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IMF History (1972-1978), Volume 1
Chapter

Chapter 29. Charges, Repurchases, Currencies, and the Fund’s Liquidity

Author(s):
International Monetary Fund
Published Date:
February 1996
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TRANSFORMATION OF THE FUND into a more complex financial institution by increasing the number of facilities under which members might draw and by making the Fund a major financial intermediary led to complications in the Fund’s charges, its policies on repurchases, the currencies used in its transactions and operations, and even in determining the amount of current funds it had available. Temporary policies and practices were introduced pending the amendment of the Articles of Agreement. Many of these policies and practices, originally introduced by decision of the Executive Board, were subsequently made part of the amended Articles by the Second Amendment.

CHARGES UNTIL 1974

Until June 1974 the charges the Fund levied on use of its resources were simple. A one-time service charge was applied when a member entered into a stand-by arrangement or drew from the Fund, and periodic charges on balances of a member’s currency in excess of its quota held by the Fund were calculated according to a single schedule. Since December 1951, the service charge on drawings had been only ½ of 1 percent, the lowest level possible under the original Articles. Although the Fund was permitted to levy a service charge on gold tranche drawings as well as on other drawings, in 1969 it decided to eliminate this charge in order to improve the reserve status of members’ gold tranche positions in the Fund. The Fund also levied a charge for stand-by arrangements of ¼ of 1 percent on the amount of the arrangement, but offset this charge against the service charge. The schedule of periodic charges was unusual in that it progressed both with the size of the Fund’s holdings of a currency in relation to a member’s quota (that is, by tranche) and with the length of time that drawings were outstanding. Under the original Articles, there had to be a progression of charges (a schedule of charges) because there had to be a level of Fund holdings of a member’s currency at which the Fund consulted with the member on ways to reduce its holdings of the member’s currency, and a level at which, if the Fund and the member failed to agree, the Fund might apply penalty rates “as it deems appropriate.” Charges were payable in gold, except that, when a member’s monetary reserves were less than one half its quota, it might pay in gold only that proportion of the charges due which its reserves bore to one half its quota, and the balance could be paid in its own currency.

While the Executive Directors could change the schedule of periodic charges by a three-fourths majority of total voting power, they rarely did so. Between 1945 and 1965, the schedule was altered only three times, on December 1, 1951, on January 1, 1954, and on May 1, 1963. The changes made in 1963 were so minor that virtually the same schedule existed from January 1, 1954 onward. From 1966 to 1973 annual reviews took place, but each time the Executive Board decided to retain the existing schedule.

Since the days of Bretton Woods, Executive Directors had held various views on how high the Fund’s charges ought to be. Several Directors from industrial members that provided the bulk of the Fund’s resources had consistently argued that the Fund’s charges should be related to the rates of interest prevailing in short-term money markets. Others, mainly from developing members but also a few from industrial and more developed primary producing members, believed that the Fund’s charges should be deliberately kept low to provide members with low-cost funds and to induce them to come to the Fund as a way to encourage them to institute financial stabilization policies and to correct their balance of payments deficits. Between 1956, when the first large drawing by the United Kingdom took place, and August 1971, the Fund was solvent, running budget surpluses and adding to reserves. Although charges on use of its resources were the Fund’s only source of income, the Fund’s budgetary situation was not a weighty determinant of the level of charges, and officials who favored low charges succeeded in keeping them low. Consequently, the rates of charges in the schedule still applicable early in 1974 ranged from an initial 2 percent a year to a maximum of 5 percent a year.1

INCREASES IN 1974

In June 1974, these simple charges came to an end. No longer was there only a single schedule of charges. As the Fund introduced special facilities, such as the 1974 oil facility, the 1975 oil facility, and the supplementary financing facility, all based on borrowed funds, separate schedules of charges were applied to drawings under each facility; other schedules were applied to drawings from the Fund’s regular resources and were changed twice between 1974 and 1978.

The first increase in charges during these years, noted in Chapter 16, came in June 1974 when charges were raised mainly to help the Fund cover additional operational expenses incurred by raising the rate of interest on the SDR and consequently the rate of remuneration. Other circumstances also suggested the need to raise charges at that time. Interest rates in short-term money markets had risen considerably since 1963 without a corresponding increase in the Fund’s charges. The charges on the newly introduced oil facility, financed by borrowed funds, were to be close to commercial interest rates and consequently considerably higher than those in the Fund’s prevailing schedule. Drawings had been increasing after the 1968 review by the Executive Board of the Fund’s policies on use of its resources, but charges had not been subsequently re-examined. After 1969 the Fund had operational as well as administrative expenditures since it had to pay remuneration to members with net creditor positions in the Fund. At the same time, other decisions, such as making gold tranche drawings automatic and eliminating the service charge on these drawings, reduced the Fund’s income.

