however, to the general obligations of collaboration under Article XXII.

  • (ix) The formualtion of the requirement of need in Article XIX, Section 3(a) has been simplified without changing its substance.

  • (x) The provisions of the present Articles on the Fund’s power to waive the requirement of need are substantially unchanged, but the limited scope of the power is less constricting because of the broad power of participants to enter into transactions by agreement without being subject to the requirement of need. In transactions in which the Fund designates the transferee of special drawing rights, the transferor is still expected to observe the requirement of need, but the Fund may waive the expectation that the requirement will be observed in a limited number of categories of transactions that contribute in a particular way to the more effective functioning of the Special Drawing Rights Department. In the light of experience, the amended Articles (Article XIX, Section 3(c)) do not refer to one category mentioned in the present Articles (Article XXV, Section 3(c)).

  • (xi) Under the present Articles, in transactions involving designation, the designated transferee of special drawing rights is required to supply “currency convertible in fact,” and the issuer of the currency supplied might be required in certain circumstances to convert the currency into another currency desired by the transferor of the special drawing rights. The definition of currency convertible in fact is complex. Moreover, the system of conversion contemplated by the Articles has not been operating in recent years. The provision with respect to the currency to be supplied (Article XIX, Section 4) has been simplified by the adoption of a new concept, “freely usable currency” (Article XXX(f)), in place of the present definition of currency convertible in fact. The new concept applies in both the General Department and the Special Drawing Rights Department, whereas under the present Articles “currency convertible in fact” applies only in the Special Drawing Rights Department. Article V, Section 3(e) and Section 7(j) deal with the exchange of freely usable currencies in connection with the transactions of members with the Fund through the General Resources Account. It is hoped that participants in the Special Drawing Rights Department will collaborate regarding the exchange of freely usable currencies provided in transactions with designation, as would be normal practice pursuant to Article XXII.

  • (xii) The Fund may review and change the rules for designation at any time, and not solely at the end of each basic period (Article XIX, Section 5(c)).

  • (xiii) The Fund may review the rules for the reconstitution of participants’ holdings of special drawing rights and may adopt, modify, or abrogate rules as a result of the review at any time, and not solely at the end of a basic period. Decisions with respect to the rules for reconstitution can be taken by a seventy percent, instead of an eighty-five percent, majority of the total voting power (Article XIX, Section 6(b)).

  • (xiv) The rate of remuneration no longer limits the rate of interest and charges on special drawing rights, which the Fund may now determine by a majority of seventy percent of the total voting power (Article XX, Section 3), but the rate of interest now controls the rate of remuneration (Article V, Section 9).

3. Certain changes in the usability of special drawing rights in operations and transactions conducted through the General Resources Account have been mentioned in 2 above. In addition, certain changes, including the uses listed below, have been referred to elsewhere in this Report. Under the amendment, special drawing rights may be used:

  • (a) by participants to pay part of the subscriptions payable upon increases in quota (Article III, Section 3(a));

  • (b) by the Fund to make payments to participants on decreases in quotas (Article III, Section 3(c));

  • (c) by the Fund in sales to participants for the currencies of other members (Article V, Section 6(b));

  • (d) by participants in purchasing the currencies of other members from the Fund (Article V, Section 6(a));

  • (e) by the Fund to replenish its holdings of needed currency, without any implication that other forms of replenishment under the Articles should be canvassed first (Article VII, Section 1(ii)); and

  • (f) by the Fund in distributions of net income or of the general reserve, even without the agreement of the recipient, unless the recipient decides that the payment to it shall be made in its own currency (Article XII, Section 6(e)).

Some of these uses are new; others involve modifications of uses that could be made under the present provisions.

R. Temporary Suspension of Operation of Provisions (Articles XXIII and XXVII)

1. Experience with the provisions on suspension of the operation of certain provisions has shown the possible usefulness of suspension but also the desirability of making it somewhat easier to bring about a suspension of one or more of the provisions subject to suspension if there is an emergency or the development of unforeseen circumstances threatening the activities of the Fund or of the Special Drawing Rights Department. Under the present Articles, a unanimous vote of the Executive Board is required for an initial decision to suspend. This requirement has been reduced to a majority of eighty-five percent of the total voting power in the amended Articles. A suspension by the Executive Board can be extended under the present Articles by a subsequent decision taken by the Board of Governors by an eighty percent majority of the total voting power. This majority has been increased to eighty-five percent in order to limit the number of different special majorities required for various decisions.

