Chapter

Selected Decisions

Author(s):
International Monetary Fund
Published Date:
February 1996
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The decisions reproduced below are those contained in Selected Decisions of the Executive Directors and Selected Documents, Third Issue, January 1965. They comprise the decisions of a general nature which have been cited in Volumes I and II above. They are arranged in the order of the Articles of Agreement to which they refer, and not chronologically.

Decisions embodied in Rules and Regulations are not included here; they will be found in the document following this one (beginning on p. 287).

Selected Decisions of the Executive Directors

(As at December 31, 1965)

CONTENTS

decision no.page
2-1267
71-2227, 245
117-1269
124-2244
180-5268
196-2268
233-2225
237-2261
269-2226
278-3227
284-2272
284-3234
284-4227
286-1234
287-3228
292-3235
298-3220, 269
408-2220
419-1244
446-4256
447-5244
486-2271, 272
493-3272
510-2273
521-3273
534-3266
574-2268
595-3222
597-4268
7-(648)244
75-(705)225
102-(52/11)228
103-(52/12)274
119-(52/30)243
144-(52/51)257
155-(52/57)230
201-(53/29)258
270-(53/95)231
316-(54/27)274
321-(54/32)222
343-(54/47)269
433-(55/42)258
451-(55/52)228
488-(56/5)275
541-(56/39)246
572-(56/55)274
649-(57/33)265
705-(57/55)245
708-(57/57)276
876-(59/15)232
904-(59/32)226
905-(59/32)277
955-(59/45)260
1033-(60/26)275
1034-(60/27)260
1107-(60/50)277
1116-(60/51)275
1151-(61/6)234
1238-(61/43)245
1245-(61/45)224
1272-(61/53)277
1283-(61/56)224
1289-(62/1)246
1345-(62/23)233
1371-(62/36)235
1477-(63/8)238
1529-(63/33)222
1543-(63/39)240
1687-(64/22)243
1712-(64/29)254
1745-(64/46)243
1813-(65/4)245

Article III, Section 2 ADJUSTMENT OF QUOTAS

The first interval of five years, at the end of which the Fund shall review the quotas of the members in accordance with Article III, Section 2, began on the date when the Fund Agreement, in accordance with Article XX, Section 1, entered into force: i.e. on December 27, 1945.

Decision No. 408-2

March 11, 1949

Article III, Section 3 SUBSCRIPTIONS

Net Official Holdings: Principles of Interpretation

In order to ensure the uniform application of the relevant Articles of Agreement as they apply to determinations of members’ net official holdings of gold and U.S. dollars for the purposes of Article III, Section 3 (b) (ii), the Fund adopts or reaffirms the following principles of interpretation for the indicated provisions of the Fund Agreement:

  • (a) Article III, Section 3 (b) : “Each member shall pay in gold, as a minimum, the smaller of

    • (i) twenty-five per cent of its quota; or

    • (ii) ten per cent of its net official holdings of gold and United States dollars as at the date when the Fund notifies members under Article XX, Section 4 (a), that it will shortly be in a position to begin exchange transactions.

    • Each member shall furnish to the Fund the data necessary to determine its net official holdings of gold and United States dollars.”

      • (1) The concept of “holdings” of gold or United States dollars involves the ownership of gold or United States dollars.

      • (2) A claim to gold or dollars, unsupported by title to them, is not a “holdings.”

      • (3) “United States dollars” means “without limitation coins, paper money, bank balances, bank acceptances, and government obligations issued with a maturity not exceeding twelve months.” This definition appears in Article XIX (d) and has been adopted by analogy in the calculation of net official holdings. The government obligations referred to must have been issued with an original maturity not exceeding twelve months, and it does not suffice that a government obligation will simply mature within twelve months from September 12, 1946.

      • (4) Dollars drawn by a member under a loan and in its ownership, for example, because deposited in a bank account which it owns, are part of its “holdings.” Dollars which a member has not drawn under a loan agreement or commitment and which it does not yet own, although it may later get ownership of them, are not a “holding.”

      • (5) The usability of gold or dollars for the payment of the gold subscription is not necessary in order to constitute “holdings.” A member does not pay 10 per cent of each item of gold or dollars, but the equivalent of 10 per cent of its total “holdings” of gold and dollars. Thus, segregated dollar balances are “holdings.” So, too, are gold or dollars blocked under wartime freezing arrangements, if a member has title to them. This means, in the case of gold, that the member has title to specific gold (e.g., earmarked gold) or to a fixed share of specific gold (e.g., one-quarter of earmarked gold). There is no “holding” if a member has merely a claim to unidentified gold (e.g., such looted gold as may be discovered and restored to it) or to an uncertain share of specific or unidentified gold (e.g., a share of such looted gold as may be or has been recovered, to be determined in proportion to all claims).

      • (6) Under a pledge of gold or dollars, title remains in the pledgor, for which reason pledged gold or dollars are the “holdings” of the pledgor.

      • (7) Since local law cannot override international obligations, gold or dollars are “holdings” even though inalienable under local law or allocated to some special purpose.

      • (8) Gold must be valued in accordance with Article IV, Section 1.

      • (9) If a member had no “holdings” of gold or dollars on September 12, 1946, its total subscription will be payable in its own currency.

  • (b) Article III, Section 3 (d): “If the net official holdings of gold and United States dollars of any member as at the date referred to in (b) (ii) above are not ascertainable because its territories have been occupied by the enemy, the Fund shall fix an appropriate alternative date for determining such holdings. If such date is later than that on which the country becomes eligible under Article XX, Section 4 (c) or (d), to buy currencies from the Fund, the Fund and the member shall agree on a provisional gold payment to be made under (b) above, and the balance of the member’s subscription shall be paid in the member’s currency, subject to appropriate adjustment between the member and the Fund when the net official holdings have been ascertained.”

    • (1) Where a member was occupied by the enemy and its net official holdings of gold and United States dollars as of September 12, 1946, are not ascertainable, the Fund may postpone the date as of which the calculation shall be made. This means that some later date may be substituted for September 12, 1946, as the effective date for the purposes of Article III, Section 3 (b) (ii).

    • (2) The postponement must relate to the determination of the whole of a member’s net official holdings of gold and U.S. dollars. That is to say, there cannot be a postponement of only those items whose status on September 12, 1946, cannot be ascertained.

  • (c) Pertains to Article XIX (b); see p. 270.

  • (d) Pertains to Article XIX (c); see p. 270.

  • (e) Pertains to Article XIX (h); see p. 270.

Decision No. 298-3

April 14, 1948

Article III, Section 4 PAYMENTS WHEN QUOTAS ARE CHANGED

Interpretation

It is determined as a matter of interpretation that Art. III, Sec. 4, and not Art. III, Sec. 3, applies to all changes in quotas.

Decision No. 595-3

July 20, 1950

Quota Increases: Gold Subscriptions

In connection with any quota increases granted in accordance with the Fund’s decision on “Compensatory Financing of Export Fluctuations” and any quota increases granted as the result of requests received before the decision referred to, it is decided:

  • (a) to recommend to the Board of Governors, where a member represents, for reasons which it shall submit to the Fund, that its reserves should not be reduced by an immediate 25 per cent gold payment, that such member shall be permitted in accordance with an appropriate resolution to have its quota increased in five annual installments, with the right to accelerate the payment of such installments;

  • (b) to give sympathetic consideration to a request for an exchange transaction up to 25 per cent of the increase by any member which wishes to have the full increase in its quota take effect immediately or to expedite the full increase in its quota if it is paying under the installment schedule. This facility will be available where: (i) the member would encounter undue payments difficulties through the reduction in its reserves by the payment of the 25 per cent gold subscription or of the outstanding balance; and (ii) the request is made within two years after the date of the consent to the increase or, in the case of an increase in installments, within two years after the payment of the first installment; and (iii) the member requesting such an exchange transaction beyond the gold tranche represents that it will make a repurchase corresponding to any drawing in equal annual installments, to commence one year after the drawing and to be completed not later than three years after the drawing.

Decision No. 1529-(63/33)

June 14, 1963

Article IV, Section 1 TRANSACTIONS AND COMPUTATIONS INVOLVING FLUCTUATING CURRENCIES

Transactions and Computations Involving Fluctuating Currencies

The Fund has examined certain problems relating to the adjustment of its holdings of fluctuating currencies and to transactions and computations involving such currencies and has come to the following conclusions:

I. The Fund does not intend to apply the rules set forth in II below to its holdings of members’ currencies having fluctuating rates when there is no practical interest for the Fund or members to do so. To avoid misunderstanding, it may be useful to point out that these rules do not constitute a formula for dealing with the currencies of countries in which current transactions are conducted at multiple rates.

II. Subject to I above, the following rules are adopted:

Where the foreign exchange value of a currency fluctuates so that exchange transactions in that currency are not based on parity in accordance with Article IV, Section 3, and the Fund decides to apply Article IV, Section 8, computations by the Fund relating to that currency (hereinafter referred to as “fluctuating currency”) for the purpose of applying the provisions of the Articles of Agreement of the Fund will be made as follows:

  • 1. (i) Computations will be based on the mid-point between the highest rate and the lowest rate for the United States dollar quoted, for cable transfers for spot delivery, in the main financial center of the country of the fluctuating currency on the day specified in sub-paragraph (ii) below; provided, however, that when prescribed by sub-paragraph (iii) below computations will be based on the mid-point between the highest rate and the lowest rate for the fluctuating currency quoted in New York for cable transfers for spot delivery. Arrangements will be made with the Fund’s depository in the country of the appropriate exchange market as determined hereunder to communicate to the Fund the rates referred to in this sub-paragraph (i).

  • (ii) For the purpose of sub-paragraph (i) the specified day will be:

    • (a) For the sale or purchase by the Fund of a fluctuating currency in exchange for another currency, or the purchase of gold by the Fund under Article V, Section 6 (a), or voluntary repurchase, the last business day, in the main financial center of the country of the fluctuating currency, before the Fund instructs its depository to transfer or receive the fluctuating currency.

    • (b) For computations for the purpose of Article V, Section 7 (b) or Article V, Section 8 (f), the day as of which the computation is made.

  • (iii) If a mid-point cannot be determined in the main financial center of the country of the fluctuating currency in accordance with sub-paragraph (i) for the day specified in sub-paragraph (ii), there will be substituted therefor the midpoint for the fluctuating currency in New York determined in accordance with sub-paragraph (i) for the same calendar day. If no such mid-point can be determined for that day, there will then be substituted, to the extent necessary, first the previous business day in the main financial center of the country of the fluctuating currency, and secondly the same calendar day in New York. This procedure will be followed to the extent necessary, until a mid-point is determined in accordance with sub-paragraph (i), except where the Fund decides to make a special determination under paragraph 6 below.

  • 2. Where as the result of the application of paragraph 1 the amount of currency which the Fund has agreed to sell would exceed the amount that the purchasing member is entitled to purchase under Article V, Section 3 (a) (iii), the amount of currency to be sold will be reduced to the amount the purchasing member is entitled to purchase under that provision unless the Fund makes a waiver under Article V, Section 4.

  • 3. The Fund will revalue all of its holdings of a fluctuating currency on the basis of the mid-point employed for a computation under paragraph 1, and such revaluation will take effect as of the day specified for the computation in sub-paragraph (ii) of paragraph 1. As a minimum, revaluation will be made as of each July 31, October 31, January 31, and April 30.

  • 4. Whenever the Fund revalues its holdings of a fluctuating currency under paragraph 3, it will establish an account receivable or an account payable, as the case may be, in respect of the amount of the currency payable by or to the member under Article IV, Section 8. For the purpose of applying the provisions of the Articles as of any date, the Fund’s holdings of the fluctuating currency will be deemed to be its actual holdings plus the balance in any such account receivable or minus the balance in any such account payable as of that date.

  • 5. Any account receivable or payable established under paragraph 4 above will be settled promptly after each July 31, October 31, January 31, and April 30, provided, however, that settlement will not be necessary for any July 31, October 31, or January 31 on which the mid-point as determined under paragraph 1 above does not differ by more than five per cent from the rate for the last settlement. Settlement of any account receivable or payable established under paragraph 4 above will always be made when requested by either the Fund or the member.

  • 6. In any case in which it appears to the Fund that any of the provisions of paragraphs 1 to 5 above are not adequate or satisfactory, the Fund will make a special determination for the treatment of such case.

III. Sections I and II above of this decision shall be communicated to members together with SM/54/25 as amended by SM/54/25, Supplement 1 as an explanatory memorandum.

Decision No. 321-(54/32)

June 15, 1954

Transactions and Computations Involving Fluctuating Currencies

The foregoing Decision No. 321-(54/32) was amended as follows:—

1. [Expired.]

2. There shall be added after “Article V, Section 6 (a),” in paragraph II.1 (ii) (a) of Executive Board Decision No. 321-(54/32) the words “or the sale of gold by the Fund under Article VII, Section 2,”.

3. [Expired.]

Decision No. 1245-(61/45)

August 4, 1961

Transactions and Computations Involving Fluctuating Currencies

Paragraph II.1 (ii) (a) of Executive Board Decision No. 321-(54/32) is amended to read as follows:

For the sale or purchase by the Fund of a fluctuating currency in exchange for another currency, or the purchase of gold by the Fund under Article V, Section 6 (a), or the sale of gold by the Fund under Article VII, Section 2, or voluntary repurchase, or borrowing or the repayment of borrowing under Article VII, Section 2, the last business day in the main financial center of the country of the fluctuating currency, before the Fund instructs its depository to transfer or receive the fluctuating currency.

Decision No. 1283-(61/56)

December 20, 1961

Article IV, Section 2 GOLD

Premium Gold Transactions: Statement to Members

The following statement should be communicated to members and made public without delay:

In June 1947, the Fund issued a statement recommending to its members that they take effective action to prevent external transactions in gold at premium prices, because such transactions tend to undermine exchange stability and to impair monetary reserves. From time to time the Fund has reviewed its recommendations and the effectiveness of the action taken by its members.

Despite the improvement in the payments position of many members, sound gold and exchange policy of members continues to require that to the maximum extent practicable, gold should be held in official reserves rather than go into private hoards. It is only as gold is held in official reserves that it can be used by the monetary authorities to maintain exchange rates and meet balance of payments needs.

However, the Fund’s continuous study of the situation in gold-producing and -consuming countries shows that their positions vary so widely as to make it impracticable to expect all members to take uniform measures in order to achieve the objectives of the premium gold statement. Accordingly, while the Fund reaffirms its belief in the economic principles involved and urges the members to support them, the Fund leaves to its members the practical operating decisions involved in their implementation, subject to the provisions of Art. IV, Sec. 2 and other relevant articles of the Articles of Agreement of the I.M.F.

The Fund will continue to collect full information about gold transactions, will watch carefully developments in this field and will be prepared in consultation with members to consider problems relating to exchange stability and any other problems which may arise.

Decision No. 75-(705)

September 28, 1951

For the statement of June 1947, see below, p. 310.

Statement of Policy Concerning Subsidies for Gold Production

The following statement of policy concerning subsidies for the production of gold is adopted, and the Managing Director is asked to send copies to members and release the statement for publication on December 12.

The International Monetary Fund has a responsibility to see that the gold policies of its members do not undermine or threaten to undermine exchange stability. Consequently every member which proposes to introduce new measures to subsidize the production of gold is under obligation to consult with the Fund on the specific measures to be introduced.

Under Article IV, Section 2, of the Articles of Agreement of the Fund members are prohibited from buying gold at a price above parity plus the prescribed margin. In the view of the Fund, a subsidy in the form of a uniform payment per ounce for all or part of the gold produced would constitute an increase in price which would not be permissible if the total price paid by the member for gold were thereby to become in excess of parity plus the prescribed margin. Subsidies involving payments in another form may also, depending upon their nature, constitute an increase in price.

Under Article IV, Section 4 (a), each member of the Fund “undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.” Subsidies on gold production regardless of their form are inconsistent with Article IV, Section 4 (a) if they undermine or threaten to undermine exchange stability. This would be the case, for example, if subsidies were to cast widespread doubt on the uniformity of the monetary value of gold in all member countries.

Subsidies which do not directly affect exchange stability may, nevertheless, contribute directly or indirectly to monetary instability in other countries and hence be of concern to the Fund.

A determination by the Fund that a proposed subsidy is not inconsistent with the foregoing principles will depend upon the circumstances in each case. Moreover, the Fund may find that subsidies which are justified at any one time may, because of changing conditions and changing effects, later prove to be inconsistent with the foregoing principles. In order to carry out its objectives, the Fund will continue to study, and to review with its members, their gold policies and any proposed changes, to determine if they are consonant with the provisions of the Fund Agreement and conducive to a sound international policy regarding gold.

Decision No. 233-2

December 11, 1947

Article IV, Sections 3 and 5 PAR VALUES AND MARGINS

Foreign Exchange Dealings Based on Parity: Article IV, Section 3

Dealings in paper money and coins are deemed to be “other exchange transactions” within the meaning of Article IV, Section 3, whether or not the importation and exportation of such money and coins to and from the country of origin are subject to restrictions. The dealings are in consequence subject to the provisions of that Section. Members shall not permit transactions in such paper money and coins within their territories in a manner or to an extent which will negate the par values agreed with the Fund. Where transactions in fact have such an effect the Fund will be obliged to intervene.