With a new schedule of charges effective July 1, 1974, two schedules of charges were applicable to use of the Fund’s resources. The older, lower schedule, ranging from zero to 5 percent a year, continued to apply to balances of members’ currencies that the Fund held as a result of drawings effected between May 1,1963 and June 30, 1974 (Table 3 in Chapter 16). The new, higher schedule, ranging from 4 to 6 percent a year, applied to currency balances that the Fund held as a result of drawings effected after July 1, 1974 (Table 4 in Chapter 16). When the decision was taken in June 1974 to introduce a higher schedule of charges, the Executive Directors had considered the desirability of making all the Fund’s holdings of currencies subject to the new schedule and of eliminating the former schedule. They decided against such action for two reasons. It would deviate from past practice: the Fund had always applied a revised schedule of charges only to drawings made after the new schedule of charges was adopted. It would be bad policy: to apply the new schedule to holdings of currency from past drawings was to change the financial terms on which members had made earlier drawings. According to the legal staff, however, if the Executive Board gave notice in advance that the Fund’s holdings of a member’s currency might be subjected to higher charges, a revised schedule of higher charges could apply to holdings of a member’s currency resulting from earlier drawings. The purpose of notice was to avoid retroactivity, which applied, in the absence of notice, to higher charges. (Lower charges could be applied without notice because they were beneficial for members.)

Accordingly, in June 1974, the Executive Board took a decision so notifying members.2 The decision related to all revisions of charges, increases or decreases.

INCREASES IN 1977

In April 1977 the schedule of charges was again revised upward. The rates of charge were raised, though slightly, from a schedule with an initial charge of 4 percent a year, ranging to a maximum of 6 percent, to a schedule that ranged from an initial charge of 4.375 percent a year to a maximum of 6.375 percent. The service charge, applied to all drawings except for those in the gold tranche, remained at 0.5 percent of the transaction. This schedule is given in Table 20.

Table 20.Charges on Transactions Effected from July 1, 1974
Charges in percent a year1 payable on holdings in excess of quota, for period stated
Service charge0.5
Up to 1 year4.375
1 to 2 years4.875
2 to 3 years5.375
3 to 4 years5.8752
4 to 5 years6.375

Except for service charge, which was payable once per transaction and expressed as percentage of amount of transaction.

Point at which consultation between the Fund and the member became obligatory.

Except for service charge, which was payable once per transaction and expressed as percentage of amount of transaction.

Point at which consultation between the Fund and the member became obligatory.

Since members had been notified that higher charges could be applied to the Fund’s currency holdings resulting from earlier drawings, the new schedule was applied to the Fund’s holdings of all currencies from drawings undertaken from July 1, 1974 onward, except for drawings made under the oil facilities. This action eliminated the schedule of charges introduced on July 1,1974 (Table 4 in Chapter 16). The long-standing schedule of May 1963 to June 1974 (Table 3 in Chapter 16) was still applicable to use of the Fund’s ordinary resources, but was to be gradually phased out.

The schedule of charges for use of the extended facility was adapted to accommodate the longer period for which drawings under extended arrangements could be outstanding: a charge of 6.875 percent a year was to apply to drawings outstanding from five to eight years. In July 1975 the charge of ¼ of 1 percent a year imposed on extended arrangements (as on stand-by arrangements) was to be payable in advance on the amount that could be purchased during that year.

Charges were raised in 1977 because the average cost of money obtained by the Fund, notably the rate of remuneration, was gradually rising and because since 1971 the Fund’s budget had been in deficit. Although the schedule of charges had been raised in June 1974, the increase proved insufficient to restore an adequate spread between charges and remuneration. Of special concern by 1977 was the persistence of budget deficits, though from 1974 onward both the volume of drawings and the Fund’s operational income from charges were at their highest levels ever.

While the Fund is not a commercial institution and is not expected to maximize profits, neither can it operate year after year with budget deficits. It needs income to cover interest costs on borrowing, to cover remuneration and administrative expenses, and to add to its reserves. Since the Fund was becoming a borrowing, as well as a lending, institution, its financial soundness was becoming a salient consideration in world financial markets. A number of dilemmas had to be resolved before the budgetary problem could be solved. The rate of remuneration paid to members with net creditor positions in the Fund was a decisive factor determining what the Fund charges ought to be: charges could be kept low if the rate of remuneration was low. The rate of remuneration could not be too low, however, as it had to be at least somewhat comparable to market rates of interest if members were to provide the Fund with their currencies. Similarly, rates of interest on the SDR comparable to market rates were essential if members were to continue to allow themselves to be designated as holders of more SDRs than they were obliged to hold.

The rate that the Fund paid for remuneration and as interest on the SDR could, some officials argued, be somewhat lower than the interest rate that the Fund paid for borrowed funds. The Fund was likely to have to pay a higher rate on borrowed funds because borrowing agreements were voluntary and unrelated to members’ quotas in the Fund. Moreover, claims on the Fund resulting from borrowing agreements were less liquid than claims resulting from members having a net creditor position in the Fund or from holding SDRs. At the same time, the gap between interest rates on borrowed funds and rates of remuneration and interest on the SDR could not be unreasonably large. Consequently, there were limits to how low the rate of remuneration could be. Any decision about how to fix the rate of remuneration and the rate of charges was made more difficult by the general reluctance of Executive Directors to raise the Fund’s charges.