2. A possible purpose of the suspension of the operation of a provision is to give time to consider the desirability of the amendment of the provision. Therefore, the periods for suspension have been modified because experience has shown that the total period of three hundred and sixty days under the present Articles may be inadequate to enable agreement to be reached on an amendment of the Articles and to make it effective. The maximum period of one hundred and twenty days for which the Executive Board may suspend the operation of a provision has been extended to one year. The maximum period of prolongation by the Board of Governors has been extended from two hundred and forty days to two years.

3. Under the present Articles, when the Executive Board decides to suspend the operation of a provision, it must simultaneously call a meeting of the Board of Governors at the earliest practicable date. This requirement has been eliminated because the Executive Board will now be able to decide on a suspension for as long as one year, during which, according to present practice, the Board of Governors would hold its annual meeting.

4. No substantive change has been made in the scope of the provisions that are subject to suspension, although some have been renumbered in accordance with the sequence of provisions in the amended Articles. The insertion of the words “operations and transactions” in Section 1 of Article XXIII is intended to make it explicit that suspension of the operation of provisions relating to special drawing rights is possible only in respect of those provisions that deal with operations and transactions in special drawing rights and not in respect of other provisions that relate to them.

5. Article XXVII, Section 1(d) makes it explicit that the Fund has authority to adopt substitute rules on the subject matter of a provision while its operation is suspended. This authority has been derived by implication under the present Articles.

6. No change has been made in the provision of the present Articles according to which the Executive Board can terminate a suspension by a majority of the total voting power whether it is in effect under a decision of the Board of Governors or of the Executive Board (Article XXVII, Section 1(c)).

S. Transitional Provisions (Schedule B)

Transitional provisions are set forth in Schedule B with respect to repurchase, payment of additional subscriptions, gold, and certain operational matters. These provisions are necessary because there are certain substantive differences between the provisions of the present and the amended Articles relating to these matters.

1. Repurchase (Paragraphs 1-5).

(i) The transitional provisions of paragraphs 1 to 5 of Schedule B deal with the repurchase of currency acquired by the Fund under the present Articles and held by it on the date of the second amendment. Under these provisions of Schedule B, repurchase obligations that have accrued under Article V, Section 7(b) of the present Articles before the date on which the amendment takes effect, but that remain undischarged at that date, must be discharged not later than the dates at which they must be discharged under the present Articles. Currency held by the Fund in excess of seventy-five percent of quota on the date of the amendment as the result of purchases, but not subject to accrued obligations under Article V, Section 7(b) of the present Articles, must be repurchased in accordance with the policy under which the purchase was made. Other holdings in excess of that level and not subject to accrued obligations, such as holdings that result from the payment of charges by a member in its own currency, must be repurchased not later than four years after the date of the amendment. These transitional arrangements are designed to deal equitably among members in connection with the Fund’s holdings of all currencies that are subject to repurchase under the present Articles.

(ii) It is provided by paragraph 2 of Schedule B that repurchase obligations that have accrued in gold must be discharged with special drawing rights, but the Fund may prescribe that payment may be made, in whole or in part, in the currencies of other members specified by it, on the basis of 0.888 671 gram of fine gold per special drawing right and the value of currencies in terms of the special drawing right at the date of discharge. A nonparticipant would discharge any such obligation in the currencies of other members. Other repurchases must be made in assets acceptable to the Fund in repurchase in accordance with the amended Articles.

2. Rates of charge, remuneration, and interest (Paragraph 6).

(i) Under Schedule B, paragraph 6, charges on balances of currency held by the Fund remain payable at the rates in effect on the date of the amendment until they are changed in accordance with the provisions of the amended Articles.

(ii) The provisions of the amended Articles with regard to the imposition of charges on the Fund’s holdings of currency apply, however, to all balances held by the Fund after the date of the amendment that fall into the two categories subject to charges under Article V, Section 8(b). That provision applies, therefore, to balances acquired as a result of operations and transactions that take place before the date of the amendment. Some of these balances are not subject to periodic charges under the present Articles, and for this reason there are no rates in existence. It will be necessary, therefore, to take decisions on the rates of charge on these balances that will begin to apply as from the effective date of the amendment.