Decision No. 269-2

February 11, 1948

Exchange Dealings and Margins Under Conditions of Increasing Convertibility

The Fund does not object to exchange rates which are within 2 per cent of parity for spot exchange transactions between a member’s currency and the currencies of other members taking place within the member’s territories, whenever such rates result from the maintenance of margins of no more than 1 per cent from parity for a convertible, including externally convertible, currency.

Decision No. 904-(59/32)

July 24, 1959

Interpretation of Articles of Agreement

[A member] has stated its intention to maintain full employment and has requested an interpretation of the Articles of Agreement as to whether steps necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, shall be measures necessary to correct a fundamental disequilibrium.

The Executive Directors interpret the Articles of Agreement to mean that steps which are necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, are among the measures necessary to correct a fundamental disequilibrium; and that in each instance in which a member proposes a change in the par value of its currency to correct a fundamental disequilibrium the Fund will be required to determine, in the light of all relevant circumstances, whether in its opinion the proposed change is necessary to correct the fundamental disequilibrium.

Pursuant to Decision No. 71-2

September 26, 1946

Changes in Par Values: Fundamental Disequilibrium

The Fund has authority under Article IV, Section 5 (c) (ii) or (iii), to object to a change in par value proposed by a member when the extent of the proposed change, in the judgment of the Fund, is insufficient to correct a fundamental disequilibrium. The Executive Board recognizes, however, that the extent of the change in par value, necessary to correct a fundamental disequilibrium, cannot be determined with precision and that in reaching a decision on a member’s proposal to change its par value, whether during the transitional period or thereafter, the member should be given the benefit of any reasonable doubt. In addition, due consideration should be given the views of the member regarding the political and social consequences of a change in par value greater than the one proposed.

Decision No. 278-3

March 1, 1948

Article V, Sections 3, 4, and 5 USE OF FUND’S RESOURCES AND STAND-BY ARRANGEMENTS

Use of Fund’s Resources: Meaning of Article V, Section 3 (a) (i)

The word “represents” in Article V, Section 3 (a) (i), means “declares.” The member is presumed to have fulfilled the condition mentioned in Article V, Section 3 (a) (i), if it declares that the currency is presently needed for making payments in that currency which are consistent with the provisions of the Agreement. But the Fund may, for good reasons, challenge the correctness of this declaration, on the grounds that the currency is not “presently needed” or because the currency is not needed for payment “in that currency,” or because the payments will not be “consistent with the provisions of this Agreement.” If the Fund concludes that a particular declaration is not correct, the Fund may postpone or reject the request, or accept it subject to conditions. The phrase “presently needed” cannot be defined in terms of a formula uniformly applicable to all cases, but where there is good reason to doubt that the currency is “presently needed,” the Fund will have to apply the phrase in each case in the light of all the circumstances.

Decision No. 284-4

March 10, 1948

Use of Fund’s Resources: Meaning of “Consistent with the Provisions of This Agreementin Article V, Section 3

The phrase “consistent with the provisions of this Agreement” in Article V, Section 3, mean consistent both with the provisions of the Fund Agreement other than Article I and with the purposes of the Fund contained in Article I.

Decision No. 287-3

March 17, 1948

Extent of Drawing Rights: Meaning of Article V, Section 3 (a) (iii)

The Executive Board, acting pursuant to Article XVIII (a) of the Fund Agreement, interprets the quantitative limit of twenty-five per cent of quota in relation to drawing rights under Article V, Section 3 (a) (iii) as follows:

  • Where the Fund’s holdings of a member’s currency are not less than seventy-five per cent of its quota, and to the extent that such holdings would not be increased above two hundred per cent of its quota, the purchases which the member may make during a period of twelve months ending on the date of a proposed purchase shall be determined as follows:

    • (a) The total purchases shall not exceed twenty-five per cent of its quota;

    • (b) Provided that, if the member has made purchases during the period, it may then purchase an amount equal to the difference between twenty-five per cent of its quota and the total of such purchases adjusted on the basis that a repurchase by the member or sale of its currency during the period is deducted from a previous, but not subsequent, purchase or purchases during the period.

Decision No. 451-(55/52)

August 24, 1955

Use of Fund’s Resources and Repurchases

1. The Managing Director has made the following statement which should be the framework for his discussions with members on use of the Fund’s resources:

  • “The present proposals are designed to provide a practical basis for use of the Fund’s resources in accordance with the purposes of the Fund. When the proposals are agreed they will, of course, have to be carried into effect through actual cases. Decisions will have to be made in accordance with the particular circumstances, and in this manner a body of practical criteria will gradually be built up. However, even at the outset I think it must be clear that access to the Fund should not be denied because a member is in difficulty. On the contrary, the task of the Fund is to help members that need temporary help, and requests should be expected from members that are in trouble in greater or lesser degree. The Fund’s attitude toward the position of each member should turn on whether the problem to be met is of a temporary nature and whether the policies the member will pursue will be adequate to overcome the problem within such a period. The policies, above all, should determine the Fund’s attitude.

  • “In addition, the Fund should pay attention to a member’s general creditworthiness, particularly its record with the Fund. In this respect, the member’s record of prudence in drawing, its willingness to offer voluntary repayment when its situation permitted, and its promptness in fulfilling the obligation to transmit monetary reserves data and in discharging repurchase obligations would be important. I would expect that in the years to come, with extended activities of the Fund, we shall be able more and more to rely on the Fund’s own experience, thus providing a further and most useful link between Fund drawings and repurchases.

  • “After a period of relative inactivity of the Fund, it would be too much to expect that we should be able to solve with one stroke the entire problem of access to the Fund’s resources so that each member would always know how any request would be received by the Fund. We shall have to feel our way. Sometimes a member may want to submit to the Fund a specific request for drawings, with adequate information as to the particular situation which prompts the request. At other times discussions between the member and the Fund may cover its general position, not with a view to any immediate drawing, but in order to ensure that it would be able to draw if, within a period of say 6 or 12 months, the need presented itself. The Fund itself might take the initiative in discussing with one or more members transactions which it believes suitable for the Fund and helpful to the members concerned. In cases where it would appear appropriate and useful, the Fund might arrange drawings to deal with special short-run situations accompanied by arrangements for repurchase in a period not exceeding 18 months.”

2. a. In view of the Executive Board’s interpretation of September 26, 1946, concerning the use of the Fund’s resources, and considering especially the necessity for ensuring the revolving character of the Fund’s resources, exchange purchased from the Fund should not remain outstanding beyond the period reasonably related to the payments problem for which it was purchased from the Fund. The period should fall within an outside range of three to five years. Members will be expected not to request the purchase of exchange from the Fund in circumstances where the reduction of the Fund’s holdings of their currencies by an equivalent amount within that time cannot reasonably be envisaged.

b. The Fund has recently determined that when the charges on the Fund’s holdings of a member’s currency in any bracket have reached a rate of 3½ per cent per annum, the Fund and the member, in accordance with Article V, Section 8 (d) “shall consider means by which the Fund’s holdings of the currency can be reduced” (EB Meeting 717, 11/19/51). In the course of consultations arising from purchases of exchange taking place after December 1, 1951, the Fund and the member will agree upon appropriate arrangements to ensure the reduction of the Fund’s holdings of the member’s currency as soon as possible, with the maximum period to be permitted in any such agreed arrangement requiring that within five years of each purchase made by the member there will be an equivalent repurchase of the Fund’s holdings unless they have otherwise been reduced.

c. With respect to each future purchase which raises the Fund’s holdings of the member’s currency from not less than 75 per cent to not more than 100 per cent of its quota, a member whose currency held by the Fund has not been otherwise reduced within three years will be requested by the Fund to agree upon an arrangement providing that within five years of each purchase made by the member there will be an equivalent repurchase of the Fund’s holdings unless they have otherwise been reduced.

d. When unforeseen circumstances beyond the member’s control would make unreasonable the application of the principles set forth in paragraph 2 above, the Fund will consider extensions of time.

e. When requesting use of the resources of the Fund in accordance with the arrangements described above, a member will be expected to include in its authenticated request a statement that it will comply with the above principles.

f. These principles will be an essential element in any determination by the Fund as to whether a member is using the resources of the Fund in accordance with the purposes of the Fund.

3. Each member can count on receiving the overwhelming benefit of any doubt respecting drawings which would raise the Fund’s holdings of its currency to not more than its quota.

4. The Managing Director should communicate with members concerning means to speed the collection and reporting of monetary reserves data and means to reduce the delays in reaching agreement under Rule 1-6 in cases whore a repurchase obligation has been computed. The Fund should also make it clear that an important element in its judgment respecting the use of its resources will be the co-operation of the member in helping to make Article V, Section 7 effective, including the timely provision of information and the facilitating of settlement.

5. This decision will be effective until December 31, 1953, and will be reviewed by the Executive Board before that date.

Decision No. 102-(52/11)

February 13, 1952

Stand-By Credit Arrangements

The Fund is prepared to consider requests by members for stand-by arrangements designed to give assurance that, during a fixed period of time, transactions up to a specified amount will be made whenever a member requests and without further consideration of its position, unless the ineligibility provisions of the Fund Agreement have been invoked. The following paragraphs set forth the general framework for stand-by arrangements:

  • 1. Stand-by arrangements would be limited to periods of not more than six months. They could be renewed by a new decision of the Executive Board.

  • 2. In considering the request for a stand-by arrangement or a renewal of a stand-by arrangement, the Fund would apply the same policies that are applied to requests for immediate drawings, including a review of the member’s position, policies and prospects in the context of the Fund’s objectives and purposes. The Fund would agree to a stand-by arrangement only for a member that would be in a position to make purchases of the same amount of exchange from the Fund.

  • 3. Such arrangements would cover the portion of the quota which a member would be allowed, under Article V, Section 3, to draw within the period provided in the arrangement. However, this does not preclude the Fund from making stand-by arrangements for larger amounts on terms in accordance with Article V, Section 4.

  • 4. A charge of ¼ of 1 per cent per annum would be payable to the Fund at the time a stand-by arrangement is agreed. This charge would be payable in gold (or United States dollars in lieu of gold) or the member’s currency as specified for other charges by Article V, Section 8 (f). In the event that a stand-by arrangement is renewed, a new charge at the rate of ¼ of 1 per cent per annum would be payable to the Fund.

  • 5. A member having a stand-by arrangement would have the right to engage in the transactions covered by the stand-by arrangement without further review by the Fund. This right of the member could be suspended only with respect to requests received by the Fund after: (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions either generally (under Article XVI, Section 1 (a) (ii)) or in order to consider a proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit the eligibility of the member.

  • 6. In view of the policy of the Fund with respect to drawings within the so-called “gold tranche,” it is not considered likely that members will request stand-by arrangements confined to transactions within the “gold tranche.” Accordingly, the policy set forth in this decision is designed primarily to deal with stand-by arrangements for drawings beyond the “gold tranche.” If at any time a member proposes a stand-by arrangement which would, in part or entirely, involve drawings within the “gold tranche,” the Fund will reconsider the charge set forth in paragraph 4 above as applied to “gold tranche” transactions.

  • 7. This decision will be effective until December 31, 1953, and will be reviewed by the Executive Board before that date.

Decision No. 155-(52/57)

October 1, 1952

I. Use of Fund’s Resources and Repurchases

II. Stand-By Credit Arrangements

I. Use of Fund Resources and Repurchases

The decision taken at Meeting 52/11 on February 13, 1952, relating to use of the Fund’s resources and repurchases, shall continue in effect subject to review by the Executive Board from time to time as circumstances warrant.

II. Stand-by Arrangements

The Fund is prepared to consider requests by members for stand-by arrangements designed to give assurance that, during a fixed period of time, transactions up to a specified amount will be made whenever a member requests and without further consideration of its position, unless the ineligibility provisions of the Fund Agreement have been invoked. The following paragraphs set forth the general framework for stand-by arrangements:

  • 1. Stand-by arrangements will be limited to periods of not more than six months. They can be renewed by a new decision of the Executive Board. If a member believes that the payments problems it anticipates (for example, in connection with positive problems for maintaining or achieving convertibility) can be adequately provided for only by a stand-by arrangement of more than six months, the Fund will give sympathetic consideration to a request for a longer stand-by arrangement in the light of the problems facing the member and the measures being taken to deal with them. With respect to stand-by arrangements for periods of more than six months, the Fund and the member might find it appropriate to reach understandings additional to those set forth in this decision.

  • 2. In considering the request for a stand-by arrangement or renewal of a stand-by arrangement, the Fund will apply the same policies that are applied to requests for immediate drawings, including a review of the member’s position, policies and prospects in the context of the Fund’s objectives and purposes. The Fund will agree to a stand-by arrangement only for a member that is in a position to make purchases of the same amount of exchange from the Fund.

  • 3. There will be specified in each stand-by arrangement the transactions which may be made under that arrangement.

  • 4. A member having a stand-by arrangement will have the right to engage in the transactions covered by the stand-by arrangement without further review by the Fund. This right of the member can be suspended only with respect to requests received by the Fund after: (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions either generally (under Article XVI, Section 1 (a) (ii)) or in order to consider a proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit the eligibility of the member.

  • 5. (a) A charge of ¼ of 1 per cent per annum will be payable to the Fund for stand-by arrangements. The charge will be payable in advance for each six months’ period that the arrangement or any renewal is in effect.

  • (b) Charges for stand-by arrangements will be payable in gold, or U.S. dollars in lieu of gold, or in the member’s currency as specified for other charges by Article V, Section 8 (f).

  • (c) There will be credited against the service charge payable for a transaction under a stand-by arrangement the charges paid for that part of the stand-by arrangement (or renewal of it) for the six months’ period in which the transaction takes place and for the preceding six months’ period; provided that the amount of charge paid for a stand-by arrangement (or renewal of it) for any six months’ period will not be credited more than once in that period and the succeeding six months’ period.

  • (d) In order to effect a credit against a service charge, the Fund will repay the portion of the charge paid for a stand-by arrangement that is to be credited under (c) above and collect the service charge in full.

  • (e) If a member notifies the Fund that it wishes to cancel a stand-by arrangement, the Fund will repay to the member a portion of the charge. The portion repaid will represent the charge paid for the period remaining unexpired at the time of cancellation with respect to the maximum amount of the stand-by arrangement that has never been drawn.

  • (f) Repayment under (d) or (e) above of a charge paid for a stand-by arrangement will be made in gold, U.S. dollars, and the member’s currency in the same proportions as the charge was paid.

  • 6. The Fund will not levy the charge set forth in paragraph 5 above with respect to that part of the stand-by arrangement covering “gold tranche” transactions.

  • 7. This decision shall continue in effect subject to review by the Executive Board from time to time as circumstances warrant.

Decision No. 270-(53/95)

December 23, 1953

Charges for Transactions and Stand-By Arrangements

I. [Amendment to a Rule]

II. A stand-by arrangement shall provide for a fixed amount that can be purchased under it augmented by amounts equivalent to repurchases in respect of drawings made under the stand-by arrangement or made at the time when the stand-by arrangement is entered into, unless when any such repurchase is made the member informs the Fund that it does not wish the stand-by arrangement to be augmented by the amount of that repurchase. In exceptional circumstances, however, a stand-by arrangement may provide for purchases that increase the Fund’s holdings of the currency of the member having the stand-by arrangement up to a specified level, provided that the amounts the member may purchase shall in no case be increased by other members’ purchases of its currency.

III. 1. Paragraph II.5 (a) and (c) of Decision No. 270-(53/95) shall be amended to read as follows:

  • (a) When a stand-by arrangement is entered into or renewed, a charge of ¼ of 1 per cent per annum will be payable to the Fund in advance for the period of the stand-by arrangement or renewal. For any additional drawing rights that arise in the course of a stand-by arrangement, a further charge will be payable to the Fund in advance at the rate of ¼ of 1 per cent per annum calculated on the basis of the amount of the additional drawing rights and the unexpired period of the stand-by arrangement.

  • (c) There will be credited against the service charge for a transaction under a stand-by arrangement the charges actually paid in respect of that amount under the stand-by arrangement and any stand-by arrangement which preceded it without interval at the rate of ¼ of 1 per cent per annum and up to a maximum of ¼ of 1 per cent on that amount, due allowance being made for any refunds under paragraph II.6 of this decision. For the purpose of calculating such credits and for the purpose of calculating refunds under (e) below, it shall be assumed that drawings are made in respect of drawing rights in the order in which such drawing rights arose.

  • 2. [Applies to individual countries.]

IV. Paragraph II.5 (e) of Decision No. 270-(53/95) is amended to read:

If a member notifies the Fund that it wishes to cancel a stand-by arrangement, the Fund will repay to the member a portion of the charge. The portion repaid will represent the charge for the period remaining unexpired at the date of cancellation for the amount that could still be drawn under the stand-by arrangement at the date of cancellation for which the member has paid a charge.

V. The following shall be added to Paragraph II.6 of Decision No. 270-(53/95):

To the extent that a charge has been levied on a part of the stand-by arrangement which falls into the gold tranche in the course of the stand-by arrangement, the Fund will refund the charge on that part for the unexpired period of the stand-by arrangement.

VI. Sections II, III.1, IV, and V above shall apply to stand-by arrangements entered into or renewed after the date of the adoption of this decision.