To meet the Fund’s need for income without raising charges, the Executive Directors in 1977 considered a number of alternatives. They considered reintroducing a service charge on drawings in the gold tranche but rejected the idea because, after much effort member governments had been persuaded to regard their gold tranche positions in the Fund as genuine and unconditional reserve assets, and to levy a service charge on use of these positions was a step backward. They considered investing some of the Fund’s reserves, but until the Articles of Agreement were amended, the Fund had limited authority in this regard. In any event, such investment would not provide sufficient income for even a small budget surplus in the financial years 1978 and 1979.

After considerable discussion, the Executive Directors agreed in April 1977 to raise charges a little (by only 0.375 percent a year), as described above, and to take a number of related decisions to strengthen the Fund’s income from charges. First, a way was found to eliminate gradually the long-standing schedule of charges applied to currency balances acquired by the Fund prior to July 1, 1974 (Table 3 in Chapter 16). The method traditionally used by the Fund to calculate the amount of currency holdings subject to charges was based on the lifo (last in, first out) principle. When a member repurchased its currency, the Fund cancelled the portions of currency holdings that it had most recently acquired. This method best measured the extent to which the member had been using the Fund’s resources continuously and the period over which such use had been made. Because of this method of applying repurchases to the currency balances subject to the highest charges, a member that had made drawings after July 1, 1974 could still pay charges under the previous schedule that were no higher than the 5 percent a year maximum prevailing since 1963. Because these members were paying charges even lower than the existing rate of remuneration, the Fund was losing money by holding their currencies. Consequently, the Executive Board decided in 1977 to apply reductions in the Fund’s holdings of currency (other than holdings resulting from the use of the extended facility and the oil facility) first to the holdings of currency still subject to the pre-July 1974 schedule.

Another decision taken in April 1977 to strengthen the Fund’s income from charges required members to pay charges promptly after the end of the quarter to which they related rather than allowing a grace period of 30 days. This change brought the receipt of charges by the Fund more closely in line with the Fund’s practices of paying interest to members promptly after the end of each quarter and of paying remuneration promptly after the end of each financial year.

A third decision relating to charges taken in April 1977 was, when the Second Amendment became effective, to exclude for the purpose of determining the member’s reserve tranche the Fund’s holdings of a member’s currency as a result of drawings under the two oil facilities. This decision meant that the Fund’s holdings of such currency would be subject to the charges applicable to the oil facility even when these holdings fell below the level of a member’s quota. Previously, a certain amount of these holdings had fallen into the reserve tranche, and although the Fund had been receiving no income from charges on these holdings, it had continued to pay interest on that amount to the members from which it had borrowed.

The central decision of April 1977 with respect to charges also provided that, if the margin of the initial rate of charge above the rate of remuneration was reduced to less than ¼ of 1 percent or was increased to more than 1 percent because of changes in the rate of remuneration, the Fund’s financial position, the rate of remuneration paid to creditors, and the initial rate of charge would be promptly reviewed. The rate of remuneration and the initial rate of charge were thus to be linked in a way that would trigger a review of the Fund’s basic financial situation. At such a review, the Executive Board could change either the rate of remuneration or the initial rate of charge, but the budgetary problem could not continue without some action being taken. Some Executive Directors were unhappy with a decision that linked remuneration and charges, but consideration of the Fund’s financial position left them little choice. The decision of April 1977 on charges was also to be reviewed if the Fund’s annual income substantially exceeded its annual expenses.

OTHER DEVELOPMENTS IN CHARGES

From April 1977 to the end of 1978, the Executive Board took several other decisions relating to charges. In November 1977, the customary charge levied on a stand-by arrangement was adapted to the possibility that after January 1977 stand-by arrangements might last for up to three years. The charge of ¼ of 1 percent a year, previously levied on the full amount that could be drawn under a stand-by arrangement payable for the whole period of the arrangement at the time the standby arrangement was entered into, which went up to a maximum of ½ of 1 percent as a member drew under the stand-by arrangement, would instead be payable at the beginning of each 12-month period of a stand-by arrangement on that part of the total amount of the arrangement not yet drawn. When the member made a drawing under the arrangement, the amount of the stand-by charge was reduced, through a refund, by the proportion that the amount of the drawing bore to the total amount that could be drawn under the stand-by arrangement. In the absence of this decision a member could have been placed in a position of having paid a stand-by arrangement charge of ¾ of 1 percent for a three-year arrangement but of receiving credit for only ½ of 1 percent even though the full amount of the stand-by arrangement had been drawn.

The Executive Board temporarily adopted, effective April 21, 1978, a higher schedule of charges to apply to holdings of a member’s currency acquired not later than June 30, 1979 under the credit tranches that raised the Fund’s holdings above 200 percent of quota (excluding balances acquired under special facilities and under the extended facility) and to currency holdings under the extended facility in excess of 140 percent of a member’s quota. This schedule (Table 21 below) resulted from the application to the supplementary financing facility of the charges described in the previous chapter. It seemed essential to maintain equity between the charges on the supplementary financing facility and those for use of the Fund’s regular resources and to have a higher schedule of charges for exceptional use of the Fund’s resources. Higher charges were also thought to encourage members to repurchase outstanding drawings as soon as possible. This decision was to be reviewed before December 31, 1978.