(iii) The rates of the service charge for transactions conducted through the General Resources Account and of the commitment charge for stand-by arrangements and arrangements under the extended Fund facility will also continue in effect until they are changed in accordance with the provisions of the amended Articles. Under a decision in effect at the present time, a service charge is not levied on what are now called gold tranche purchases but will be called reserve tranche purchases under the amended Articles. The transactions that qualify as reserve tranche purchases will be determined, however, on the basis of the amended Articles. The effect may be to increase the reserve tranche if a purchase has been made under a facility that becomes the subject of an exclusion under Article XXX(c) of the amended Articles. For example, a purchase under the buffer stock facility reduces a gold tranche under the present Articles, but because these purchases may be excluded from the calculation of the reserve tranche under Article XXX(c), a reserve tranche may be created or enlarged by a decision to exclude them under the amended Articles if such a purchase is outstanding.

(iv) The rate of remuneration at the time of the amendment remains in effect until modified in accordance with the amended Articles. The calculations for determining whether and in what amounts remuneration will be payable will be made, however, on the basis of the percentages of quota specified by or under Article V, Section 9(b) or (c) of the amended Articles and on the basis of the average daily balances of currency to be taken into account pursuant to Section 9(a) of that Article.

(v) The rate of interest and charge on the special drawing right in effect on the date of the amendment will continue in effect until it is changed in accordance with the new provisions.

3. Rules and regulations and decisions (Paragraph 6).

Under paragraph 6 of Schedule B all rules and regulations and all decisions adopted under the present Articles that are not inconsistent with the new Articles will remain in effect on the date of the second amendment until they are changed in accordance with the amended Articles. The rules and regulations and decisions with respect to the method of valuation of the special drawing right are among those to which this provision will apply.

4. Gold (Paragraph 7).

(i) In accordance with the understandings reached in the Interim Committee of the Board of Governors on the International Monetary System, the Fund is expected to make arrangements, on the basis of the present Articles, for the disposal of fifty million ounces of its gold (paragraph 6(3) of the Press Communiqué issued by the Committee on August 31, 1975 and paragraph 4 of the Communiqué of June 12, 1975). To the extent that the disposition of the two amounts of twenty-five million ounces that constitute this total is not completed at the date of the amendment, the Fund is required by the amended Articles to take action to dispose of the balance. In view of this requirement in the Articles, a further decision by the Fund in order to proceed with the disposition will not be necessary.

(ii) Paragraph 7 of Schedule B requires the Fund to complete the disposition of twenty-five million ounces by selling the balance of that amount at the present official price to those members that were members on August 31, 1975 and agree to buy it, in proportion to their quotas on that date. The Fund must complete the disposition of another twenty-five million ounces by selling the balance of that amount at a price based on prices in the market and must use the proceeds in excess of the capital value (i.e., the balance over the official price of 0.888 671 gram of fine gold per special drawing right under the present Articles) for the benefit of developing members that were members on August 31, 1975. The Fund is required, however, to transfer directly to developing members a part of the profits or surplus value of the gold that is to be disposed of for the benefit of developing members corresponding to the proportion of their quotas to all quotas. The reference in Schedule B, paragraph 7(b) to “profits or surplus value” will enable the Fund to make the transfers required by this provision in an appropriate way. The profits from the sale of the remaining part of the second twenty-five million ounces are to be used to provide balance of payments assistance on concessionary terms to developing members with low per capita income.

T. Settlement of Accounts with Members Withdrawing (Schedule J)

1. Schedule J, paragraph 1 has been revised, in view of the fact that under the amended Articles there would be three Accounts in the Fund’s General Department. Schedule J continues to be the code for settlement with a withdrawing member that applies if agreement between it and the Fund is not reached promptly. Settlement with respect to the General Resources Account, if made under Schedule J, would be made according to the rules in paragraphs 1 to 6 of that Schedule. For the purpose of payments that the Fund is obligated to make to the withdrawing member in a settlement with respect to this Account, the Fund could transfer to the General Resources Account holdings of the member’s currency in the other two Accounts in exchange for an equivalent amount of the currencies of other members in the General Resources Account selected by the Fund with the concurrence of these other members.

2. Settlement with respect to the Special Disbursement Account would be based on the principle that a member’s indebtedness to the Fund as the result of transactions conducted through that Account must be discharged in accordance with the terms of the indebtedness (Schedule J, paragraph 7). Therefore, withdrawal would not accelerate the maturity of indebtedness unless the terms of the indebtedness provided for acceleration.