Decision No. 876-(59/15)

April 27, 1959

Stand-By Arrangements: Refund of Charges

(a) Refunds pursuant to Paragraph II.6 of Executive Board Decision No. 270-(53/95), as amended, of charges paid for stand-by arrangements entered into before the date of this decision will be calculated as of the date of each repurchase, drawing of the member’s currency by other members, or increase of the member’s quota, and will be based on the Fund’s total holdings of the member’s currency as of the date of each such calculation. If no such repurchase, drawing or increase of quota has taken place before the expiration of the stand-by arrangement the calculation will be based on the Fund’s holdings at the end of the quarters of the Fund’s financial year and at the date of expiration.

(b) In determining the Fund’s holdings of a member’s currency for the purposes of all calculations involving charges payable for stand-by arrangements entered into after the date of this decision, no account will be taken of amounts, not in excess of 1/100 of 1% of the member’s quota, in a special account to meet administrative expenses.

Decision No. 1345-(62/23)

May 23, 1962

Stand-By Arrangements

1. There shall be added to the end of paragraph II.4 of Executive Board Decision No. 270-(53/95) the following sentence for use in all future stand-by arrangements:

  • When notice of a decision for formal ineligibility or of a decision to consider a proposal is given pursuant to this paragraph, purchases under this stand-by arrangement will be resumed only after consultation has taken place between the Fund and the member and agreement has been reached on the terms for the resumption of such purchases.

2. “Prior notice” provisions appearing in existing stand-by arrangements, except for the one approved at EBM/60/53, shall be understood as if the sentence set forth in paragraph 1 above were substituted for such provisions.

Decision No. 1151-(61/6)

February 20, 1961

Use of Fund’s Resources: Limitation and Ineligibility Under Article V, Section 5

The Fund has, in the case of a member which has had a previous exchange transaction with the Fund, power to declare the member ineligible or limit its use of the resources of the Fund if the member is, in the opinion of the Fund, using the resources of the Fund in a manner contrary to the purposes of the Fund.

Decision No. 284-3

March 10, 1948

Use of Fund’s Resources: Postponement and Limitation Under Article V, Section 5

If the Fund receives a request from a member to purchase exchange and either, (1) the Fund is considering sending the member a report pursuant to Article V, Section 5, or (2) the Fund finds when the request is before it that action pursuant to that Section should be considered; then the Fund has the authority, pursuant to Article V, Section 5, of the Fund Agreement, to postpone the transfer as permitted under the provisions of Rules and Regulations G-3 for such time as may reasonably be necessary to decide the question of applying Article V, Section 5, and, if it decides to apply it, to prepare and send to the member a report and subject its use of the Fund’s resources to limitations. Under such circumstances the limitations imposed will apply to the pending request for the purchase of exchange as well as to future requests.

Decision No. 286-1

March 15, 1948

Use of Fund’s Resources: Meaning of “Is Usingin Article V, Section 5

A member “is using” the resources of the Fund within the meaning of Article V, Section 5, where it is either actually disposing of the exchange purchased from the Fund, or, having purchased exchange from the Fund, the Fund’s holdings of its currency are in excess of 75 per cent of its quota.

Decision No. 292-3

March 30, 1948

Currencies to Be Drawn and to Be Used in Repurchases

The Board approves the statement entitled “Currencies to be Drawn and to be Used in Repurchases” (SM/62/62, Revision 2), and this statement shall be incorporated in the Annual Report for 1962.

Decision No. 1371-(62/36)

July 20, 1962

Currencies to be Drawn and to be Used in Repurchases

From the beginning of the Fund’s operations through 1957, drawings were overwhelmingly made in U.S. dollars. Starting in 1958, however, the Fund has increasingly encouraged drawings in other currencies, and this has been facilitated by the introduction of de facto convertibility for the currencies of the main industrial countries. Since the same currencies have become formally convertible under Article VIII in February 1961, repurchases have also begun to be made in these currencies.

Certain practices have been developed which take into account the new situation of the increasing number of currencies usable for the transactions of the Fund. These practices are still in a state of evolution as increased experience is being gained. The following paragraphs set out what may be regarded as appropriate practices to be followed for the time being.

I. Procedure

When a substantial number of currencies other than the U.S. dollar became usable for drawings, the drawing countries began to discuss with the Managing Director what currencies might be drawn. It gradually became the practice that consultation should take place between the drawing country and the Managing Director about the currencies to be drawn, and this practice has now become established in connection with all stand-by arrangements and drawings. Before giving advice to the drawing country, the Managing Director has got into contact with countries whose currencies might be drawn, even in circumstances where speed in arranging the drawing was essential. These consultations and the contacts with the countries concerned have thus become an integral part of the procedure which has been evolved.

In addition, an attempt is being made to indicate from time to time the amounts likely to be drawn and what might be a proper distribution of drawings among different currencies. Since under stand-by arrangements even fairly large drawings may be made suddenly, such indications as will be given can only be tentative and informal but they can, even so, serve a useful purpose in contributing to the maintenance of close contact between the Managing Director and the countries whose currencies may be drawn.

It has been concluded that the Fund has the legal authority to specify the convertible currencies to be used in making repurchases in discharge of obligations to repurchase that do not arise under Article V, Section 7 (b), and that, accordingly members are required to obtain the prior agreement of the Fund on the convertible currencies to be used in making such repurchases. Such repurchases must not increase the Fund’s holdings of a member’s currency beyond 75 per cent of that member’s quota or decrease the Fund’s holdings of the repurchasing member’s currency below 75 per cent of that member’s quota.

Until further notice, and in order to maintain conditions which foster repurchases and the revolving character of the Fund’s resources, the Fund will accept any convertible currency fulfilling the conditions set forth in the last sentence above, provided that the repurchasing member has consulted the Managing Director on the currencies, and the amounts of each, to be used by the member in making its repurchase. Before giving his advice, the Managing Director will consult with countries whose currencies could be used in repurchase, and he will also attempt to give advance indications comparable to those relating to the currencies to be drawn. In all of these consultations, the Managing Director’s recommendations will be guided by the principles regarding the currency composition of repurchases set out in Section II below.

The preceding paragraph shall apply to those repurchase obligations outside Article V, Section 7 (b) that are entered into after July 20, 1962. Members that entered into such obligations before that date shall be invited to consult the Managing Director on the currencies to be used in discharging these obligations, and the Managing Director will follow the procedure and be guided by the considerations referred to in the preceding paragraph.

The Managing Director will notify the Executive Directors at least two business days before any repurchase under the preceding paragraphs is carried out.

Where consultations with a country are referred to in this document they will normally be conducted with the Executive Director appointed or elected by such country.

II. Criteria for the Selection of Currencies for Drawings and Repurchases

The experience of the Fund in recent years has made it possible to indicate the main considerations which govern the selection of currencies for drawings and repurchases.

Drawings

With regard to the question of the selection of currencies for a particular drawing or for drawings in general, account has been taken of the balance of payments and reserve positions of the countries whose currencies are considered for drawing, as well as of the Fund’s holdings of these currencies.

It has been found in practice that weight has to be given to all these three considerations, with some differentiation according to specific circumstances, and perhaps most particularly according to the size of the transaction or transactions involved.

During periods when aggregate drawings were moderate in amount, little difficulty was experienced in distributing these drawings among countries with reasonably satisfactory balance of payments positions on the basis of the level of these countries’ reserves. When the volume of drawings has been large, it has been necessary to give more importance to the relative balance of payments positions of the countries to be drawn upon, so as to prevent excessive declines in their primary reserves as a result of Fund sales of their currencies. In connection with large drawings, in particular when they are associated with short-term capital movements, it is usually fairly easy to single out the countries whose reserves have benefited from an inflow of capital and to direct drawings more particularly towards the currencies of these countries.

By the attention thus given to the balance of payments position, the Fund has been able to arrange drawings in large measure to offset movements of funds in the exchange markets, and thus contribute to the strengthening of the international payments position. In considering a country’s balance of payments position, seasonal fluctuations have not been allowed great weight, and the Fund has avoided drawing prematurely the currency of a country which is in the process of building up reserves from a relatively low position.

In applying the third consideration, account has to be taken of prevailing circumstances. For example, when the Fund’s holdings of a particular currency have become very low, this has precluded substantial sales of that currency irrespective of the balance of payments and reserve position of the country concerned. In practice, the Fund has taken account of the level of its holdings of any currency well before the point of actual exhaustion, by gradually—rather than abruptly—reducing its sales of that currency on account of this factor.

Small drawings have normally been executed in one currency only, preferably the currency in which the drawing country holds the bulk of its reserves, even in circumstances where the payments position of the reserve center drawn upon has not been strong. Somewhat larger drawings have usually been distributed over more than one currency, but only exceptionally more than three to five currencies have been involved in a single drawing unless it has been a very large one. As far as possible, factors relevant to the particular drawing country, such as closeness of trade and payments relations, have been taken into account in the selection of the currencies to be drawn.

Repurchases

With regard to repurchases, the range of currencies is, as mentioned in Section I above, limited to currencies that are formally convertible and of which the Fund’s holdings are below 75 per cent of the quota. As a result, repurchases in currencies have, until early 1961, been made almost exclusively in U.S. dollars. The U.S. dollar was also, in recent years, a currency that was available in the exchange market at favorable rates which reflected the prevailing balance of payments position.

Increasingly, however, weight has been given, in suggesting the allocation of repurchases among the countries whose currencies can be received in repurchase, to the Fund’s holdings of these currencies compared to quotas. It would seem from the point of view of equity, and also with due regard to the liquidity position of the Fund, that great weight should be given to this criterion. But consideration should also be given, when appropriate, to the prevailing balance of payments position. In the case of relatively small repurchases it has been found practical that they be made in the currency in which a country holds its reserves, provided of course that such currency can be received by the Fund.

III. Conversion

It has been the experience in the Fund that a country drawing one or more currencies, after consultation with the Managing Director, has often wanted to convert either the whole or part of the amount drawn in a particular currency into one or more other currencies depending upon the payments that country has to meet or the currencies it normally holds in its reserves. The conversions thus effected have made it possible for the drawing country to meet its payments obligations and to strengthen its reserves in the most effective manner.

In the case of drawings in dollars, sterling and moderate amounts of certain other currencies, there has been no difficulty in effecting conversion at the going rate by transactions in the exchange market. Since the currencies drawn have generally been strong currencies for which there is a demand in the market, such conversion has generally been carried out without any disturbance to the market. For several currencies, arrangements have often been made between central banks, i.e., between the central banks in the drawing country and in the country whose currency is drawn, which provide for direct conversion into the latter’s main reserve currency at the prevailing market rate without any commission being charged. In certain cases, however, especially when the amounts involved have been large, consideration has been given to the fact that conversion on the market would have affected exchange rates, and in some cases an allowance for this has been made. A preference has been indicated by two central banks for conversion at par, especially for large drawings.

In accordance with normal central banking procedure, whenever a country desires conversion of a currency it is drawing, it would get in touch with the central bank of the country drawn upon in order to reach an understanding on the most convenient way to arrange such conversion. When conversion has presented a country with difficulties, the assistance of the Managing Director has been sought in order to arrive at an appropriate solution.

The practices outlined above for drawings can, mutatis mutandis, be applied when a country needs to obtain a currency in order to make a repurchase from the Fund with that currency.

The Fund will keep the practices with respect to conversion as described above under study, and will re-examine them in the light of further experience.

Compensatory Financing of Export Fluctuations

I. The report entitled “Compensatory Financing of Export Fluctuations” is approved for transmittal to the United Nations.

II. The following shall be recorded as the decision of the Executive Board on the compensatory financing of fluctuations in exports of primary exporting countries:

  • (1) The financing of deficits arising out of export shortfalls, notably those of primary exporting member countries, has always been regarded as a legitimate reason for the use of Fund resources, which have been drawn on frequently for this purpose. The Fund believes that such financing helps these members to continue their efforts to adopt adequate measures toward the solution of their financial problems and to avoid the use of trade and exchange restrictions to deal with balance of payments problems, and that this enables these members to pursue their programs of economic development with greater effectiveness.

  • (2) The Fund noted in its 1962 Annual Report that trends in prices of basic commodities in the past few years have adversely affected the export earnings of many Fund members, which has increased the strain on their reserves. In view of this and in order to ensure the maximum effectiveness for its support to members—in particular, primary exporting members—that are faced with fluctuations in export proceeds, the Fund is taking the action set forth below.

A. Quotas

(3) The quotas of many primary exporting countries, taken in conjunction with a reasonable use of their own reserves, are at present adequate for dealing with export fluctuations such as have occurred during the past decade. In those instances, however, where adjustment of the quotas of certain primary exporting countries, and in particular of countries with relatively small quotas, would be appropriate to make them more adequate in the light of fluctuations in export proceeds and other relevant criteria, the Fund is willing to give sympathetic consideration to requests for such adjustment.

B. Drawing policies

(4) Under the present policies and practices on the use of Fund resources, any member is given the overwhelming benefit of the doubt in relation to requests for transactions within the gold tranche, and the Fund’s attitude to requests for transactions within the first credit tranche is a liberal one provided the member itself is making reasonable efforts to solve its problems. In the higher credit tranches too, where a member’s policies are consistent with Fund policies and practices on the use of Fund resources in these tranches, the Fund gives assistance, on a substantial scale, toward meeting temporary payments deficits, including deficits arising out of export shortfalls. The policies and practices of the Fund on drawings and stand-by arrangements have been developed in order to help members to meet more effectively their temporary balance of payments difficulties and to enable them, where necessary, to pursue policies aimed at restoring external and internal equilibrium. Fund assistance in accordance with these policies and practices has made an effective contribution to the solution of the difficulties of these members and the achievement of equilibrium. It has often led, moreover, to the provision of further resources from public and private resources for meeting immediate and longer-term needs. In the application of its policies and practices governing the use of its resources, the Fund’s attitude has been a flexible one, and account has been taken of special difficulties facing members.

(5) The Fund has reviewed its policies to determine how it could more readily assist members, particularly primary exporters, encountering payments difficulties produced by temporary export shortfalls, and has decided that such members can expect that their requests for drawings will be met where the Fund is satisfied that

  • (a) the shortfall is of a short-term character and is largely attributable to circumstances beyond the control of the member; and

  • (b) the member will cooperate with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties.

The amount of drawings outstanding under this decision will not normally exceed 25 per cent of the member’s quota, and the drawings will be subject to the Fund’s established policies and practices on repurchase. When drawings are made under this decision, the Fund will so indicate in an appropriate manner.

(6) In order to implement the Fund’s policies in connection with compensatory financing of export shortfalls, the Fund will be prepared to waive the limit on Fund holdings of 200 per cent of quota, where appropriate. In particular, the Fund will be prepared to waive this limit (i) where a waiver is necessary to permit compensatory drawings to be made under paragraphs (4) and (5) above, or (ii) to the extent that drawings in accordance with paragraph (5) are still outstanding.

Whenever the Fund’s holdings of a member’s currency resulting from an outstanding compensatory drawing under paragraph (5) are reduced, by the member’s repurchase or otherwise, this will restore pro tanto the member’s facility to make a further compensatory drawing under that paragraph, should the need arise.

(7) In order to identify more clearly what are to be regarded as export shortfalls of a short-term character, the Fund, in conjunction with the member concerned, will seek to establish reasonable estimates regarding the medium-term trend of the member’s exports on the basis of appropriate statistical data in conjunction with qualitative information about its export prospects.

(8) The provision of credit to deal with the balance of payments effects of export fluctuations provides immediate relief for a country’s short-term difficulties. In many cases, however, it will also be necessary to introduce measures of a policy character in order to attain a satisfactory and lasting solution to a country’s balance of payments problems. Members generally have actively cooperated with the Fund to find and adopt the measures necessary to this end. Beyond immediate balance of payments difficulties, the primary exporting countries are, in many instances, facing unfavorable long-term export trends, and all are trying to meet the challenge of achieving more rapid and sustained development through a strengthening and broadening of their economies. The last mentioned problem will require action in many fields and over many years by both the primary exporting countries and the industrial countries, separately and in concert, including readier access to the markets of the developed countries for the products of the developing countries and an appropriate and sustained flow of technical and financial assistance to the developing countries. The Fund considers that its activities can provide valuable assistance in helping to establish a climate within which longer-term measures can be more effectively pursued.

Decision No. 1477-(63/8)*

February 27, 1963

Gold Collateral Transactions

Where the Fund decides in exceptional circumstances to enter into a gold collateral transaction with a member because this would promote the purposes of the Fund and give the member the opportunity, in consultation with the Fund, to adopt policies, during the period referred to in (a) below, that would be consistent with the policies and practices of the Fund on the use of its resources:

  • (a) the period for repurchase of the Fund’s holdings of the member’s currency resulting from the transaction, to the extent that they are not otherwise reduced, shall normally not exceed six months after the transfer of exchange by the Fund;

  • (b) the repurchase shall be made with gold or convertible currencies acceptable to the Fund in accordance with its Decision of July 20, 1962;

  • (c) the provisions of the pledge agreement shall be on the lines of those set forth in the draft letter annexed to SM/63/30.