Table 21.Charges on Transactions Effected in Excess of 200 Percent of Members’ Quotas Under Stand-By Arrangements or in Excess of 140 Percent of Quotas Under the Extended Fund Facility
Charges in percent a year1 payable on holdings for period stated
Service charge0.5
Each six monthsAverage yield to constant five-year
maturity of U.S. Government securities,
rounded to next 0.25 percent, plus
0.25 percent

Except for service charge, which was payable once per transaction and expressed as percentage of amount of transaction.

Except for service charge, which was payable once per transaction and expressed as percentage of amount of transaction.

In December the Executive Board decided that this schedule would apply only until the supplementary financing facility came into effect. This occurred on February 23, 1979.

In brief, as 1978 came to an end, four principal developments in the Fund’s charges had taken place. First, charges had become complicated. Seven schedules were in effect, applicable to different segments of the Fund’s holdings of a member’s currency. Consequently, officials of members had a difficult time knowing what charges they had to pay on their use of the Fund’s resources or how they could best minimize these charges. Second, the rates of charge for use of the Fund’s resources were concessional, and the degree of concessionality was becoming larger. Third, the level of charges was affected more closely than in the past by the Fund’s budgetary position. The Fund was increasingly faced with the dilemma of avoiding budget deficits while still paying an adequate rate of remuneration and trying to retain a concessional schedule of charges. Despite this dilemma, the Fund’s charges had been relatively stable, having been adjusted only twice. Fourth, debate about the structure and level of the Fund’s charges was growing more intense and involved. Many officials, including some of the Fund staff, believed that charges had to be much higher while others continued to resist any substantial increase in the Fund’s charges. The relationship of the Fund’s charges to market rates of interest and the rate of remuneration paid by the Fund, the extent to which the Fund’s rates of charges should incorporate concessional (subsidy) elements, and the question of whether the rates of charges should be inversely related to the degree of conditionality associated with use of the Fund’s resources would all have to be resolved.

REPURCHASES

Repurchases are the reverse of purchases. Using gold, SDRs, or the currency of another member, as specified by the Fund, the member buys back from the Fund excess amounts of its own currency that the Fund holds as a result of the member’s earlier purchases of other currencies.

As noted in Chapter 2, ad hoc arrangements had to be made to effect repurchases after August 15, 1971, including special arrangements for the U.K. repurchase in 1972. Between 1972 and 1978 other ad hoc and temporary arrangements were also made. In 1973, for example, the Executive Board decided that if an obligation to repurchase included an amount of gold equal to less than one standard bar, such an amount should not be collected.3 Since amounts of gold not exceeding one standard bar could be regarded as minimal, the decision to waive these amounts did not materially affect the Fund’s gold position but enabled the Fund to avoid the administrative costs and inconvenience to itself and to members of collecting these amounts. Mr. Wahl dissented from the decision on the grounds that the Fund should not forgo any receipt of gold until the entire problem of gold payments to the Fund, then being debated, was resolved. Another example was that at least until the problem of gold was resolved, members could repay repurchase obligations in SDRs rather than in gold. Payment in SDRs rather than in gold was not a final discharge of the obligation to pay gold. The interim payment was to be subject to the provisions of the Second Amendment.

Another development in the years 1972–78 was the gradual extension of repurchase obligations. As members found it hard to repay in three years under the usual three-to-five-year rule, more members were permitted to complete repurchase in installments over five years. As a matter of general policy, repurchase obligations were extended over longer periods than in the past; new facilities had especially long periods for repurchases. Under the oil facility repurchases were to take place in 16 equal quarterly installments not later than seven years after the drawing, and repurchases under the extended facility were to take place in 12 equal installments within four to ten years after the drawing.

The Fund gradually permitted a member undertaking a repurchase, or when its equivalent, a sale of its currency by the Fund, occurred, to attribute the reduction in the Fund’s holdings of its currency to holdings under any facility. In the past, reductions in the Fund’s holdings of a member’s currency resulting from the discharge of a repurchase obligation not identified with a particular drawing and reductions resulting from sales of a member’s currency were attributed to the member’s drawing having the earliest commitment for repurchase. Only if a member made a voluntary repurchase was it free to attribute the resulting reduction in the Fund’s holdings of its currency to any drawing it desired. Voluntary repurchases were all that were not obligatory. There were few voluntary repurchases.

To put all members on an equal footing and to accommodate members’ desire to choose repurchases they preferred to discharge so as to take advantage of the different periods of use and different rates of charge of new facilities in the Fund, the Executive Directors agreed in March 1977, as a matter of practice, to allow a member to specify the drawing to which it wished to attribute the reduction in the Fund’s holdings of its currency, even when the repurchase was mandatory. If a member wished to attribute a repurchase to a drawing for which the Fund had borrowed and the attribution differed from the original practices, the Fund was to request the lenders to accept the new attribution; otherwise, repayment was to be made in accordance with the original schedule. If there had been recourse to the General Arrangements to Borrow, the matter was to be brought to the Executive Board for decision.

Magnitude of Repurchases

In two of the seven financial years reviewed here—1971/72 and 1977/78—repurchases were the largest ever in the Fund’s history, SDR 3.1 billion and SDR 4.5 billion. Because they exceeded drawings by a considerable amount, there was a net inflow in those years of money from members back to the Fund.