3. The Fund is authorized by Schedule J, paragraph 8 to sell in an orderly manner in any market the holdings of the withdrawing member’s currency in the Special Disbursement Account that remain after the transfer described in 1 above. The sales may be made for the currencies of other members. The same procedure applies with respect to holdings of the withdrawing member’s currency in the Investment Account.

4. The Fund is authorized by Schedule J, paragraph 9 to continue to hold until the date of maturity any investments in a withdrawing member’s obligations that the Fund may hold either in the Special Disbursement Account or in the Investment Account, or to dispose of them sooner. The authority to hold such investments until the date of maturity enables the Fund to avoid the loss that might be incurred by disposition of them before maturity.

Annex to Commentary on Proposed Amendment Special Majorities

The special majorities and participation required for the adoption of decisions by the Board of Governors, the Council when established, and the Executive Board under the amended Articles are summarized below. The majorities are shown according to the order in which they appear in the Articles. All other decisions are taken by a majority of the votes cast.

Special Majorities
(Proportion ofDirectly
Total VotingConferred
ArticleSectionSubjectPower)on
III2(c)Adjustment of quotas85 percentBoard of Governors (except Article III, Section 2(b))
III3(a), (d)Prescription of medium of payment for additional subscription70 percentBoard of Governors
IV2(c)Provision for general exchange arrangements85 percent
IV4Introduction of system of exchange arrangements based on par values85 percent
V7(c)Changes in period for repurchase85 percent
V7(d)Adoption of periods for repurchase of holdings acquired under special policy on use of Fund’s general resources85 percent
V7(e)Adoption of policies on repurchase of holdings not acquired as a result of purchases70 percent
V7(g)Postponement of repurchase beyond maximum period70 percent
V8(a), (d)Determination of service charge for purchases70 percent
V8(b), (d)Determination of rates of charge on holdings of currencies70 percent
V8(c), (d)Imposition of charges deemed appropriate on failure to repurchase70 percent
V9(a)Determination of rate of remuneration70 percent
V9(c)Increase in percentage of quota as level for remuneration70 percent
V12(b), (c)Sale of gold85 percent
V12(b), (d)Acceptance of gold instead of special drawing rights or currency in payments to Fund85 percent
V12(b), (e)Sale of gold at present official price85 percent
V12(f), (i)Transfer of assets of Special Disbursement Account to General Resources Account70 percent
V12(f), (ii), (iii)Use of assets of Special Disbursement Account for operations and transactions not authorized by other provisions and for distribution to developing members85 percent
V12(g)Transfer of proceeds of sale of gold to Investment Account85 percent
V12(j)Termination of Special Disbursement Account prior to liquidation of Fund

Adoption of rules and regulations for administration of Special Disbursement Account
70 percent 70 percent
XII1Application of Schedule D85 percentBoard of Governors
XII3(b)Increase or decrease in number of elective Executive Directors85 percentBoard of Governors
Maintenance of number85 percentBoard of
of elective ExecutiveGovernors
Directors
XII6(d)Distribution from general reserve70 percent
XII6(f), (ii)Transfer to Investment Account of currencies held in General Resources Account for immediate investment70 percent
XII6(f), (vi)Termination of Investment Account or reduction of amount of investment prior to liquidation of Fund70 percent
Adoption of rules and regulations regarding administration of Investment Account70 percent
XII8Publication of report on member’s monetary or economic conditions and developments70 percent
XV2Determination of method of valuation of special drawing right other than a change in principle or a fundamental change in application of principle in effect70 percent
Change in principle of valuation or fundamental change in application of principle in effect85 percent
XVII3(i)Prescription of other holders of special drawing rights85 percent
XVIII2(a), 4(a), (d)Allocation or cancellation of special drawing rights85 percentBoard of Governors
XVIII2(b), 4(a), (d)Determination of rates at which allocation and cancellation are to be made85 percentBoard of Governors
XVIII2(c), 4(a), (d)Determination of duration of basic period, intervals for allocations or cancellations, and dates as of which quotas and net cumulative allocations are to be basis for allocations or cancellations85 percentBoard of Governors
XVIII3, 4(a), (d)Change in rates or intervals of allocation or cancellation or in length of basic period, or starting new basic period85 percent (except decrease in rates of allocation)Board of Governors
XIX2(c)Prescription of operations in which participant may engage in agreement with another participant70 percent
XIX6(b)Adoption, modification, or abrogation of rules for reconstitution70 percent
XIX7(b)Adoption of policies to authorize participants to agree on exchange rates other than those applicable under Article XIX, Section 7(a)85 percent
Authorization of individual participants, under these policies, to agree on exchange rates other than those applicable under Article XIX, Section 7(a)70 percent
XX3Determination of rate of interest on special drawing rights70 percent
XXIII1Temporary suspension of operation of certain provisions relating to special drawing rights for not more than one year85 percentExecutive Board (Council)
XXVI2(b)Compulsory withdrawal of memberMajority of Governors having 85 percentBoard of Governors
XXVII1(a)Temporary suspension of operation of certain provisions for not more than one year85 percentExecutive Board (Council)
XXVII1(b)Extension of temporary suspension of operation of provisions85 percentBoard of Governors
XXVII1(c)Termination of suspension under Article XXIII, Section 1 or Article XXVII, Section 1(a)Absolute majorityExecutive Board
XXIX(b)Overrule of decision of Committee on Interpretation85 percentBoard of Governors
XXX(c)(iii)Exclusion of purchases and holdings under policies on use of Fund’s general resources for purpose of calculating a member’s reserve tranche85 percent
ScheduleParagraph
C5Adoption of margin or margins for spot exchange transactions85 percent
C8Objection to termination of par value by member85 percent
C11Uniform proportionate changes in par values70 percent
D1(a)Change in number of Associates in Council85 percentBoard of Governors
[The appendix, “Comparison of Present and Amended Articles of Agreement,” has not been included here. See Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund: A Report by the Executive Directors to the Board of Governors (Washington: International Monetary Fund, 1976).]
[The appendix, “Comparison of Present and Amended Articles of Agreement,” has not been included here. See Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund: A Report by the Executive Directors to the Board of Governors (Washington: International Monetary Fund, 1976).]