Decision No. 1543-(63/39)

July 1, 1963

Draft Letter to Member Entering into a Gold Collateral Transaction

Dear Sir:

On_____________, the Fund decided to enter into an exchange transaction with_____________________in an amount equivalent to US$______ secured by the pledge of gold as collateral, [and granted the necessary waiver under Article V, Section 4,] subject to the conditions set forth in this letter. The amount of_______, equivalent to US$________and_________, equivalent to US$____________, will be transferred to your account(s) after the steps set forth in Section B below have been taken.

Section A

1. The collateral for the transaction shall consist of gold bars containing fine gold having a value not less than $_________calculated on the basis of US$35 per troy ounce of fine gold. The fine gold content will be determined to the satisfaction of the Fund and at your expense.

2. The gold bars will be transferred by you by way of pledge at a gold depository selected by you from among the Fund’s gold depositories (Federal Reserve Bank of New York, New York; the Bank of England, London; Banque de France, Paris; the Reserve Bank of India, Nagpur, India). You will irrevocably instruct the depository in accordance with the attached exhibit that the gold is to be transferred to, earmarked, and held in a special account in the name of and for the sole account of the International Monetary Fund, that the special account shall be at the sole order of the Fund, and that the depository shall accept and act upon any and all instructions of the Fund with respect to part or all of the gold in the special account. The Fund will arrange with the depository for the establishment of the special account. The depository will not be informed that the gold is held under pledge to the Fund.

3. You will represent to the Fund that the gold is free from any claims, liens or encumbrances in favor of any other party and subject to paragraph 9 below will remain free therefrom during the pledge. You will further represent to the Fund that under your law the gold may be freely pledged and disposed of as provided in this letter.

4. The gold will continue to be owned by you. Accordingly, the Fund will enter the gold in its books in your name, and will not show the gold in its books or accounts as owned by the Fund.

5. Not later than the repurchase date, namely the close of business six months after the value date for transfer of the exchange by the Fund to your account(s), you will repurchase the Fund’s holdings of your currency resulting from the transaction, to the extent that such holdings are not otherwise reduced, with gold in the special account if you so request or with other gold or convertible currencies acceptable to the Fund in accordance with the Fund’s Decision of July 20, 1962.

6. On any reduction at any time of the Fund’s holdings of your currency resulting from the transaction otherwise than by repurchase with gold in the special account, the Fund will, on your request, release to you or to your order at the depository gold from the special account in an amount not exceeding the equivalent of the reduction, provided that the amount of gold remaining in the special account shall not be less than the equivalent of the outstanding balance of the transaction.

7. To the extent that the Fund’s holdings of your currency resulting from the transaction have not been reduced by the close of business on the repurchase date, the Fund will give you notice of the balance due and payable by way of repurchase in respect of the transaction, and you will complete such repurchase with gold in the special account if you so request or other gold or convertible currencies acceptable to the Fund in accordance with the Fund’s Decision of July 20, 1962 not later than the close of business thirty days after the repurchase date. In the absence of such repurchase by the close of business thirty days after the repurchase date, repurchase will be effected with gold in the special account on the instructions of the Fund and without the need for further notice or request to you.

8. Where repurchase is effected with gold in the special account pursuant to paragraph 5 or 7, the gold in the special account will be transferred, on the instructions of the Fund, to the ordinary gold account of the Fund at the depository, which gold shall then be deemed to have been transferred by you to the Fund and shall thereupon be owned by the Fund free from any claim, including any right of redemption. Any surplus balance of gold beyond the full amount of the repurchase will be returned to you but any balance less than one bar will be held under earmark for you pursuant to Rule I-1 of the Fund’s Rules and Regulations.

9. At any time before the repurchase date or the close of business thirty days after the repurchase date, you may, after consulting the Fund, arrange for the sale of the gold in the special account, and the Fund will be prepared to give appropriate instructions to facilitate the sale, provided that on or before the close of business thirty days after the repurchase date the Fund’s holdings of your currency resulting from the transaction will be repurchased with gold or convertible currencies acceptable to the Fund in accordance with the Fund’s Decision of July 20, 1962, and provided further that the gold will not be released from pledge before such repurchase is effected.

10. All charges and costs connected with or resulting from the transfer to the special account (including without limitation transportation, earmarking, and holding), release, and redelivery, as well as converting the gold into good delivery bars if deemed necessary by the Fund under paragraph 1 above or if the gold is transferred to the Fund’s ordinary gold account by way of repurchase will be borne by you.

Section B

The transfer of currencies pursuant to the transaction agreed by the Fund will be made by the Fund after the Fund has received from you:

  • (i) acceptance of all of the conditions of this letter; and

  • (ii) a copy of the instructions referred to in Section A 2 above; and

  • (iii) the representations referred to in Section A 3 above; and, in addition, has received from the depository:

  • (iv) confirmation that the depository has established the special account, earmarked the gold, and will act in accordance with Section A 2 above; and

  • (v) information satisfactory to the Fund as to the fine gold content of the bars.

Very truly yours,

International Monetary Fund

By:

Exchange Transactions Prior to the Establishment of Initial Par Value

(a) Where the Fund prescribes the conditions and amount of an exchange transaction by a member before the establishment of an initial par value, the member will be required to complete the payment of its subscription on the basis of a provisional rate of exchange for its currency proposed by the member and agreed by the Fund.

(b) In deciding whether to permit exchange transactions before the establishment of an initial par value, the Fund, in accordance with the last sentence of Article I, will be guided by the purposes of the Articles; the Fund will encourage members to follow policies leading to the establishment of realistic exchange rates and to the adoption at the earliest feasible date of effective par values, and will take into account the efforts that are being made to achieve this objective. However, the Fund will give the overwhelming benefit of any doubt to requests for exchange transactions within the gold tranche and members can expect that requests for drawings will be met where they are made in accordance with paragraph 5 of E.B. Decision No. 1477-(63/8), adopted February 27, 1963.

Decision No. 1687-(64/22)

April 22, 1964

Procedure for Drawings in the Gold Tranche

When a duly authenticated request to draw in the gold tranche is received from a member, the request shall be notified to the Executive Board on the day it is received, whenever possible, or on the next business day, and unless, by the close of that business day, the Managing Director decides or an Executive Director requests that the matter be placed on the Board’s agenda for discussion, the Fund shall, at the close of the first business day following the date of the receipt of the request, instruct the appropriate depository to make the transfer on the next business day after the instruction or as soon as possible thereafter.

Decision No. 1745-(64/46)

August 3, 1964

Article V, Section 7 REPURCHASE OBLIGATIONS

Repurchase and Rule G-7

Until further notice, where a member has an accrued repurchase obligation in currency under Art. V, Sec. 7 (b), and Schedule B and discharges part or all of that obligation by a sale of gold to the Fund for that currency under Art. V, Sec. 6 (a), as provided in paragraph 3 of the decision of the Executive Board at EBM 648 (3/8/51), such gold shall be purchased by the Fund without collecting the estimated costs of later possible conversion of the gold into that currency as permitted under Rule G-7 of the Rules and Regulations, it being understood that the existing requirements as to the form and delivery of such gold would remain in effect.

Decision No. 119-(52/30)

June 2, 1952

Effect of Payment of Gold Subscriptions on Repurchase Obligations

RESOLVED:

… that, for the purpose of the repurchase obligations prescribed by Article V, Section 7, increases and decreases in the monetary reserves of a member shall not be considered if they occur on or before the latest date on which the member’s subscription must be paid in accordance with this Resolution; and the payment of subscriptions, whether actually made before or after such latest date for payment, shall not be regarded as resulting in a decrease in monetary reserves.

Decision No. 124-2

January 22, 1947

Repurchase Obligations: Article V, Section 7 (c)

In the application of the repurchase obligations of the Fund Agreement the limits specified in Article V, Section 7 (c), apply solely as of the end of the financial year for which the repurchase obligations are calculated.

Decision No. 419-1

April 11, 1949

Repurchase Obligations: Article V, Section 7 (b) (i) or (ii)

Whenever a member uses its monetary reserves to repurchase its currency from the Fund in accordance with the provisions of Article V, Section 7 (b) (i) or (ii), the resulting reduction in its monetary reserves and in the Fund’s holdings of its currency must be regarded as having occurred, for the purpose of calculating subsequent repurchase obligations under the same provisions of the Fund Agreement, at the end of the financial year of the Fund in respect of which the obligation to make the repurchase arose. Members shall be informed of the foregoing.

Decision No. 447-5

June 17, 1949

Voluntary Repurchases

  • (1) Subject to paragraph 3 below, a member may offer in voluntary repurchase, and the Fund has the power to accept, if it so decides, gold or convertible currencies to the extent that (a) the Fund’s holdings of the convertible currency of a member which is offered would not be increased above 75% of the quota of that member, and (b) the Fund’s holdings of the repurchasing member’s currency would not be decreased below 75% of its quota.

  • (2) As a matter of legal interpretation it is determined that the consent of the member whose currency is offered in voluntary repurchase is not necessary as a condition precedent to the acceptance by the Fund of such currency.

  • (3) Where a member has an accrued and undischarged repurchase obligation under Art. V, Sec. 7 (b), and Schedule B in respect of any financial year of the Fund, the member must discharge the obligation in accordance with those provisions; provided, however, that the payment of currency under those provisions may be combined with the sale of gold to the Fund for the currency under Art. V, Sec. 6 (a).

Decision No. 7-(648)

March 8, 1951

Minimal Repurchase Obligations Procedure

In cases where a repurchase obligation of less than the equivalent of $500 is calculated the member will be notified, and the obligation collected, on the next occasion thereafter that a repurchase obligation accrues which, together with the first one, will total the equivalent of $500 or more.

Decision No. 705-(57/55)

November 7, 2957

Calculation of Repurchase Obligations: Prompt Reporting of Monetary Reserves Data

1. Where on any April 30 the Fund holds a member’s currency in an amount exceeding 75 per cent of the member’s quota, the member shall make a provisional monetary reserves report to the Fund not later than May 31, preferably by cable.

2. The Fund will make a provisional calculation of the amount and distribution of the repurchase obligations of such members and will inform them of the results of the calculation not later than June 15. Members shall discharge within thirty days any repurchase obligations as thus provisionally calculated and agreed with the member.

3. All provisional repurchases shall be subject to adjustment by members and the Fund in accordance with Rule 1-6 of the Fund’s Rules and Regulations.

Decision No. 1813-(65/4)

January 18, 1965

Article VI, Section 1 USE OF FUND’S RESOURCES FOR CAPITAL TRANSFERS

Interpretation of Articles of Agreement

The Executive Directors of the International Monetary Fund interpret the Articles of Agreement to mean that authority to use the resources of the Fund is limited to use in accordance with its purposes to give temporary assistance in financing balance of payments deficits on current account for monetary stabilization operations.

Pursuant to Decision No. 71-2

September 26, 1946

Use of Fund’s Resources for Capital Transfers

After full consideration of all relevant aspects concerning the use of the Fund’s resources, the Executive Directors decide by way of clarification that Decision No. 71-2 does not preclude the use of the Fund’s resources for capital transfers in accordance with the provisions of the Articles, including Article VI.

Decision No. 1238-(61/43)

July 28, 1961

Article VI, Section 3 CONTROLS ON CAPITAL TRANSFERS

The report of the Committee on Interpretation on controls on capital transfers (EBD/56/71, 7/11/56) is approved and the following conclusions are adopted:

  • Subject to the provisions of Article VI, Section 3 concerning payments for current transactions and undue delay in transfers of funds in settlement of commitments:

    • (a) Members are free to adopt a policy of regulating capital movements for any reason, due regard being paid to the general purposes of the Fund and without prejudice to the provisions of Article VI, Section 1.

    • (b) They may, for that purpose, exercise such controls as are necessary including making such arrangements as may be reasonably needed with other countries, without approval of the Fund.

Decision No. 541-(56/39)

July 25, 1956

Article VII, Section 2 GENERAL ARRANGEMENTS TO BORROW*

Preamble

In order to enable the International Monetary Fund to fulfill more effectively its role in the international monetary system in the new conditions of widespread convertibility, including greater freedom for short-term capital movements, the main industrial countries have agreed that they will, in a spirit of broad and willing cooperation, strengthen the Fund by general arrangements under which they will stand ready to lend their currencies to the Fund up to specified amounts under Article VII, Section 2 of the Articles of Agreement when supplementary resources are needed to forestall or cope with an impairment of the international monetary system in the aforesaid conditions. In order to give effect to these intentions, the following terms and conditions are adopted under Article VII, Section 2 of the Articles of Agreement.

Paragraph 1. Definitions

As used in this Decision the term:

  • (i) “Articles” means the Articles of Agreement of the International Monetary Fund;

  • (ii) “credit arrangement” means an undertaking to lend to the Fund on the terms and conditions of this Decision;

  • (iii) “participant” means a participating member or a participating institution;

  • (iv) “participating institution” means an official institution of a member that has entered into a credit arrangement with the Fund with the consent of the member;

  • (v) “participating member” means a member of the Fund that has entered into a credit arrangement with the Fund;

  • (vi) “amount of a credit arrangement” means the maximum amount expressed in units of its currency that a participant undertakes to lend to the Fund under a credit arrangement;

  • (vii) “call” means a notice by the Fund to a participant to make a transfer under its credit arrangement to the Fund’s account;

  • (viii) “borrowed currency” means currency transferred to the Fund’s account under a credit arrangement;

  • (ix) “drawer” means a member that purchases borrowed currency from the Fund in an exchange transaction or in an exchange transaction under a stand-by arrangement;

  • (x) “indebtedness” of the Fund means the amount it is committed to repay under a credit arrangement.

Paragraph 2. Credit Arrangements

A member or institution that adheres to this Decision undertakes to lend its currency to the Fund on the terms and conditions of this Decision up to the amount in units of its currency set forth in the Annex to this Decision or established in accordance with Paragraph 3 (b).

Paragraph 3. Adherence

(a) Any member or institution specified in the Annex may adhere to this Decision in accordance with Paragraph 3 (c).

(b) Any member or institution not specified in the Annex that wishes to become a participant may at any time, after consultation with the Fund, give notice of its willingness to adhere to this Decision, and, if the Fund shall so agree and no participant object, the member or institution may adhere in accordance with Paragraph 3 (c). When giving notice of its willingness to adhere under this Paragraph 3 (b) a member or institution shall specify the amount, expressed in terms of its currency, of the credit arrangement which it is willing to enter into, provided that the amount shall not be less than the equivalent at the date of adherence of one hundred million United States dollars of the weight and fineness in effect on July 1, 1944.

(c) A member or institution shall adhere to this Decision by depositing with the Fund an instrument setting forth that it has adhered in accordance with its law and has taken all steps necessary to enable it to carry out the terms and conditions of this Decision. On the deposit of the instrument the member or institution shall be a participant as of the date of the deposit or of the effective date of this Decision, whichever shall be later.

Paragraph 4. Entry into Force

This Decision shall become effective when it has been adhered to by at least seven of the members or institutions included in the Annex with credit arrangements amounting in all to not less than the equivalent of five and one-half billion United States dollars of the weight and fineness in effect on July 1, 1944.

Paragraph 5. Changes in Amounts of Credit Arrangements

The amounts of participants’ credit arrangements may be reviewed from time to time in the light of developing circumstances and changed with the agreement of the Fund and all participants.

Paragraph 6. Initial Procedure

When a participating member or a member whose institution is a participant approaches the Fund on an exchange transaction or stand-by arrangement and the Managing Director, after consultation, considers that the exchange transaction or stand-by arrangement is necessary in order to forestall or cope with an impairment of the international monetary system, and that the Fund’s resources need to be supplemented for this purpose, he shall initiate the procedure for making calls under Paragraph 7.

Paragraph 7. Calls

(a) The Managing Director shall make a proposal for calls for an exchange transaction or for future calls for exchange transactions under a stand-by arrangement only after consultation with Executive Directors and participants. A proposal shall become effective only if it is accepted by participants and the proposal is then approved by the Executive Directors. Each participant shall notify the Fund of the acceptance of a proposal involving a call under its credit arrangement.

(b) The currencies and amounts to be called under one or more of the credit arrangements shall be based on the present and prospective balance of payments and reserve positions of participating members or members whose institutions are participants and on the Fund’s holdings of currencies.

(c) Unless otherwise provided in a proposal for future calls approved under Paragraph 7 (a), purchases of borrowed currency under a stand-by arrangement shall be made in the currencies of participants in proportion to the amounts in the proposal.

(d) If a participant on which calls may be made pursuant to Paragraph 7 (a) for a drawer’s purchases under a stand-by arrangement gives notice to the Fund that in the participant’s opinion, based on the present and prospective balance of payments and reserve position, calls should no longer be made on the participant or that calls should be for a smaller amount, the Managing Director may propose to other participants that substitute amounts be made available under their credit arrangements, and this proposal shall be subject to the procedure of Paragraph 7 (a). The proposal as originally approved under Paragraph 7 (a) shall remain effective unless and until a proposal for substitute amounts is approved in accordance with Paragraph 7 (a).

(e) When the Fund makes a call pursuant to this Paragraph 7, the participant shall promptly make the transfer in accordance with the call.

Paragraph 8. Evidence of Indebtedness

(a) The Fund shall issue to a participant, on its request, nonnegotiable instruments evidencing the Fund’s indebtedness to the participant. The form of the instruments shall be agreed between the Fund and the participant.