The magnitude of repurchases was attributable to repurchases by industrial members. In the financial year 1971/72 (the year ended on April 30, 1972) repurchases by France and the United Kingdom accounted for SDR 2.5 billion, and in the financial year 1977/78 (the year ended on April 30, 1978) repurchases by the United Kingdom and Italy accounted for SDR 2.6 billion. In fact, for the seven-year period as a whole, repurchases by industrial members, almost entirely by the three mentioned above, accounted for more than half of total repurchases, SDR 5.7 billion out of SDR 11.2 billion. In other financial years, however, 1974/75 for instance, total repurchases were the smallest in many years. For the seven-year period, total repurchases of SDR 11.2 billion were somewhat less than half the amount of total drawings, so that there was a net outflow of money from the Fund. Table 22 below shows drawings and repurchases for each of the seven financial years 1971/72 to 1977/78. That repurchases were very much larger than drawings in the financial year ended on April 30, 1978 was of particular significance. The Fund was about to embark on a major review of its conditionality, as described in Chapter 26, and the Executive Directors and the Managing Director and staff could not help being aware that there was at the time a net transfer of money from members to the Fund rather than the other way round.

Table 22.Total Drawings and Repurchases, Financial Years 1972–78

(In millions of SDRs)

Drawings1Repurchases2
19722,028.53,122.3
19731,175.4540.3
19741,057.7672.5
19755,102.4518.1
19766,591.4960.1
19774,910.3868.2
19782,503.04,485.0
Total323,368.811,166.5

Includes drawings in the reserve tranche that were not subject to repurchase.

Includes repurchases that reduced the Fund’s holdings of members’ currencies below the amounts originally paid on subscription account and repurchases of members’ currencies paid in settlement of charges. Excludes sales of currencies of members held by the Fund in excess of 75 percent of quota, as a result of previous drawings; these sales had the effect of repurchase.

Components may not add to totals because of rounding of figures for individual years.

Includes drawings in the reserve tranche that were not subject to repurchase.

Includes repurchases that reduced the Fund’s holdings of members’ currencies below the amounts originally paid on subscription account and repurchases of members’ currencies paid in settlement of charges. Excludes sales of currencies of members held by the Fund in excess of 75 percent of quota, as a result of previous drawings; these sales had the effect of repurchase.

Components may not add to totals because of rounding of figures for individual years.

Repurchases were, of course, widely distributed among members, but there were concentrations among some members too. The non-oil developing members as a group were making substantial repurchases and several individual countries among them, including Argentina, Bangladesh, Chile, India, Pakistan, and the Philippines, were repaying the Fund by sizable amounts. Table 23 lists the amounts of repurchases by each member, grouped into economic categories.

Table 23.Repurchases by Members, Grouped by Economic Category,1 Financial Years 1972–78

(In millions of SDRs)