PART III: PROCEDURE

1. Applicable Legal Provisions

The procedure for the adoption of modifications in the Articles of Agreement is set forth in Article XVII of the present Articles, which reads as follows:

“(a) Any proposal to introduce modifications in this Agreement, whether emanating from a member, a governor or the Executive Directors, shall be communicated to the chairman of the Board of Governors who shall bring the proposal before the Board. If the proposed amendment is approved by the Board the Fund shall, by circular letter or telegram, ask all members whether they accept the proposed amendment. When three-fifths of the members, having four-fifths of the total voting power, have accepted the proposed amendment, the Fund shall certify the fact by a formal communication addressed to all members.

“(b) Notwithstanding (a) above, acceptance by all members is required in the case of any amendment modifying

  • (i) the right to withdraw from the Fund (Article XV, Section 1);

  • (ii) the provision that no change in a member’s quota shall be made without its consent (Article III, Section 2);

  • (iii) the provision that no change may be made in the par value of a member’s currency except on the proposal of that member (Article IV, Section 5(b)).

“(c) Amendments shall enter into force for all members three months after the date of the formal communication unless a shorter period is specified in the circular letter or telegram.”

2. Resolution of Board of Governors

Part IV of this Report contains the text of a Resolution, to which is attached a Proposed Amendment to the Articles of Agreement. The Chairman of the Board of Governors has requested that on his behalf the Secretary of the Fund bring the Resolution and Proposed Amendment before the Board of Governors for its approval. Pursuant to this request the Secretary is transmitting them to the Board with this Report.

In the judgment of the Executive Directors the action requested of the Board of Governors should not be postponed until the next regular meeting of the Board and does not warrant the calling of a special meeting of the Board. For this reason, the Executive Directors, pursuant to Section 13 of the By-Laws, request Governors to vote without meeting. In accordance with established practice, the Executive Directors have also decided to waive the requirement that no Governor shall vote until seven days after the dispatch of the motion. To be valid, votes must be received at the seat of the Fund on or before April 30, 1976.

The Resolution will be adopted if replies are received from a majority of the Governors exercising two-thirds of the total voting power and if a majority of the votes is cast in favor of the Resolution. The Resolution must be voted on as a whole.

3. Acceptance of Proposed Amendment by Members

By adopting the annexed Resolution, the Board of Governors will grant its approval to the Proposed Amendment of the Articles of Agreement. Members will then be asked, by circular letter or telegram, to notify the Fund whether they accept the Proposed Amendment. The Proposed Amendment can be accepted only in its entirety. That is to say, members will not be able to accept part only of the Proposed Amendment.

In accordance with Article XVII(a) of the present Articles, the Proposed Amendment must be accepted by three-fifths of the members, having four-fifths of the total voting power, before it can enter into force.