(b) Upon repayment of the amount of any instrument issued under Paragraph 8 (a) and all accrued interest, the instrument shall be returned to the Fund for cancellation. If less than the amount of any such instrument is repaid, the instrument shall be returned to the Fund and a new instrument for the remainder of the amount shall be substituted with the same maturity date as in the old instrument.

Paragraph 9. Interest and Charges

(a) The Fund shall pay a charge of one-half of one per cent on transfers made in accordance with Paragraph 7 (e).

(b) The Fund shall pay interest on its indebtedness at the rate of one and one-half per cent per annum. In the event that this becomes different from a basic rate determined as follows:

the charge levied by the Fund pursuant to Article V, Section 8 (a) plus the charge levied by the Fund pursuant to Article V, Section 8 (c) (i), as changed from time to time under Article V, Section 8 (e), during the first year after a purchase of exchange from the Fund, minus one-half of one per cent,

the interest payable by the Fund shall be changed by the same amount as from the date when the difference in the basic rate takes effect. Interest shall be paid as soon as possible after July 31, October 31, January 31, and April 30.

(c) Interest and charges shall be paid in gold to the extent that this can be effected in bars. Any balance not so paid shall be paid in United States dollars.

(d) Gold payable to a participant in accordance with Paragraph 9 (b) or Paragraph 11 shall be delivered at any gold depository of the Fund chosen by the participant at which the Fund has sufficient gold for making the payment. Such delivery shall be free of any charges or costs for the participant.

Paragraph 10. Use of Borrowed Currency

The Fund’s policies and practices on the use of its resources and stand-by arrangements, including those relating to the period of use, shall apply to purchases of currency borrowed by the Fund.

Paragraph 11. Repayment by the Fund

(a) Subject to the other provisions of this Paragraph 11, the Fund, five years after a transfer by a participant, shall repay the participant an amount equivalent to the transfer calculated in accordance with Paragraph 12. If the drawer for whose purchase participants make transfers is committed to repurchase at a fixed date earlier than five years after its purchase, the Fund shall repay the participants at that date. Repayment under this Paragraph 11 (a) or under Paragraph 11 (c) shall be, as determined by the Fund, in the participant’s currency whenever feasible, or in gold, or, after consultation with the participant, in other currencies that are convertible in fact. Repayments to a participant under the subsequent provisions of this Paragraph 11 shall be credited against transfers by the participant for a drawer’s purchases in the order in which repayment must be made under this Paragraph 11 (a).

(b) Before the date prescribed in Paragraph 11 (a), the Fund, after consultation with a participant, may make repayment to the participant, in part or in full, with any increases in the Fund’s holdings of the participant’s currency that exceed the Fund’s working requirements, and participants shall accept such repayment.

(c) Whenever a drawer repurchases, the Fund shall promptly repay an equivalent amount, except in any of the following cases:

  • (i) The repurchase is under Article V, Section 7 (b) and can be identified as being in respect of a purchase of currency other than borrowed currency.

  • (ii) The repurchase is in discharge of a commitment entered into on a purchase of currency other than borrowed currency.

  • (iii) The repurchase entitles the drawer to augmented rights under a stand-by arrangement pursuant to Section II of Decision No. 876-(59/15) of the Executive Directors, provided that, to the extent that the drawer does not exercise such augmented rights, the Fund shall promptly repay an equivalent amount on the expiration of the stand-by arrangement.

(d) Whenever the Fund decides in agreement with a drawer that the problem for which the drawer made its purchases has been overcome, the drawer shall complete repurchase, and the Fund shall complete repayment and be entitled to use its holdings of the drawer’s currency below 75 per cent of the drawer’s quota in order to complete such repayment.

(e) Repayment under Paragraph 11 (c) and (d) shall be made in the order established under Paragraph 11 (a) and in proportion to the Fund’s indebtedness to the participants that made transfers in respect of which repayment is being made.

(f) Before the date prescribed in Paragraph 11 (a) a participant may give notice representing that there is a balance of payments need for repayment of part or all of the Fund’s indebtedness and requesting such repayment. The Fund shall give the overwhelming benefit of any doubt to the participant’s representation. Repayment shall be made after consultation with the participant in the currencies of other members that are convertible in fact, or made in gold, as determined by the Fund. If the Fund’s holdings of currencies in which repayment should be made are not wholly adequate, individual participants shall be requested, and will be expected, to provide the necessary balance under their credit arrangements. If notwithstanding the expectation that the participants will provide the necessary balance, they fail to do so, repayment shall be made to the extent necessary in the currency of the drawer for whose purchases the participant requesting repayment made transfers. For all of the purposes of this Paragraph 11, transfers under this Paragraph 11 (f) shall be deemed to have been made at the same time and for the same purchases as the transfers by the participant obtaining repayment under this Paragraph 11 (f).

(g) All repayments to a participant in a currency other than its own shall be guided, to the maximum extent practicable, by the present and prospective balance of payments and reserve positions of the members whose currencies are to be used in repayment.

(h) The Fund shall at no time reduce its holdings of a drawer’s currency below an amount equal to the Fund’s indebtedness to the participants resulting from transfers for the drawer’s purchases.

(i) When any repayment is made to a participant, the amount that can be called for under its credit arrangement in accordance with this Decision shall be restored pro tanto but not beyond the amount of the credit arrangement.

Paragraph 12. Rates of Exchange

(a) The value of any transfer shall be calculated as of the date of the transfer in terms of a stated number of fine ounces of gold or of the United States dollar of the weight and fineness in effect on July 1, 1944, and the Fund shall be obliged to repay an equivalent value.

(b) For all of the purposes of this Decision, the equivalent in currency of any number of fine ounces of gold or of the United States dollar of the weight and fineness in effect on July 1, 1944, or vice versa, shall be calculated at the rate of exchange at which the Fund holds such currency at the date as of which the calculation is made; provided however that the provisions of Decision No. 321-(54/32) of the Executive Directors on Transactions and Computations Involving Fluctuating Currencies, as amended by Decision No. 1245-(61/45) and Decision No. 1283-(61/56), shall determine the rate of exchange for any currency to which that decision, as amended, has been applied.

Paragraph 13. Transferability

A participant may not transfer all or part of its claim to repayment under a credit arrangement except with the prior consent of the Fund and on such terms and conditions as the Fund may approve.

Paragraph 14. Notices

Notice to or by a participating member under this Decision shall be in writing or by cable and shall be given to or by the fiscal agency of the participating member designated in accordance with Article V, Section 1 of the Articles and Rule G-l of the Rules and Regulations of the Fund. Notice to or by a participating institution shall be in writing or by cable and shall be given to or by the participating institution.

Paragraph 15. Amendment

This Decision may be amended during the period prescribed in Paragraph 19 (a) only by a decision of the Fund and with the concurrence of all participants. Such concurrence shall not be necessary for the modification of the Decision on its renewal pursuant to Paragraph 19 (b).

Paragraph 16. Withdrawal of Adherence

A participant may withdraw its adherence to this Decision in accordance with Paragraph 19 (b) but may not withdraw within the period prescribed in Paragraph 19 (a) except with the agreement of the Fund and all participants.

Paragraph 17. Withdrawal from Membership

If a participating member or a member whose institution is a participant withdraws from membership in the Fund, the participant’s credit arrangement shall cease at the same time as the withdrawal takes effect. The Fund’s indebtedness under the credit arrangement shall be treated as an amount due from the Fund for the purpose of Article XV, Section 3, and Schedule D of the Articles.

Paragraph 18. Suspension of Exchange Transactions and Liquidation

(a) The right of the Fund to make calls under Paragraph 7 and the obligation to make repayments under Paragraph 11 shall be suspended during any suspension of exchange transactions under Article XVI of the Articles.

(b) In the event of liquidation of the Fund, credit arrangements shall cease and the Fund’s indebtedness shall constitute liabilities under Schedule E of the Articles. For the purpose of Paragraph 1 (a) of Schedule E, the currency in which the liability of the Fund shall be payable shall be first the participant’s currency and then the currency of the drawer for whose purchases transfers were made by the participant.

Paragraph 19. Period and Renewal

(a) This Decision shall continue in existence for four years from its effective date.

(b) This Decision may be renewed for such period or periods and with such modifications, subject to Paragraph 5, as the Fund may decide. The Fund shall adopt a decision on renewal and modification, if any, not later than twelve months before the end of the period prescribed in Paragraph 19 (a). Any participant may advise the Fund not less than six months before the end of the period prescribed in Paragraph 19 (a) that it will withdraw its adherence to the Decision as renewed. In the absence of such notice, a participant shall be deemed to continue to adhere to the Decision as renewed. Withdrawal of adherence in accordance with this Paragraph 19 (b) by a participant, whether or not included in the Annex, shall not preclude its subsequent adherence in accordance with Paragraph 3 (b).

(c) If this Decision is terminated or not renewed, Paragraphs 8 through 14, 17 and 18 (b) shall nevertheless continue to apply in connection with any indebtedness of the Fund under credit arrangements in existence at the date of the termination or expiration of the Decision until repayment is completed. If a participant withdraws its adherence to this Decision in accordance with Paragraph 16 or Paragraph 19 (b), it shall cease to be a participant under the Decision, but Paragraphs 8 through 14, 17 and 18 (b) of the Decision as of the date of the withdrawal shall nevertheless continue to apply to any indebtedness of the Fund under the former credit arrangement until repayment has been completed.

Paragraph 20. Interpretation

Any question of interpretation raised in connection with this Decision which does not fall within the purview of Article XVIII of the Articles shall be settled to the mutual satisfaction of the Fund, the participant raising the question, and all other participants. For the purpose of this Paragraph 20 participants shall be deemed to include those former participants to which Paragraphs 8 through 14, 17 and 18 (b) continue to apply pursuant to Paragraph 19 (c) to the extent that any such former participant is affected by a question of interpretation that is raised.

ANNEX Participants and Amounts of Credit Arrangements
Units of

Participant’s

Currency
1. United States of AmericaUS$2,000,000,000
2. Deutsche BundesbankDM4,000,000,000
3. United Kingdom£357,142,857
4. FranceNF2,715,381,428
5. ItalyLit343,750,000,000
6. JapanYen90,000,000,000
7. CanadaCan$216,216,000
8. Netherlandsf.724,000,000
9. BelgiumBF7,500,000,000
10. Sveriges RiksbankSKr517,320,000

Decision No. 1289-(62/1)*

January 5, 1962

Letter from Mr. Baumgartner, Minister of Finance, France, to Mr. Dillon, Secretary of the Treasury, United States

December 15, 1961

Dear Mr. Secretary:

The purpose of this letter is to set forth the understandings reached during the recent discussions in Paris with respect to the procedure to be followed by the Participating Countries and Institutions (hereinafter referred to as “the participants”) in connection with borrowings by the International Monetary Fund of Supplementary Resources under credit arrangements which we expect will be established pursuant to a decision of the Executive Directors of the Fund.

This procedure, which would apply after the entry into force of that decision with respect to the participants which adhere to it in accordance with their laws, and which would remain in effect during the period of the decision, is as follows:

A. A participating country which has need to draw currencies from the International Monetary Fund or to seek a stand-by agreement with the Fund in circumstances indicating that the Supplementary Resources might be used, shall consult with the Managing Director of the Fund first and then with the other participants.

B. If the Managing Director makes a proposal for Supplementary Resources to be lent to the Fund, the participants shall consult on this proposal and inform the Managing Director of the amounts of their currencies which they consider appropriate to lend to the Fund, taking into account the recommendations of the Managing Director and their present and prospective balance of payments and reserve positions. The participants shall aim at reaching unanimous agreement.

C. If it is not possible to reach unanimous agreement, the question whether the participants are prepared to facilitate, by lending their currencies, an exchange transaction or stand-by arrangement of the kind covered by the special borrowing arrangements and requiring the Fund’s resources to be supplemented in the general order of magnitude proposed by the Managing Director, will be decided by a poll of the participants.

The prospective drawer will not be entitled to vote. A favorable decision shall require the following majorities of the participants which take part in the vote, it being understood that abstentions may be justified only for balance of payments reasons as stated in paragraph D:

  • (1) a two-thirds majority of the number of participants voting; and

  • (2) a three-fifths majority of the weighted votes of the participants voting, weighted on the basis of the commitments to the Supplementary Resources.

D. If the decision in paragraph C is favorable, there shall be further consultations among the participants, and with the Managing Director, concerning the amounts of the currencies of the respective participants which will be loaned to the Fund in order to attain a total in the general order of magnitude agreed under paragraph C. If during the consultations a participant gives notice that in its opinion, based on its present and prospective balance of payments and reserve position, calls should not be made on it, or that calls should be for a smaller amount that that proposed, the participants shall consult among themselves and with the Managing Director as to the additional amounts of their currencies which they could provide so as to reach the general order of magnitude agreed under paragraph C.

E. When agreement is reached under paragraph D, each participant shall inform the Managing Director of the calls which it is prepared to meet under its credit arrangement with the Fund.

F. If a participant which has loaned its currency to the Fund under its credit arrangement with the Fund subsequently requests a reversal of its loan which leads to further loans to the Fund by other participants, the participant seeking such reversal shall consult with the Managing Director and with the other participants.

For the purpose of the consultative procedures described above, participants will designate representatives who shall be empowered to act with respect to proposals for use of the Supplementary Resources.

It is understood that in the event of any proposals for calls under the credit arrangements or if other matters should arise under the Fund decision requiring consultations among the participants, a consultative meeting will be held among all the participants. The representative of France shall be responsible for calling the first meeting, and at that time the participants will determine who shall be the Chairman. The Managing Director of the Fund or his representative shall be invited to participate in these consultative meetings.

It is understood that in order to further the consultations envisaged, participants should, to the fullest extent practicable, use the facilities of the international organizations to which they belong in keeping each other informed of the developments in their balances of payments that could give rise to the use of the Supplementary Resources.

These consultative arrangements, undertaken in a spirit of international cooperation, are designed to insure the stability of the international payments system.

I shall appreciate a reply confirming that the foregoing represents the understandings which have been reached with respect to the procedure to be followed in connection with borrowings by the International Monetary Fund under the credit arrangements to which I have referred.

I am sending identical letters to the other participants—that is, Belgium, Canada, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom. Attached is a verbatim text of this letter in English. The French and English texts and the replies of the participants in both languages shall be equally authentic. I shall notify all of the participants of the confirmations received in response to this letter.

General Arrangements to Borrow: Association of Switzerland*

The understandings set forth in the letter which the Swiss Ambassador to the United States proposes to send to the Managing Director (EBD/64/73, Attachment I) are acceptable to the Fund and the Managing Director is authorized to send the letter attached to EBD/64/73 (Attachment II).

Decision No. 1712-(64/29)

June 8, 1964

* Exchange of letters between the Ambassador of Switzerland to the United States and the Managing Director of the Fund

June 11, 1964

The Managing Director

International Monetary Fund

19th and H Streets, N.W.

Washington, D.C. 20431

Sir:

I have the honor to refer to Mr. Jacobsson’s letter of December 14, 1961 to the President of the Swiss Confederation and to conversations between representatives of the Swiss Confederation and the International Monetary Fund (hereinafter referred to as “the Fund”) concerning the way in which the Swiss Confederation could be associated with the Fund’s General Arrangements to Borrow, and thus contribute to the objectives of those Arrangements. The General Arrangements to Borrow (hereinafter referred to as “the General Arrangements”) are those set forth in Decision No. 1289-(62/1) of January 5, 1962, of the Fund’s Executive Directors, as amended by Decision No. 1362-(62/32) of July 9, 1962 and Decision No. 1415-(62/47) adopted on September 19, 1962.

In the light of the views that have been exchanged, the Swiss Federal Council, on behalf of the Swiss Confederation, is prepared to be associated with the General Arrangements as follows:

(1) The Swiss Confederation is prepared to make resources available to participants in the General Arrangements in accordance with this letter and in amounts not exceeding an outstanding total equivalent to 865,000,000 Swiss francs.

(2) The Swiss Confederation will be prepared to consider the conclusion of agreements (hereinafter referred to as “implementing agreements”) with any of the participants in the General Arrangements if requested by such participants. The implementing agreements will prescribe the terms and conditions in accordance with which the Swiss Confederation will make resources available to the participant or the Swiss Confederation and the participant will make resources available to each other, which shall be on the basis of reciprocal terms if required. Immediately on the conclusion of an implementing agreement, or of any amendment of an implementing agreement, the Swiss Confederation will provide the Managing Director with a copy thereof.

(3) Whenever the Managing Director of the Fund initiates the procedure and makes a proposal for calls pursuant to Paragraphs 6 and 7 of the General Arrangements for the benefit of a participant that has entered into or enters into an implementing agreement, he may propose to the Swiss Confederation, after consultation with the Swiss Confederation, that it shall make a specified amount of resources available to the participant, which amount shall be in accordance with the implementing agreement with that participant. If the proposal for calls becomes effective under Paragraph 7 of the General Arrangements, the Swiss Confederation will make the specified amount of resources available to the said participant in accordance with this letter and with the terms and conditions of the implementing agreement. If, however, the Swiss Confederation gives notice to the Managing Director that in its opinion, based on its present and prospective balance of payments and reserve position, it should not make resources available in accordance with this proposal, or should make available a smaller amount than that proposed, the Swiss Confederation will not be obliged to make any such resources available or more resources than it represents to the Managing Director that it should make available.