1972197319741975197619771978Total2
Industrial Members
Denmark38.83.942.7
France983.8983.8
Italy1,308.61,308.6
Luxembourg0.70.7
United Kingdom1,564.4396.31,310.03,270.7
United States110.1110.1
Total2,587.7110.1396.33.92,618.65,716.6
More Developed Primary Producing Members
Australia85.685.6
Greece77.177.1
Iceland–31.01.0
New Zealand18.318.3
Portugal4.04.0
Romania55.055.0
South Africa75.085.0160.0
Turkey117.39.637.8164.7
Yugoslavia20.015.051.751.821.8114.7275.0
Total137.315.061.351.821.875.0478.5840.7
Major Oil Exporting Members
Indonesia21.038.0103.736.410.065.0274.1
Iran13.234.747.9
Iraq17.210.027.2
Nigeria3.13.117.723.9
Total37.393.0131.436.410.065.0373.1
Non-Oil Developing Members
Africa
Botswana0.60.6
Burundi5.12.11.60.24.813.8
Cameroon2.32.3
Central African Republic0.10.10.10.11.50.32.2
Chad0.10.61.22.30.11.65.9
Comoros0.50.5
Congo, People’s Republic of0.10.10.10.10.13.33.8
Equatorial Guinea1.81.8
Gabon33333
Gambia, The0.10.10.10.11.21.6
Ghana25.612.76.72.71.749.4
Guinea0.71.95.51.79.8
Guinea-Bissau0.80.8
Ivory Coast24.210.034.2
Kenya22.637.460.0
Lesotho0.10.10.20.20.61.2
Liberia4.31.81.41.41.91.312.1
Madagascar8.88.8
Malawi0.20.21.832.2
Mali5.20.71.21.22.23.00.313.8
Mauritania0.10.10.10.61.62.5
Mauritius0.63.05.539.1
Morocco45.818.2364.0
Niger333333
Rwanda5.02.17.1
São Tomé and Principe0.40.4
Senegal0.30.30.30.61.02.5
Seychelles0.10.1
Sierra Leone1.20.22.13.5
Somalia33330.30.50.8
Sudan15.615.68.13.69.620.019.491.9
Swaziland0.10.10.40.70.41.032.7
Tanzania3.624.027.6
Tunisia4.514.619.1
Uganda1.310.15.116.5
Upper Volta1.10.60.11.8
Zaïre5.722.628.3
Zambia19.019.019.019.076.0
Subtotal114.068.733.139.888.096.7138.4578.7
Asia
Afghanistan4.84.05.06.02.09.39.240.3
Bangladesh28.333.038.699.9
Burma5.010.08.59.04.07.17.951.5
China459.930.089.9
Fiji3.63.6
India62.0230.0281.2573.2
Korea37.5320.027.655.1
Lao People’s Democratic Republic0.40.4
Malaysia7.285.792.9
Nepal33.13.1
Pakistan0.925.940.910.925.959.087.2250.7
Papua New Guinea5.05.010.0
Philippines28.531.056.033.726.638.838.8253.4
Sri Lanka24.228.813.322.619.317.723.7149.6
Thailand2.12.1
Western Samoa0.50.71.2
Subtotal63.4101.8138.4142.5176.7501.1553.01,676.9
Latin America and the Caribbean
Argentina110.0126.048.0320.4604.4
Bahamas5.0335.0
Barbados1.21.2
Bolivia4.010.03.62.49.213.92.845.9
Chile39.51.539.523.884.879.5268.6
Colombia33.547.039.33119.8
Costa Rica0.32.42.43.04.212.3
Dominican Republic7.72.013.510.733.9
Ecuador8.221.37.62.639.7
El Salvador5.08.28.84.55.121.653.2
Grenada0.50.5
Guatemala3.06.09.0
Guyana0.12.62.18.63.216.6
Haiti3.01.10.90.43.83.73.316.2
Honduras6.212.518.7
Jamaica3.75.513.313.235.7
Mexico92.592.5
Nicaragua6.811.04.05.26.86.740.5
Panama6.61.02.910.5
Peru30.725.961.5118.1
Trinidad and Tobago11.34.415.7
Uruguay5.222.416.517.325.94.321.6113.2
Subtotal150.5154.8182.5216.3234.6164.5568.01,671.2
Middle East
Cyprus7.07.0
Egypt27.236.24.717.220.222.028.0155.5
Israel65.027.192.1
Jordan5.81.67.4
Syrian Arab Republic4.84.84.812.512.55.444.8
Yemen Arab Republic1.01.0
Yemen, People’s Democratic Republic of1.51.5
Subtotal32.0107.015.331.332.727.463.6309.3
Total359.9432.3369.3429.9532.0789.71,323.04,236.1
GRAND TOTAL23,122.2540.3672.1518.1960.1868.64,485.111,166.5

A dot (•) indicates that the country was not a member at the time; a dash (—) indicates that no repurchases were made.

Components may not add to totals because of rounding of figures for individual members.

Less than SDR 50,000.

See fn. 6 in Chap. 2.

A dot (•) indicates that the country was not a member at the time; a dash (—) indicates that no repurchases were made.

Components may not add to totals because of rounding of figures for individual members.

Less than SDR 50,000.

See fn. 6 in Chap. 2.

CURRENCIES USED: POLICIES UNTIL 1971

One of the most complicated subjects with respect to the Fund’s transactions was the determination of the particular currencies to be used in purchases (drawings) and repurchases.

Until August 15, 1971, the currencies used in the Fund’s transactions were selected on the basis of guidelines set forth in an Executive Board decision of July 1962.4 Under this decision, the chief determinants of the currencies to be used were the balance of payments and reserve positions of individual members and the Fund’s holdings of each member’s currency compared with its quota. The economic concept involved was that reserves should flow, through the Fund, from members with strong balance of payments and reserve positions to members with weak ones. Ideally, each member’s reserve position in the Fund should move in parallel with movements in its gross reserves. These economic considerations were overridden, however, by legal constraints in the original Articles of Agreement protecting the composition of the Fund’s holdings of currencies and by attention to members’ attitudes toward use of their currencies by the Fund. On the repurchase side, usable currencies were limited under the Articles to the currencies of those members that had assumed the obligations of Article VIII (and hence had convertible currencies) and that the Fund did not hold in amounts above 75 percent of the member’s quota. Balances of a nonconvertible currency could, however, be “deemed” to be convertible and hence acceptable in repurchase. This deeming took place for a number of currencies, as noted later in this chapter. On the purchase side, as a matter of practice, the Fund traditionally did not allow a member’s currency to be drawn without the member’s agreement.

Following the decision of 1962, the staff gradually assumed the responsibility of drawing up for each quarter of the financial year a “currency budget,” that is, a proposed list of the currencies to be used in purchases and repurchases with amounts suggested for each currency. In drawing up this list, the staff tried to equalize the ratios between members’ reserve positions in the Fund and their gross holdings of gold and foreign exchange. Purchases were distributed over the list of currencies of members with strong balance of payments and reserve positions in proportion to their gross holdings of gold and foreign exchange. Repurchases were distributed in proportion to their reserve positions in the Fund. The rationale of this procedure was that when currencies were purchased, the Fund’s holdings of them declined, and when currencies were used in repurchases, the Fund’s holdings of them were replenished; these movements were reflected in converse movements in the members’ reserve positions in the Fund. A distribution of repurchases in proportion to members’ reserve positions in the Fund thus tended to counterbalance the cumulative net use of currencies in purchases, leading to a gradual harmonization of the ratios between members’ reserve positions in the Fund and their holdings of gold and foreign exchange.