4. Entry into Force of Proposed Amendment

When the Proposed Amendment has been accepted by the necessary majority, the Fund will certify the fact by a formal communication to be sent by the Secretary of the Fund to all members. Pursuant to Article XVII(c) of the present Articles, the Executive Directors recommend that the Proposed Amendment should enter into force on the date of the formal communication instead of three months after that date. In accordance with that provision and paragraph 3 of the Resolution, the circular letter or telegram by which members will be asked whether they accept the Proposed Amendment will specify the date of the formal communication referred to above as the date of the entry into force of the Proposed Amendment.

The Proposed Amendment will enter into force for all members on the date of the formal communication, whether they have accepted the Amendment or not. It is assumed that members accepting the Proposed Amendment will have taken any legislative and other action that may be necessary to enable them to carry out their obligations under the Articles of Agreement as amended. Other members that have not accepted the Proposed Amendment will need to consider what action is necessary in order to enable them to carry out their obligations under the Articles of Agreement as amended.

5. Notification to Depositary of Articles of Agreement

Upon certification of the entry into force of the Proposed Amendment it is intended to notify that fact to the Government of the United States, which is the depositary of the Articles of Agreement of the Fund, so that it may record the Amendment. It is also intended to ask the Government of the United States to register the Amendment with the Secretary-General of the United Nations, pursuant to Article 102 of the United Nations Charter.

6. Domestic Legal Steps

In view of the important and extensive changes in the Articles that will be introduced by the Amendment, members may find it necessary to review both the financial and non-financial aspects of their domestic legislation relating to the Articles of Agreement. The provisions relating to quotas and subscriptions, exchange arrangements, and the special drawing right may be of particular importance in connection with domestic legislation. In connection with exchange arrangements, members may wish to examine any legislation, whether relating directly to the Fund or not, that refers to par values established under the Articles.

PART IV: RESOLUTION

Whereas the Board of Governors, in Resolution No. 29-10 adopted at its 1974 Annual Meeting, has requested the Executive Directors to consider and prepare for the approval of the Board possible modifications in the Articles of Agreement of the International Monetary Fund on the basis of the recommendations in Part II of the Outline of Reform attached to the Report to the Board by its ad hoc Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty), dated June 14, 1974; and

Whereas the Interim Committee of the Board of Governors on the Reform of the International Monetary System has requested the Executive Directors to complete their work on amendment in the light of the guidance given by the Committee; and

Whereas the Executive Directors have completed their work relating to possible modifications in the Articles of Agreement of the International Monetary Fund pursuant to Resolution No. 29-10 and the guidance given by the Interim Committee; and

Whereas the Executive Directors have prepared a Report on the Second Amendment setting forth proposals for modifications in the Articles of Agreement of the International Monetary Fund; and

Whereas the Chairman of the Board of Governors has requested the Secretary of the Fund to bring the proposals of the Executive Directors before the Board of Governors; and

Whereas the Report of the Executive Directors setting forth their proposals has been submitted to the Board of Governors by the Secretary of the Fund; and

Whereas the Executive Directors have requested the Board of Governors to vote on the following Resolution without meeting, pursuant to Section 13 of the By-Laws of the Fund;

Now, therefore, the Board of Governors, noting the said Report of the Executive Directors, hereby resolves that:

1. The proposals for modifications (Proposed Second Amendment) that are included in the attachment to this Resolution and are to be incorporated in the Articles of Agreement of the International Monetary Fund are approved.

2. The Secretary of the Fund is directed to ask, by letter or telegram, all members of the Fund whether they accept, in accordance with the provisions of Article XVII of the present Articles, the Proposed Second Amendment.

3. The circular letter or telegram to be sent to all members in accordance with 2 above shall specify that the Proposed Second Amendment shall enter into force for all members as of the date on which the Fund certifies, by formal communication addressed to all members, that three-fifths of the members, having four-fifths of the total voting power, have accepted the modifications.

[The Proposed Second Amendment that was attached to the resolution and the Index to the Proposed Second Amendment are not included here. The proposed amendments were approved and appear below, pp. 379-445.]

Not included in these volumes; see Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund: A Report by the Executive Directors to the Board of Governors (Washington: International Monetary Fund, 1976).

References in the Introduction to chapters are to chapters in Part II of this Report.

Resolution No. 31-4, adopted by the Board of Governors effective April 30, 1976.

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