(4) If the Swiss Confederation makes resources available to a participant otherwise than in accordance with the procedure of paragraph (3), the Swiss Confederation, after consultation with the Managing Director, may deem such resources to be or to have been made available pursuant to this letter, provided that at the date of such deeming Switzerland has entered into an implementing agreement with that participant, that at the date of such deeming a proposal for calls for the benefit of that participant is in effect under Paragraph 7 of the General Arrangements and provided that the terms and conditions for repayment to Switzerland accord or are made to accord with paragraph (5).

(5) The effect of the terms and conditions for the timing of repayment of resources made available by Switzerland pursuant to this letter will correspond, to the maximum extent practicable, with the repayment provisions of Paragraph 11 of the General Arrangements.

(6) The Fund may, at the request of a party to an implementing agreement, make any determination, or use its good offices, to facilitate the operation of an implementing agreement, subject, however, to paragraph (9).

(7) Whenever the Swiss Confederation makes resources available pursuant to paragraph (3) or deems resources to be or to have been made available pursuant to paragraph (4), the Swiss Confederation will inform the Managing Director of the amount in terms of Swiss francs thus made available. The Swiss Confederation will inform the Managing Director of the amount in terms of Swiss francs of the repayment of any resources made available pursuant to paragraph (3) or (4).

(8) The Swiss Confederation and the Fund will provide each other with the general information necessary to facilitate the operation of this letter and implementing agreements.

(9) The Fund does not accept any responsibility or liability, whether as guarantor or otherwise, in connection with this letter or with respect to the performance of the terms and conditions of an implementing agreement.

(10) This letter will remain effective for four years from October 24, 1962, provided that the Swiss Confederation may rescind this letter, with immediate effect, within one month after an amendment of the General Arrangements becomes effective pursuant to Paragraph 15 of the General Arrangements. This letter may be amended or rescinded at any time if the Swiss Confederation and the Fund shall so agree.

(11) Any question of interpretation or application of these understandings will be settled to the mutual satisfaction of the Swiss Confederation and the Fund.

(12) For the purposes of this letter, references to participants shall be deemed to include the official institution of a participant with which an implementing agreement is made, even though such institution is not a “participating institution” under the General Arrangements.

(13) All communications by or to the Swiss Confederation pursuant to this letter shall be made by or to the Swiss National Bank.

I propose that, if this letter is approved by the International Monetary Fund, this letter and your reply constitute an agreement between the Swiss Federal Council and the International Monetary Fund, which shall enter into force on the date of your reply. I hereby declare that the Swiss Confederation has taken all steps necessary to implement the exchange of letters.

Accept, Sir, the assurances of my highest consideration.

/s/

A. Zehnder

Ambassador of Switzerland

June 11, 1964

Sir:

I am pleased to acknowledge receipt of your letter of June 11, 1964.

I have been authorized to inform you that the understandings set forth in your letter are accepted by the International Monetary Fund. Accordingly, your letter and this reply constitute an agreement between the International Monetary Fund and the Swiss Federal Council, which will enter into force on the date of this reply.

Accept, Sir, the assurances of my highest consideration.

Very truly yours,

/s/

Pierre-Paul Schweitzer

Managing Director

His Excellency

Alfred Zehnder

Ambassador of Switzerland

2900 Cathedral Avenue, N.W.

Washington, D.C. 20008

Article VIII, Section 2 (b) UNENFORCEABILITY OF EXCHANGE CONTRACTS

Unenforceability of Exchange Contracts: Fund’s Interpretation of Article VIII, Section 2 (b)

The following letter shall be sent to all members:

The Board of Executive Directors of the International Monetary Fund has interpreted, under Article XVIII of the Articles of Agreement, the first sentence of Article VIII, Section 2 (b), which provision reads as follows:

  • Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member.

  • The meaning and effect of this provision are as follows:

    • 1. Parties entering into exchange contracts involving the currency of any member of the Fund and contrary to exchange control regulations of that member which are maintained or imposed consistently with the Fund Agreement will not receive the assistance of the judicial or administrative authorities of other members in obtaining the performance of such contracts. That is to say, the obligations of such contracts will not be implemented by the judicial or administrative authorities of member countries, for example by decreeing performance of the contracts or by awarding damages for their non-performance.

    • 2. By accepting the Fund Agreement members have undertaken to make the principle mentioned above effectively part of their national law. This applied to all members, whether or not they have availed themselves of the transitional arrangements of Article XIV, Section 2.

An obvious result of the foregoing undertaking is that if a party to an exchange contract of the kind referred to in Article VIII, Section 2 (b) seeks to enforce such a contract, the tribunal of the member country before which the proceedings are brought will not, on the ground that they are contrary to the public policy (ordre public) of the forum, refuse recognition of the exchange control regulations of the other member which are maintained or imposed consistently with the Fund Agreemert. It also follows that such contracts will be treated as unenforceable notwithstanding that under the private international law of the forum, the law under which the foreign exchange control regulations are maintained or imposed is not the law which governs the exchange contract or its performance.

The Fund will be pleased to lend its assistance in connection with any problem which may arise in relation to the foregoing interpretation or any other aspect of Article VIII, Section 2 (b). In addition, the Fund is prepared to advise whether particular exchange control regulations are maintained or imposed consistently with the Fund Agreement.

Decision No. 446-4

June 10, 1949

Article VIII and Article XIV PAYMENTS RESTRICTIONS

Payments Restrictions for Security Reasons: Fund Jurisdiction

Art. VIII, Sec. 2 (a), in conformity with its language, applies to all restrictions on current payments and transfers, irrespective of their motivation and the circumstances in which they are imposed. Sometimes members impose such restrictions solely for the preservation of national or international security. The Fund does not, however, provide a suitable forum for discussion of the political and military considerations leading to actions of this kind. In view of the fact that it is not possible to draw a precise line between cases involving only considerations of this nature and cases involving, in whole or in part, economic motivations and effects for which the Fund does provide the appropriate forum for discussion, and the further fact that the Fund must exercise the jurisdiction conferred by the Fund Agreement in order to perform its duties and protect the legitimate interests of its members, the following policy decision is taken:

1. A member intending to impose restrictions on payments and transfers for current international transactions that are not authorized by Art. VII, Sec. 3 (b) or Art. XIV, Sec. 2 of the Fund Agreement and that, in the judgment of the member, are solely related to the preservation of national or international security, should, whenever possible, notify the Fund before imposing such restrictions. Any member may obtain a decision of the Fund prior to the imposition of such restrictions by so indicating in its notice, and the Fund will act promptly on its request. If any member intending to impose such restrictions finds that circumstances preclude advance notice to the Fund, it should notify the Fund as promptly as circumstances permit, but ordinarily not later than 30 days after imposing such restrictions. Each notice received in accordance with this decision will be circulated immediately to the Executive Directors. Unless the Fund informs the member within 30 days after receiving notice from the member that it is not satisfied that such restrictions are proposed solely to preserve such security, the member may assume that the Fund has no objection to the imposition of the restrictions.

2. The Fund will review the operation of this decision periodically and reserves the right to modify or revoke, at any time, the decision or the effect of the decision on any restrictions that may have been imposed pursuant to it.

Decision No. 144-(52/51)

August 14, 1952

Bilateralism and Convertibility

1. This decision records the Fund’s views on the use of bilateral arrangements.

2. Fund policies and attitude on bilateral arrangements which involve the use of exchange restrictions and represent limitations on a multilateral system of payments are an integral part of its policy on restrictions. This policy aims at the elimination of foreign exchange restrictions and the earliest possible establishment of a multilateral system of payments in respect of current transactions between members. The Fund’s policies and procedures on such restrictions rest on Articles I, VIII and XIV of the Fund Agreement.

3. Certain members have already taken steps to reduce their dependence on bilateral arrangements, but many members still use them. The Fund welcomes the reduced reliance on these arrangements and believes that the improvement in the international payments situation makes it less necessary for members to rely on such arrangements. The Fund urges the full collaboration of all its members to reduce and to eliminate as rapidly as practicable reliance on bilateralism. In this respect the Fund recommends close cooperation of those who plan to make their currencies convertible in the near future. Unless this policy is energetically pursued by all countries, both convertible and inconvertible, there is serious risk that widespread restrictions, particularly of a discriminatory character, will persist. Moreover, the persistence of bilateralism may impede the attainment and maintenance of convertibility. This whole problem is one not only for countries which maintain bilateral arrangements but also for other countries whose domestic and foreign economic policies may adversely affect the balance of payments of other members.

4. The Fund will have discussions with its members on their need to retain existing bilateral arrangements or their ability to facilitate the reduction of bilateral arrangements by other countries. During the coming year, the Fund will explore with all countries which are parties to bilateral arrangements which involve the use of exchange restrictions the need for the continuation of these arrangements, the possibilities of their early removal, and ways and means, including the use of the Fund’s resources, by which the Fund can assist in this process. In its examination of the justification for reliance on such bilateral arrangements the Fund will, without excluding other considerations, have particular regard to the payments position and prospects of the members concerned.

Decision No. 433-(55/42)

June 22, 1955

Retention Quotas: Decision and Letter of Transmittal

In concluding consultations on restrictions on current payments and transfers as required under Article XIV of the Fund Agreement, the Fund postponed consideration of retention quotas and similar practices through which some members have sought to improve their earnings of specific currencies. The Fund has now examined these practices more fully than was possible at the consultations referred to above. The Fund has extended this examination to cover the terms of reference of the resolution adopted on September 9, 1952, by the Board of Governors and has come to the following conclusions:

  • 1. Members should work toward and achieve as soon as feasible the removal of these retention quotas and similar practices, particularly where they lead to abnormal shifts in trade which cause unnecessary damage to other countries. Members should endeavor to replace these practices by more appropriate measures leading to currency convertibility.

  • 2. The Fund will enter into consultation with each of the members concerned with a view to agreeing on a program for the implementation of 1 above, including appropriate attention to timing of any action which may be decided upon.

  • 3. The Fund does not object to those practices which, by their nature, can be regarded as devices designed solely to simplify the administration of official exchange allocations.

The Managing Director is asked to send the following letter to all members in transmitting the foregoing decision on retention quotas and similar practices:

  • The Fund has made a detailed study concerning retention quotas and other similar practices pursuant to the resolution passed at the Seventh Session of the Board of Governors in Mexico in September 1952. I am pleased to transmit herewith a decision of the Executive Board of the Fund based on this study.

  • The Fund has concluded that these practices stem from widespread difficulties presently existing in the international payments position of many countries. The Fund’s consideration of this subject has shown that what is referred to as “retention quotas and similar practices” covers a wide range of exchange measures. Certain practices under this heading may be unobjectionable from the point of view of Fund policies. Other practices in this category, however, appear to result in adverse effects on exchange stability and to cause unnecessary damage to member countries. They also may lead to the adoption of retaliatory measures. The interest of the Fund in these matters clearly follows from the terms of Article VIII containing the general obligations of members with respect to the avoidance of exchange restrictions, discriminatory currency arrangements and multiple currency practices, and Article XIV dealing with these exchange measures during the transitional period.

  • In dealing with retention quotas and similar practices, the Board has not intended to change existing Fund standards and procedures with respect to exchange restrictions, discriminatory currency arrangements and multiple currency practices. Specifically, there was no intention to affect the existing requirements of prior consultation and approval with respect to measures of this character. Those requirements, so far as they concern multiple currency practices, were communicated to members in the Fund’s letter of December 19, 1947 (Appendix II of the Fund’s Annual Report of 1948). Accordingly, it is expected that members intending to maintain, introduce or enlarge those retention quotas and similar practices which constitute exchange restrictions, multiple currency practices or discriminatory currency arrangements will act in accordance with existing Fund requirements.

  • The decision recognizes that it is not practicable to deal with all of these practices on a general basis. The Fund, therefore, wishes to deal with these arrangements on a case-to-case basis. We shall communicate as quickly as practicable with members using these practices. We are confident that members will cooperate in these individual discussions in order to enable the Fund to reach appropriate conclusions.

Decision No. 201-(53/29)

May 4, 1953

Discrimination for Balance of Payments Reasons

The following decision deals exclusively with discriminatory restrictions imposed for balance of payments reasons.

In some countries, considerable progress has already been made towards the elimination of discriminatory restrictions; in others, much remains to be done. Recent international financial developments have established an environment favorable to the elimination of discrimination for balance of payments reasons. There has been a substantial improvement in the reserve positions of the industrial countries in particular and widespread moves to external convertibility have taken place.

Under these circumstances, the Fund considers that there is no longer any balance of payments justification for discrimination by members whose current receipts are largely in externally convertible currencies. However, the Fund recognizes that where such discriminatory restrictions have been long maintained, a reasonable amount of time may be needed fully to eliminate them. But this time should be short and members will be expected to proceed with all feasible speed in eliminating discrimination against member countries, including that arising from bilateralism.

Notwithstanding the extensive moves toward convertibility, a substantial portion of the current receipts of some countries is still subject to limitations on convertibility, particularly in payments relations with state-trading countries. In the case of these countries the Fund will be prepared to consider whether balance of payments considerations would justify the maintenance of some degree of discrimination, although not as between countries having externally convertible currencies. In this connection the Fund wishes to reaffirm its basic policy on bilateralism as stated in its decision of June 22, 1955.

Decision No. 955-(59/45)

October 23, 1959

Article VIII and Article XIV

There has been in recent years a substantial improvement in the balance of payments and the reserve positions of a number of Fund members which has led to important and widespread moves to the external convertibility of many currencies. Most international transactions are now carried on with convertible currencies, and many countries have progressed far with the removal of restrictions on payments. In consequence of these developments, it seems likely that a number of members of the Fund either have reached or are nearing a position in which they can consider the feasibility of formally accepting the obligations of Article VIII, Sections 2, 3, and 4. Previous decisions taken by the Fund, such as those on multiple currency practices, bilateral arrangements, discriminatory restrictions maintained for balance of payments purposes, and payments restrictions for security reasons, indicate the Fund’s attitude on these matters. The present decision has been adopted as an additional guide to members in pursuance of the purposes of the Fund as set forth in Article I of the Articles of Agreement.

1. Article VIII provides in Sections 2 and 3 that members shall not impose or engage in certain measures, namely restrictions on the making of payments and transfers for current international transactions, discriminatory currency arrangements, or multiple currency practices, without the approval of the Fund. The guiding principle in ascertaining whether a measure is a restriction on payments and transfers for current transactions under Article VIII, Section 2, is whether it involves a direct governmental limitation on the availability or use of exchange as such. Members in doubt as to whether any of their measures do or do not fall under Article VIII may wish to consult the Fund thereon.

2. In accordance with Article XIV, Section 3, members may at any time notify the Fund that they accept the obligations of Article VIII, Sections 2, 3, and 4, and no longer avail themselves of the transitional provisions of Article XIV. Before members give notice that they are accepting the obligations of Article VIII, Sections 2, 3, and 4, it would be desirable that, as far as possible, they eliminate measures which would require the approval of the Fund, and that they satisfy themselves that they are not likely to need recourse to such measures in the foreseeable future. If members, for balance of payments reasons, propose to maintain or introduce measures which require approval under Article VIII, the Fund will grant approval only where it is satisfied that the measures are necessary and that their use will be temporary while the member is seeking to eliminate the need for them. As regards measures requiring approval under Article VIII and maintained or introduced for nonbalance of payments reasons, the Fund believes that the use of exchange systems for nonbalance of payments reasons should be avoided to the greatest possible extent, and is prepared to consider with members the ways and means of achieving the elimination of such measures as soon as possible. Members having measures needing approval under Article VIII should find it useful to consult with the Fund before accepting the obligations of Article VIII, Sections 2, 3, and 4.

3. If members at any time maintain measures which are subject to Sections 2 and 3 of Article VIII, they shall consult with the Fund with respect to the further maintenance of such measures. Consultations with the Fund under Article VIII are not otherwise required or mandatory. However, the Fund is able to provide technical facilities and advice, and to this end, or as a means of exchanging views on monetary and financial developments, there is great merit in periodic discussions between the Fund and its members even though no questions arise involving action under Article VIII. Such discussions would be planned between the Fund and the member, including agreement on place and timing, and would ordinarily take place at intervals of about one year.

4. Fund members which are contracting parties to the GATT and which impose import restrictions for balance of payments reasons will facilitate the work of the Fund by continuing to send information concerning such restrictions to the Fund. This will enable the Fund and the member to join in an examination of the balance of payments situation in order to assist the Fund in its collaboration with the GATT. The Fund, by agreement with members which are not contracting parties to the GATT and which impose import restrictions for balance of payments reasons, will seek to obtain information relating to such restrictions.

Decision No. 1034-(6Q/27)

June 1, 1960

MULTIPLE CURRENCY PRACTICES

Statement to Members Transmitting Fund’s Decisions on Multiple Currency Practices

The letter to members concerning multiple currency practices and the accompanying statement of the Fund’s decisions with respect to such practices are agreed as revised (Executive Board Document No. 235, Revision 2) and shall be sent without delay to all members. The texts of earlier decisions on the same subject are modified as necessary to correspond with the agreed statement.