In applying guidelines for determining currency budgets, the staff did not use a precise formula, but adapted the guidelines to fit changing circumstances. The amounts derived from calculations were often modified by taking into account members’ economic positions, the attitudes of members toward having their currencies used in the Fund’s transactions, and the composition of the Fund’s currency holdings. The proposed currency budgets were submitted to the Executive Board for approval but only after consultations were held with individual Executive Directors to obtain their concurrence in the amounts proposed for the currencies of their countries. Whenever there were unusually large drawings and repurchases, such as those by the United Kingdom and the United States, the currencies to be used were determined outside the currency budget.

The number of currencies included in the currency budget was gradually enlarged. By 1971, 24 currencies were being used in drawings. The number of currencies used for repurchases remained considerably smaller than that for drawings; some countries whose currencies were used for drawings had not yet accepted the obligations of Article VIII so that their currencies were ineligible for use in repurchases, while changes in members’ balance of payments and reserve positions severely limited the number of currencies used in repurchases. In December 1969 the Executive Board approved the use of SDRs for members’ repurchases from the Fund. SDRs were not included in the currency budget because they were not currency, but members could opt to repurchase with SDRs instead of with the currencies listed in the budget and did so to a considerable extent in 1970 and 1971. In September 1971, the Executive Board agreed that SDRs held by the Fund in its General Account could be used in purchases in place of currencies.5

CURRENCIES USED: POLICIES AFTER AUGUST 15, 1971

These policies on selection of currencies came to an abrupt end after the suspension of official convertibility of the dollar into gold by the United States on August 15, 1971. With the end of dollar convertibility and the prospect that the dollar price of gold would be raised, certain members with super gold tranche positions in the Fund were reluctant to have these positions (which represented primary reserve assets) diminished through use of their currency in repurchase, while members with liabilities to the Fund saw advantage in their discharge. Consequently the staff had to make ad hoc arrangements to enable repurchases to take place in late 1971 and to enable a large repurchase by the United Kingdom in April 1972.

Throughout 1972, the Fund’s operations continued on the basis of such turnstile arrangements. To achieve an equitable distribution of changes in net creditor positions and to even out the effects of the Fund’s transactions on the composition of members’ reserves, the currencies used in drawings were limited in practice to those acceptable by the Fund in repurchases. This procedure meant that less emphasis was placed on equalizing the reserve positions in the Fund of creditor members relative to their holdings of gold and foreign exchange. In March 1972 the number of currencies included in these turnstile arrangements was increased. Austrian schillings, Italian lire, and Japanese yen could be used in drawings and repurchases (in addition to Canadian dollars, deutsche mark, and French francs), while pounds sterling could be used in drawings.

In the next several years, when purchases started to exceed repurchases, however, the staff had to devise a number of temporary policies and procedures for the currencies to be used in the Fund’s transactions. This task became especially difficult as the volume of transactions swelled. During 1973 the procedure was resumed of determining the amounts of currencies to be used in drawings in accordance with the member’s holdings of gold and foreign exchange and the amounts of currencies for use in repurchases in accordance with the member’s reserve position in the Fund. This procedure tended to equalize, for the currencies to which it was applied, the cumulative use of members’ currencies relative to their holdings of gold and foreign exchange. The use of Belgian francs, Mexican pesos, and Netherlands guilders in repurchases was, however, to a large extent balanced by use of these currencies in drawings.

From time to time several modifications to these practices were introduced to avoid running down the Fund’s holdings of currencies too quickly and to avoid undue use of strong creditor currencies in repurchases. In the financial year 1974/75, for example, the Fund began to sell extensively (that is, to use in members’ purchases) currencies of members with debtor positions in the Fund (that is, currencies of which the Fund’s holdings were in excess of 75 percent of the member’s quota). A sale of currency held above that level reduced the member’s indebtedness to the Fund and had the effect of substituting for repurchases. This practice explained why, in 1974/75, total repurchases, which amounted to only SDR 518 million, were the smallest amount for any financial year since 1966/67. Eventually, the currencies of more members with debtor positions were included in the currency budget. In the financial year 1976/77, for instance, the CFA franc (Upper Volta), the Cyprus pound, the Nicaraguan córdoba, the Papua New Guinea kina, the Salvadoran colon, and the Uruguayan new peso were included in the currency budget for the first time. Nevertheless the sale by the Fund of currencies of debtor members had to proceed carefully, in consultation with the member, because such sales were equivalent to requiring the members concerned to repay their indebtedness.

When the Fund’s holdings of particular currencies were reduced to very low levels, both in absolute amounts and in relation to members’ quotas, the Fund put great emphasis on protecting its holdings of these currencies and much less emphasis on members’ reserves. In effect, the Fund concentrated on selling the currencies of members with strong external positions whose currencies it held in relatively large amounts. This practice led in 1974/75, for instance, to the more extensive use of U.S. dollars, French francs, and Japanese yen than would have been the case had the Fund continued to sell currencies in proportion to members’ reserves.