Decision No. 237-2

December 18, 1947

Letter to Members

December 19, 1947

To All Members:

During the past several months the Fund has been giving special consideration to multiple currency practices. I am writing to all of the members today in order to acquaint them with the results of our considerations. Enclosed is a memorandum containing the pertinent decisions taken by the Executive Board. These set forth the general lines of the Fund’s policies toward multiple currency practices which the Fund has adopted to date, together with the obligations of the members and the jurisdiction of the Fund upon which the development of Fund policy will necessarily be based.

We intend, as rapidly as may be possible under the circumstances, to discuss with each member now engaging in a multiple currency practice how this general policy will be applied to its individual problems. In the meantime, all of the members are requested to be guided by the enclosed memorandum and to initiate with the Fund discussions of any pressing problems which may arise.

Sincerely yours,

/s/

Gutt

Managing Director

Multiple Currency Practices

This memorandum contains the decisions the Fund has so far taken concerning its policies toward multiple currency practices, and clarification of its jurisdiction with respect to such practices.

The exchange systems of the members who engage in multiple currency practices are frequently complex. For this reason various difficulties will be involved in the modification and removal of the practices, and the policy of the Fund in this regard must develop progressively as its consultations with the members concerned reveal problems which might otherwise be overlooked. The policies set forth below have been agreed as a basis for the initiation of discussions with the members affected:

I. Policies

A. General

  • 1. Consultation. There should be continuing consultation on multiple currency practices between the Fund and the members concerned. Members should, as a minimum, consult the Fund before introducing a multiple currency practice, before making a change in any of the multiple rates of exchange, before reclassifying transactions subject to different rates, and before making any other type of significant change in their exchange systems.

  • 2. Stability and Restrictions. In most cases multiple currency practices are both systems of exchange rates and restrictions on payments and transfers for current international transactions. Whenever it is inconvenient to deal with both aspects of such multiple currency practice simultaneously, priority should be given to those features which affect exchange stability and orderly exchange arrangements among members.

  • 3. Removal. Early steps should be taken toward the removal of multiple currency practices which are clearly not necessary for balance of payments reasons. In such cases, ample time should be provided for members to take the necessary steps and to install appropriate substitutes where necessary.

  • The Fund will encourage members engaging in multiple currency practices for balance of payments reasons to establish as soon as possible conditions which would permit their removal, with the general objective of seeking removal not later than the end of the transitional period.

  • Where complete removal by the end of the transitional period proves impossible, the Fund will assist the members concerned to eliminate the most dangerous aspects of their multiple currency practices and to exercise reasonable control over those retained.

B. Specific Practices

1. Fixed Exchange Rates. When a multiple currency system includes fixed exchange rates, members should consult with the Fund on any changes in their practices, whether such changes concern the rates of exchange or the classification of transactions subject to particular practices. Should the step contemplated by a member be a part of a program made in agreement with the Fund, the member could, of course, act without prior consultation.

When a multiple rate system is used for restrictions on current and capital transactions, the elimination of the restriction on current transactions would be highly commendable even though restrictions on capital transactions might have to be retained.

2. Taxes on Exchange Drafts. The use by members of taxes on exchange drafts resulting in an unusually large difference between buying and selling rates for a currency is not in accord with the objectives of the Fund Agreement and the Fund shall, in consultation with members concerned, seek the elimination of such practices as rapidly as practicable.

3. Fluctuating Rates of Exchange.

  • (a) Free Markets. When a multiple currency practice includes a free market with a fluctuating rate, the member should agree with the Fund on the scope of the transactions permitted to take place in that market. Any changes in the scope of these transactions should, of course, be subject to agreement-with the Fund. The objective should be to eliminate the fluctuations in the free market as soon as such action is reasonably practicable. When it is not reasonably practicable to eliminate such fluctuations, the Fund will encourage members to exclude current transactions from the free market to the extent that this would be reasonable in the circumstances of each case.

  • (b) The Auction System

    • (i) The purpose for which an auction system is to be used should be agreed with the Fund and any change in its scope should be agreed with the Fund. The fewer the transactions subject to the auction rate, and the less essential the goods involved, the better.

    • (ii) Depending upon the circumstances, the monetary authorities should undertake to keep the auction rate stable, or to maintain it within certain limits, or to make every effort to prevent brisk fluctuations.

    • (iii) Wherever auction rates exist or are proposed, the circumstances should be examined in order to determine whether a fixed rate should be substituted for the auction rate.

    • (iv) If, as is usually the case where an auction system exists, a reduction of the money supply is desirable, the proceeds of the auction market should be directed toward this end.

II. Jurisdiction of the Fund

Multiple currency practices, besides being in most cases restrictive practices, also constitute systems of exchange rates. Since exchange stability depends on effective rates, the general purposes of the Fund and the members’ undertakings of Article IV, Section 4 (a) “to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations” are fundamental considerations in an interpretation of the rights and obligations of members under Article XIV, Section 2 or Article VIII, Section 3, to maintain, introduce, or adapt multiple currency practices. Subject to these general principles, the following conclusions are agreed with respect to the Fund’s jurisdiction and the obligations of members.*

A. Practices Subject to Article VIII, Section 3.

  • 1. Maintenance. A member maintaining multiple currency practices at the time the Agreement entered into force, if it does not take advantage of Article XIV, is required by Article VIII, Section 3, to consult with the Fund for their progressive removal or obtain the Fund’s approval for their maintenance.

  • 2. Introduction. Members that have not been occupied by the enemy, and former enemy-occupied members which have not taken advantage of the transitional arrangements, whether or not they have existing multiple rate practices, may introduce a new practice only under Article VIII, Section 3, which provides expressly for the necessity of approval by the Fund.

  • 3. Adaptation. If a multiple currency practice is in force by virtue of Article VIII, Section 3, the member may change or adapt such practice only after consulting with the Fund and obtaining its approval.

  • 4. Reclassification. Members maintaining multiple currency practices under Article VIII, Section 3, may reclassify commodities subject to the practices only after consultation with the Fund and Fund approval.

B. Practices Subject to Article XIV, Section 2.

  • 1. Restrictive Nature. Multiple currency practices, when applied to current international transactions, constitute a type of restriction on payments and transfers for current international transactions for the purposes of Article XIV, Section 2.

  • 2. Representations by the Fund. The following language in Article XIV, Section 4 of the Fund Agreement:

    • “The Fund may, if it deems such action necessary in exceptional circumstances, make representations to any member that conditions are favorable for the withdrawal of any particular restriction, or for the general abandonment of restrictions, inconsistent with the provisions of any other article of this Agreement.”

    • (a) applies at any time after the entry into force of the Fund Agreement and

    • (b) gives to the Fund the power to determine what is meant by “in exceptional circumstances.”

  • 3. Maintenance. Members may maintain multiple currency practices during the transitional period under the provisions of Article XIV, Section 2, but only if the maintenance of such practices is necessary for settling members’ balances of payments in a manner which does not unduly encumber their access to the resources of the Fund. Members are under a duty to withdraw such practices as soon as they are able without them to settle their balance of payments in a manner which will not unduly encumber their access to the resources of the Fund. Moreover, under Section 4 of Article XIV, the Fund has certain powers to make representations in exceptional circumstances, of which it is the judge, that conditions are favorable for the withdrawal of any particular restriction. The Fund may exercise this power even if a particular restriction is justified for balance of payments reasons, if the conditions are favorable for the substitution of some practice which is not inconsistent with the purposes of the Agreement.

  • 4. Introduction. Only former enemy-occupied members, which are availing themselves of the transitional provisions, and then whether or not they have existing multiple currency practices, may introduce a new multiple currency practice under Article XIV, Section 2, provided the Fund agrees with the member that the practice is necessary and does not find that it is inconsistent with the purposes of the Fund Agreement or with Article IV, Section 4 (a).

  • 5. Adaptation. A member maintaining multiple currency practices under Article XIV may adapt the existing restrictions, provided such action is consistent with the obligations of Article IV, Section 4 (a) and the Fund is satisfied that the adaptation is dictated by “changing circumstances.” A duty to consult with and obtain the approval of the Fund before changing the practice is implicit in both Article IV, Section 4 (a) and in Article XIV, Section 2. The Fund has the power under Article XIV, Section 4, to represent in exceptional circumstances that circumstances are favorable to withdrawal of a proposal to change an existing multiple currency practice.

  • 6. Reclassification. A member maintaining multiple currency practices under Article XIV may reclassify commodities subject to such practices, under the power to adapt restrictions in Section 2 of Article XIV, and under the same conditions, provided, however, that under the existing restrictions the effective rates are other than parity.

C. Exchange Taxes.

When a tax affects an obligation undertaken by the members of the Fund, the relationship between the tax and the obligation is of direct concern to the Fund and subject to its jurisdiction. Whenever exchange taxes are used to modify par values, create multiple currency practices, or introduce restrictive exchange controls, they are subject to the Fund’s jurisdiction. The Fund has authority to deal with these exchange matters irrespective of the official device or procedure involved.

D. Rates Differing from Parity by More than One Per Cent.

An effective buying or selling rate which, as the result of official action, e.g. the imposition of an exchange tax, differs from parity by more than one per cent, constitutes a multiple currency practice.

Multiple Currency Practices

I. The Executive Board has considered the staff paper on the “Review of Fund Policies on Multiple Currency Practices” (SM/57/2, Rev. 1, 5/3/57) and is in agreement with the general approach of the paper.

II. Unification of the exchange rates in multiple rate systems is a basic objective of the Fund, and it is satisfying to record that several of the members which had followed such practices have been successful in achieving this objective, and that others have made considerable progress in this direction.

III. In reviewing the experience of the past ten years as summarized in the staff report, the Fund draws special attention to the fact that complex multiple rate systems damage the economies of countries maintaining them and harm other countries. These complex systems are difficult to administer, and involve frequent changes, discrimination, export subsidization, a considerable spread between rates, and undue differentiation between classes of imports.

IV. The Executive Board concludes that it is necessary and feasible to make more rapid progress in simplifying complex multiple rate systems, to remove those aspects of existing systems which adversely affect the interests of other members, and to avoid existing systems becoming more complex. Accordingly the following decision is taken:

  • 1. Early and substantial steps should be taken to simplify complex multiple rate systems. The Fund will not approve such systems unless the countries maintaining them are making reasonable progress toward simplification and ultimate elimination of such systems, or are taking measures or adopting programs which seem likely to result in such progress.

  • 2. As opportunity arises the Fund will continue to press for simplification in all cases where there is clear evidence that the multiple currency system in question is damaging to other members. It will in addition be reluctant to approve changes in multiple rate systems which make them more complex.

  • 3. To assist members to simplify and eliminate complex rate systems the Fund wishes to intensify its collaboration with them. The Fund stands ready to meet members’ requests for technical assistance in the preparation of economic programs and measures directed toward exchange simplification. These may in some cases include arrangements in other directions, especially in the fiscal and trade fields. If the Fund considers the proposed exchange simplification and related economic programs or measures to be adequate and appropriate, it will give sympathetic consideration, if requested, to the use of its resources.

Decision No. 649-(57/33)

June 26, 1957

Article IX, Section 7 PRIVILEGE FOR COMMUNICATIONS

Interpretation of Article IX, Section 7

WHEREAS the Executive Director for the [member concerned] has raised certain questions of interpretation of the provisions of Section 7 of Article IX of the Articles of Agreement of the Fund as to the treatment to be accorded by a member of the International Monetary Fund to official communications of the Fund, which questions of interpretation are set forth below;

WHEREAS the said Executive Director has requested that the Executive Directors, in accordance with Article XVIII of said Articles, decide such questions of interpretation;

NOW THEREFORE, the Executive Directors hereby decide such questions of interpretation as follows:

  • Question No. 1:

  • Does Section 7 of Article IX of the Articles of Agreement of the Fund apply to rates charged for official communications of the Fund?

  • Decision on Question No. 1:

  • Yes. Section 7 of Article IX applies to rates charged for official communications of the Fund.

  • Question No. 2:

  • If a member exercises regulatory powers over the rates charged for communications, is it relieved of the obligation of Section 7, Article IX, by reason of the fact that the facilities for transmitting communications are privately owned or operated or both?

  • Decision on Question No. 2:

  • No. A member which exercises regulatory powers over the rates charged for communications is not relieved of its obligation under Section 7 of Article IX by reason of the fact that the facilities for transmitting such communications are privately owned or operated or both.

  • Question No. 3:

  • Is the member’s obligation under Section 7 of Article IX satisfied if official communications of the Fund may be sent only at rates which exceed the rates accorded the official communications of other members in comparable situations? For example, would the obligation of member “a”, under Section 7 of Article IX, be satisfied if the rate charged the Fund for its official communications from the territory of member “a” to the territory of member “b” exceeds the rate charged member “b” for its official communications from the territory of “a” to that of “b”?

  • Decision on Question No. 3:

  • No. The obligation of a member under Section 7 of Article IX is not satisfied if official communications of the Fund may be sent only at rates which exceed the rates accorded the official communications of other members in comparable situations. For example, the obligation of member “a”, under Section 7 of Article IX, would not be satisfied if the rate charged the Fund for its official communications from the territory of member “a” to the territory of member “b” exceeds the rate charged member “b” for its official communications from the territory of “a” to that of “b”.

Decision No. 534-3

February 20, 1950

Article XII, Section 3 EXECUTIVE DIRECTORS

Interpretation of Article XII, Sections 3 (b) (i) and 3 (f)

The request for interpretation of the Articles of Agreement referred to the Executive Directors by Resolution No. 7 of the Board of Governors was considered [reference to document deleted]. It was unanimously agreed that Sections 3 (b) (i) and 3 (f) of Article XII should be interpreted to mean that any member having one of the five largest quotas at the date of the regular election or at any date between regular elections shall be entitled to appoint an Executive Director who will hold office until the next regular election without prejudice to the right of a subsequently admitted member to appoint a Director if it has one of the five largest quotas.

Decision No. 2-1

May 8, 1946

Executive Directors: Article XII, Section 3 (c)

Art. XII, Sec. 3 (c), should be understood as providing that the two members entitled to appoint additional directors are determined by the largest absolute amounts by which 75% of members’ quotas exceed the average holdings by the Fund of their currencies during the two years preceding an election of directors, provided, of course, that they are not already entitled to appoint directors under Art. XII, Sec. 3 (b) (i).

In the calculation of average holdings under the provision, the Fund’s special accounts for administrative purposes should not be included unless they exceed Moo of one per cent of the member’s quota. A member should not be entitled to the benefit of Art. XII, Sec. 3 (c) where the average holdings of its currency by the Fund have been reduced below 75% of its quota solely because of expenditures by the Fund for administrative purposes or because of the exclusion of the special accounts for administrative purposes from the calculation of average holdings.

Decision No. 574-2

May 18, 1950

Additional Appointed Directors

The phrase “the preceding two years” as used in Art. XII, Sec. 3 (c), shall be deemed to be the two-year period ending on the July 31 preceding the dates of regular biennial elections of Executive Directors. However, this decision shall be reconsidered if such regular elections are held in other months than September.

Decision No. 597-4

July 28, 1950

Adjustment of Quota and Voting Power

A change in the quota of a member between regular biennial elections will change by the same amount the voting power of the elected Executive Director who casts the votes of the member.

Decision No. 180-5

June 25, 1947

Article XIV, Section 1 USE OF FUND’S RESOURCES: PURPOSE

Use of Fund’s Resources by Countries Undergoing Reconstruction

The prohibition in the Fund Agreement, Article XIV, Section 1, was not meant to prevent countries which were undergoing reconstruction from using the Fund’s resources.

Decision No. 196-2

July 31, 1947

Article XIV, Section 4 RESTRICTIONS ON PAYMENTS AND TRANSFERS: WITHDRAWAL

Meaning of “Exceptional Circumstancesin Article XIV, Section 4

The following language in Article XIV, Section 4 of the Fund Agreement:

“The Fund may, if it deems such action necessary in exceptional circumstances, make representations to any member that conditions are favorable for the withdrawal of any particular restriction, or for the general abandonment of restrictions, inconsistent with the provisions of any other article of this Agreement.”

  • (a) applies at any time after the entry into force of the Fund Agreement and

  • (b) gives to the Fund the power to determine what is meant by “in exceptional circumstances.”

Decision No. 117-1

January 6, 1947

Article XV, Section 2 INTERPRETATION

In response to the request of the Government of [a member], and after having considered the arguments put forward by that Government, the Executive Directors, acting pursuant to Article XVIII (a) of the Fund Agreement, interpret Article XV, Section 2 as follows:

  • Action may be taken by the Fund to require a member to withdraw when the following conditions have been met:

    • 1. The member has been declared ineligible to use the resources of the Fund pursuant to Article XV, Section 2 (a);

    • 2. A reasonable time has passed since the member was declared ineligible to use the resources of the Fund pursuant to Article XV, Section 2 (a), whether or not a fixed period of time had been prescribed in connection with such action, and the member persists in failing to fulfill its obligations;

    • 3. The member has been informed in reasonable time of the complaint against it and given adequate opportunity to state, both orally and in writing, any fact or legal argument relevant to the issue before the Fund.

Decision No. 343-(54/47)

August 11, 1954

The Board of Governors confirmed the foregoing decision on September 28, 1954.

Article XIX MONETARY RESERVES AND OFFICIAL HOLDINGS

Net Official Holdings: Principles of Interpretation

In order to ensure the uniform application of the relevant Articles of Agreement as they apply to determinations of members’ net official holdings of gold and U.S. dollars for the purposes of Article III, Section 3 (b) (ii), the Fund adopts or reaffirms the following principles of interpretation for the indicated provisions of the Fund Agreement:

  • (a) [Pertains to Article III, Section 3 (b); see p. 220.]

  • (b) [Pertains to Article III, Section 3 (d); see p. 221.]

  • (c) Article XIX (b): “The official holdings of a member means central holdings (that is, the holdings of its Treasury, central bank, stabilization fund, or similar fiscal agency).”

    • (1) “Central holdings” are confined to holdings owned by the institutions set forth in Article XIX (b).

    • (2) The term “similar fiscal agency” means an institution which performs an important function or functions similar to those normally performed by a Treasury, or central bank, or stabilization fund.

    • (3) No distinction is made among the departments of a central bank or other central institution as specified in Article XIX (b). No distinction is made on the basis of the use to which gold or dollars may be put by any of the institutions covered by Article XIX (b). That is to say, all gold or dollars owned by such institutions are central holdings.

  • (d) Article XIX (c): “The holdings of other official institutions or other banks within its territories may, in any particular case, be deemed by the Fund, after consultation with the member, to be official holdings to the extent that they are substantially in excess of working balances; provided that for the purpose of determining whether, in a particular case, holdings are in excess of working balances, there shall be deducted from such holdings amounts of currency due to official institutions and banks in the territories of members or nonmembers specified under (d) below.”

    • (1) “Other official institutions” and “other banks” are official institutions and banks not embraced by Article XIX (b). “Other official institutions” are those representing a member anywhere. “Other banks” are banks within its territories.

    • (2) “Working balances” must be determined in the light of all the facts of the individual case, and no rigid rule can be formulated for their measurement. The general idea is that a working balance is one which is necessary to meet the requirements of its owner, taking into account normal receipts and payments, for a period not unreasonably protracted.

    • (3) No deduction may be made from central holdings on the ground that they are said to represent, in whole or in part, “working balances,” for example, because there are no commercial banks or because the holdings of commercial banks are alleged by the member to be inadequate for working purposes.

    • (4) Gold or dollars owned by “other official institutions” and “other banks” may be included in a member’s official holdings, after consultation with the member, to the extent that they are substantially in excess of “working balances.”

    • (5) The proviso in Article XIX (c) declares that in determining whether the holdings of other official institutions and other banks are substantially in excess of working balances, certain deductions shall be made. These deductions are in respect of liabilities arising from the holdings of the currency of the member whose official holdings are being calculated. Such liabilities must be owed by that member’s official institutions and banks to the official institutions of and banks in the territories of countries which were members of the Fund on September 12, 1946.

  • (e) Article XIX (h): “For the purpose of calculating gold subscriptions under Article III, Section 3, a member’s net official holdings of gold and United States dollars shall consist of its official holdings of gold and United States currency after deducting central holdings of its currency by other official institutions and other banks if these holdings carry specified rights of conversion into gold or United States currency.”

  • (1) Article XIX (h) establishes the only deduction from gross official holdings. That is to say, gross official holdings are the total of gold and dollars which a member owns; net official holdings are those holdings minus the one deduction which Article XIX (h) establishes.

  • (2) A deduction cannot be made under Article XIX (h) in the calculation of a member’s net official holdings unless the following conditions are satisfied:

    • (a) There is a holding of the member’s currency.

    • (b) There is a right of conversion of the currency into gold or U.S. dollars exercisable by virtue only of the holdings of the currency and not, for example, by reason of forward exchange contracts.

    • (c) The right of conversion is exercisable at the option of the holder of the currency and not at the option of the member whose currency is held.

    • (d) The option is exercisable by the central or other official institutions or other banks in the territories of other countries, and not by the member’s own official institutions or by banks in the territories in respect of which it has accepted the Agreement in accordance with Article XX, Section 2 (g). “Other countries” embraces all countries, and not simply member countries or nonmember countries which have been specified under Article XIX (d).

    • (e) The right of conversion was in existence on September 12, 1946 (or any later date substituted under Article III, Section 3 (d)). However, the right of conversion need not have been exercisable on that date, but may be exercisable at any time thereafter.

  • (3) Liabilities payable in gold or dollars were the conditions of Article XIX (h) as set forth in 2 above are not otherwise met, e.g., where the creditor’s right to gold or dollars is not attached to a holding of the currency of the member whose net official holdings are being calculated, are not deductible under Article XIX (h).

Decision No. 298-3

April 14, 1948

Currency Liabilities: Article XIX (e)

1. [Expired.]

2. [Pertains to Schedule B; see p. 272.]

3. [A member has contended] that where, under a payment agreement, the other contracting party held [its currency and the member] held the currency of the other party, the full amount of the holdings of [the member’s currency] should not be deducted but the two amounts should be offset for the purposes of calculating deductible currency liabilities under Article XIX (e) [ibid.]. It is determined that the meaning of the term “currency liabilities” under Article XIX (e) cannot be restricted in this way. It must be applied in the gross sense to include all of the holdings of a member’s currency by another party under a payment agreement.

Decision No. 486-2

October 7, 1949

Currency Liabilities: Article XIX (e)

The Executive Board has considered questions relating to the concept of currency liabilities in Article XIX (e), as set forth in Executive Board Special No. 107 (10/18/49), and agrees that the following principles apply:

  • 1. The currency liabilities of a member are the liabilities represented by the holdings of its currency by the Treasuries, central banks, stabilization funds, similar fiscal agencies, other official institutions or other banks of other members, or of such nonmembers as have been specified by the Fund.

  • 2. Currency liabilities are not confined to convertible currencies.

  • 3. The deductibility of currency liabilities does not depend on whether the holder’s currency is convertible.

  • 4. “Currency” in the concept “currency liabilities” means “without limitation coins, paper money, bank balances, bank acceptances, and government obligations issued with a maturity not exceeding twelve months.”

  • 5. A blocked balance is not a currency liability.

Decision No. 493-3

November 4, 1949

Article XX, Section 4 (i) USE OF FUND’S RESOURCES: POSTPONEMENT UNDER ARTICLE XX, SECTION 4 (i)

The Fund has, in the case of a member which has had no previous exchange transaction with the Fund, the power to postpone exchange transactions with it if its circumstances are such that, in the opinion of the Fund, they would lead to the use of the resources of the Fund in a manner contrary to the purposes of the Agreement or prejudicial to the Fund or its members. This power did not lapse as of the date the Fund began exchange transactions.

Decision No. 284-2

March 10, 1948

Schedule B CALCULATION OF REPURCHASE OBLIGATIONS

Calculation of Monetary Reserves

1. [Expired.]

2. [A member has contended] that, in calculating its monetary reserves as of April 30, 1948, a sum greater than [the amount calculated by the staff] should have been deducted as the proceeds of a long-term or medium-term loan contracted during the financial year ending on that date …. It is determined that the deduction … calculated by the staff was correctly made, based on the following principles which are adopted:

  • (a) Before any exclusion of the proceeds of long-term or medium-term loans can be made under Schedule B, paragraph 3, of the Fund Agreement, it is necessary to identify that part of a member’s holdings which can be regarded as representing the proceeds of such loans.

  • (b) Where the loan can be spent only for a specific project or purpose, the proceeds can be regarded as unspent only to the extent that the special project or purpose has not been completed and paid for. The formality of payment of the proceeds into a special or general account would not as a rule be considered a significant factor.

  • (c) Where the loan is not contracted for a special project or purpose, the proceeds of that loan which may be deducted should, as a rule of thumb, and in the absence of other evidence of identification, be determined as follows: (1) the member’s lowest holdings of the currency in question between the date of receipt of the proceeds of the loan and the end of the financial year shall be determined, (2) the part of such lowest holdings which shall be excluded will be the proportion which the proceeds of the loan bear to the sum of the member’s holdings of the currency as of the date of receipt of the proceeds of the loan plus other receipts in the same currency between that date and the day of the lowest holdings.

3. [Pertains to Article XIX (e); see p. 271.]

4. [Expired.]

Decision No. 486-2

October 7, 1949

Calculation of Members’ Repurchase Obligations: Schedule B, Paragraph 3

In applying the provisions of Schedule B, paragraph 3 to the calculation of members’ repurchase obligations, the following principles shall govern (Staff Memorandum No. 413, 12/8/49 and Supplement 1, 12/13/49):

  • 1. Where exclusions have been made at the end of one year for holdings which are the proceeds of long-term or medium-term loans contracted during the year or for holdings which have been transferred or set aside for the repayment of a loan during the subsequent year, the exclusion continues to be made in the monetary reserve figures for the beginning of the succeeding year.

  • 2. Where an exclusion has been made in respect of currency which became convertible during the year, this currency is included in the monetary reserve figures for the beginning of the subsequent year.

  • 3. If the member indicates that certain holdings are the proceeds of loans or currency set aside, the reasonable implication is that the member wishes paragraph 3 to apply to such holdings. If the member does not provide such data, the implication is that it is not taking advantage of the provision.

Decision No. 510-2

December 16, 1949

Allocation of Obligations: Schedule B, Paragraph 1 (c)

If part of a member’s gross repurchase obligation for any financial year is allocated to a currency which the Fund cannot accept because of Article V, Section 7 (c) (iii), that part of the gross obligation is abated for that year under Schedule B, Paragraph 1 (c), and is not required to be discharged in gold or some other currency.

Decision No. 521-3

January 16, 1950

General FUND ASSISTANCE IN GOLD TRANSACTIONS

Members’ Gold Transactions

The Executive Board approves the Managing Director’s continuing to assist members by bringing governmental buyers and sellers of gold into contact. If there is a demand, the function may be performed as a regular service on the basis outlined in SM/52/6 (2/7/52). It is understood that initially the service charge will be 1/32 per cent for each partner in a completed transaction, and that the charge will be reviewed later on the basis of experience.

Decision No. 103-(52/12)

February 21, 1952

Fund Assistance in Gold Transactions*

The Executive Board approves the extension of the Fund’s service in bringing buyers and sellers of gold into contact on the basis outlined in SM/52/6(2/7/52), to cases in which one of the parties to the gold transaction is a member and the other is one of the following nonmembers or international organizations:

  • Switzerland

  • Bank for International Settlements

  • International Bank for Reconstruction and Development

In accordance with the foregoing, therefore, gold transactions under the service would always involve a member as buyer or seller, and all parties would be either governmental or international organizations.

Decision No. 316-(54/27)

May 27, 1954

Fund Assistance in Gold Transactions

1. The Executive Board approves the following extensions of the Fund’s service in bringing buyers and sellers of gold into contact, on the basis outlined in SM/52/6 (2/7/52):

  • (a) the International Finance Corporation is added to the list of parties in the decision adopted at EBM/54/27(5/27/54);

  • (b) the service shall apply to gold transactions between an international organization covered by the service and any other party covered by the service.

Decision No. 572-(56/55)

November 21, 1956

Fund Assistance in Gold Transactions

The Inter-American Development Bank is added to the list of parties in the decisions adopted at Executive Board Meetings 54/27(5/27/54) and 56/55(11/21/56).

Decision No. 1033-(60/26)

May 20, 1960

Fund Assistance in Gold Transactions

The International Development Association is added to the list of parties in the decisions adopted at Executive Board Meetings 54/27(5/27/54), 56/55(11/21/56), and 60/26(5/25/60).

Decision No. 1116-(60/51)

December 8, 1960

INVESTMENT OF FUND’S ASSETS

Investment of Fund’s Assets

The Executive Board, observing that the Fund has had and may continue to have an excess of expenditure over income and that the greater part of the Fund’s administrative expenditures has been and will continue to be in United States dollars, considers that in the interest of good administration and conservation of the Fund’s resources it would be appropriate to raise income towards meeting the deficit by the investment of a portion of the Fund’s gold in a manner which will enable the Fund to reacquire gold at any time and will maintain the gold value of the investment.

In view of the foregoing and noting the willingness of the United States to consent to investment by the Fund in United States Treasury bills, the Executive Board takes the following decisions:

  • I. The Executive Board, acting pursuant to Article XVIII (a) of the Articles of Agreement, interprets the Articles of Agreement to permit the investment described in the present decisions, namely, sale of a portion of the Fund’s gold to the United States for the purpose of investment of the proceeds in United States Treasury bills having not more than ninety-three days to run, subject to the following conditions:

    • (1) The amount of gold to be sold for investment:

      • (a) will not be such as to limit the ability of the Fund to make its resources available to members in accordance with the Articles of Agreement; and

      • (b) will be such as to produce an amount of income reasonably related to the deficit of the Fund;

    • (2) Whenever the Fund decides to reacquire gold after the sale or maturity of any United States Treasury bills invested in, it will be able to reacquire the same amount of gold as was sold for investment in such bills; and the United States, at the request of the Fund, will sell the said amount of gold to the Fund for U.S. dollars at the United States selling price at the time of the sale to the Fund;

    • (3) In any computations for the purpose of applying the provisions of the Articles of Agreement the Fund will treat the following assets as representing gold and not as holdings of United States currency:

      • (a) the dollar proceeds of the sale of gold before investment in United States Treasury bills; and

      • (b) the United States Treasury bills invested in; and

      • (c) the dollar proceeds resulting from the sale or maturity of any such bills before the purchase of gold therewith.

  • II. (1) The Executive Board, acting pursuant to Article XVIII (a) of the Articles of Agreement, interprets Article IV, Section 8 (a) to require the United States to maintain the gold value of the assets set forth in paragraph I (3) (a), (b) and (c) above, notwithstanding changes in the par or foreign exchange value of the currency of the United States. This obligation of the United States shall be fully discharged by its maintaining the gold value of the dollar proceeds resulting from the sale of the gold or from the sale or maturity of the U.S. Treasury bills purchased therewith.

    • (2) For the purposes of paragraphs I and II of these decisions the dollar proceeds resulting from the sale or maturity of the U.S. Treasury bills invested in shall not include the income of the investment.

  • III. Subject to the receipt of an assurance from the United States in accordance with paragraph I (2) above satisfactory to the Fund, the Executive Board decides that an amount of the Fund’s gold sufficient to realize approximately but not more than two hundred million United States dollars shall be sold to the United States and the proceeds invested and reinvested in United States Treasury bills having not more than ninety-three days to run. The Executive Board will review the amount and operation of the investment at quarterly intervals and at such other times as may be appropriate.

Decision No. 488-(56/5)

January 25, 1956

Fund’s Investment Program

The Executive Board, observing that the Fund has had and in the future may again have an excess of expenditure over income and that the greater part of the Fund’s administrative expenditure has been and will continue to be in United States dollars, considers that in the interest of good administration and conservation of the Fund’s resources it would be appropriate to raise income and provide a reserve towards meeting possible future deficits by continuing the investment of a portion of the Fund’s gold in a manner which will enable the Fund to reacquire gold at any time and will maintain the gold value of the investment.

In view of the foregoing and noting the willingness of the United States to consent to continued investment by the Fund in United States Treasury bills, the Executive Board takes the following decisions:

  • A. Paragraphs I, II and III of Executive Board Decision No. 488-(56/5) shall remain in effect except that the following shall be substituted for paragraph I (1) (b): “will be such as to produce an amount of income reasonably related to the purpose of the investment.”

  • B. The income of the investment earned after October 31, 1957 shall be placed to a Special Reserve, and any administrative deficit for any fiscal year of the Fund shall be written off first against this reserve.

Decision No. 708-(57/57)

November 27, 1957

Fund’s Investment Program

The Executive Directors (1) decide that for the purposes of Executive Board Decisions No. 488-(56/5) and No. 708-(57/57) on the investment of the proceeds of the sale of gold, the amount of $500,000,000 shall be substituted for $200,000,000 in Paragraph III of Executive Board Decision No. 488-(56/5), and (2) pursuant to Article XVIII-(a), interpret the Articles of Agreement to permit such investment in U.S. securities having a term to maturity not exceeding twelve months.

Decision No. 905-(59/32)

July 24, 1959

Fund’s Investment Program

The amount of $200 million in paragraph III of Executive Board Decision No. 488-(56/5), which was subsequently increased to $500 million by Executive Board Decision No. 905-(59/32), shall be increased to $800 million for all of the purposes of those decisions and Executive Board Decision No. 708-(57/57).

Decision No. 1107-(60/50)

November 30, 1960

Fund’s Investment Program

The authorization under (2) of Executive Board Decision No. 905-(59/32) is extended to permit an investment of the amount of $61,900,000 in 15-month U.S. Treasury securities maturing February 15, 1963.

Decision No. 1272-(61/53)

November 3, 1961

Regarding gold subscriptions in connection with quota increases granted in accordance with this decision, see Decision No. 1529-(63/33), p. 222.

See p. 252.

As amended: with effect from August 1, 1962 (Decision No. 1362-(62/32) dated July 9, 1962) and with effect from October 12, 1962 (Decision No. 1415-(62/47) dated September 19, 1962).

The General Arrangements to Borrow entered into force on October 24, 1962.

These conclusions concerning the Fund’s jurisdiction and the obligation of members apply to all members including those for whose currencies par values have not been established.

The decision lists certain countries which formerly were not members but are presently members.

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