The number of currencies that could be used became critical in 1972–78. For the currency of a member to be used in drawings, that member had to make arrangements for converting the amounts of its currency received by other members in drawings from the Fund into currencies that the drawing members could use. If a drawing member received, for instance, Bahrain dinars, the Government of Bahrain had to have in place arrangements whereby the drawing member might readily exchange Bahrain dinars for U.S. dollars, pounds sterling, or other currency customarily used in exchange markets and in the settlement of international transactions.

Under the original Articles of Agreement, members were not legally obliged to make such conversion arrangements. Conversion arrangements were based on a member’s willingness to collaborate with the Fund. While many members were willing to collaborate with the Fund in exchanging their currencies for more usable currencies, some were not, especially since they might then have to keep on hand such usable currencies and even possibly forgo interest on some of their reserves. The reluctance of members to exchange their currencies for the currencies common to international transactions limited the Fund’s use of certain currencies.

From 1974 onward the Managing Director and the staff continuously engaged in persuading a number of members to make the necessary arrangements for converting balances of their currencies purchased from the Fund so as to enlarge the number of currencies that the Fund could use in its drawings. On the occasion of the Sixth General Review of Quotas in 1976, the Board of Governors’ resolution provided that members would have to make arrangements satisfactory to the Fund for use of their currencies in the operations and transactions of the Fund.

Gradually, as many more members made conversion arrangements, more currencies could be used in the Fund’s currency budget. In the financial year 1974/75, for instance, the currencies used either for the first time or after a lapse of many years were Argentine pesos, Bahrain dinars, Ecuadoran sucres, Indonesian rupiah, Kuwaiti dinars, Malaysian ringgit, rials Omani, Qatar riyals, Spanish pesetas, U.A.E. dirhams, and Venezuelan bolívares. By the end of the financial year 1976/77, significant progress had been made in extending the list of usable currencies. A total of 101 members had completed the necessary arrangements for exchanging their currencies into alternative, more commonly used currencies. Included for the first time in the currency budget in the financial year 1976/77, for instance, were Colombian pesos, Guatemalan quetzales, Luxembourg francs, Nigerian naira, Paraguayan guaraníes, Saudi Arabian riyals, and Yemen rials. In order to extend further the number of currencies that could be used in repurchases, the Fund deemed a number of balances of currencies of members having Article XIV status as convertible for the purpose of accepting them in repurchase. The currencies were those of Brazil, Colombia, Indonesia, Malta, Nigeria, Spain, Trinidad and Tobago, and Venezuela.6

The increase in the number of usable currencies and the expansion in the use of the Fund’s resources led to a greater dispersion and absolute increase in members’ net creditor positions in the Fund. Members’ net creditor positions rose from SDR 2.4 billion on April 30, 1975 to SDR 3.7 billion on April 30, 1976 and to SDR 6.3 billion on April 30, 1977. Many more members, including developing members such as Brazil, Colombia, Guatemala, Malta, Nigeria, Trinidad and Tobago, and Upper Volta, became net creditors in the Fund. The increase in the number of usable currencies notwithstanding, the Fund’s holdings of U.S. dollars still represented a large proportion—50–60 percent—of the Fund’s holdings of usable currencies, and the currencies of a few creditor members made up nearly 90 percent of the total.

Use of SDRs in Drawings

In March 1977 the Executive Board decided to include SDRs in the currency budget for purchase by members drawing on the Fund. Members obtaining SDRs in this way might hold the SDRs or use them to acquire currency in a transaction with designation. This decision came about because the Fund’s holdings of SDRs in its General Account were increasing and were expected to increase further, while its holdings of usable currencies were decreasing. An Executive Board decision of August 1976 that enabled participants in the Special Drawing Account to obtain SDRs from other participants in certain categories of transaction by agreement among themselves, rather than from the General Account, had had the effect of decreasing the inflow into the Fund of usable currencies and of increasing the Fund’s holdings of SDRs. During the period August 1976 to April 1977, for instance, participants obtained SDRs totaling SDR 153 million from other participants in transactions by agreement; most of these SDRs might otherwise have been acquired from the Fund’s General Account with currencies acceptable to the Fund. The Fund’s holdings of SDRs in the General Account also increased because members that had no need to reconstitute their SDR holdings paid their charges to the Fund in SDRs.

As a result, the holdings of SDRs in the Fund’s General Account more than doubled in the financial year 1976/77, from SDR 310 million to SDR 771 million. At the same time, the continued heavy use of the Fund’s resources brought sharp reductions in the Fund’s holdings of usable currencies. These holdings dropped from SDR 10 billion in April 1975 to SDR 7.2 billion in April 1976 and to SDR 4.5 billion in April 1977. The staff argued that the inclusion of SDRs in the currency budget on a regular basis would have several advantages. It would alleviate the shortage of usable currencies. It would promote the role of the SDR as a means of payment as well as conserve the Fund’s holdings of usable currencies. And prior to the coming into effect of the Second Amendment when the quarterly currency budget and the quarterly designation plan for SDRs would be considered simultaneously and when the currencies of all members would be freely usable, it would mean that those members included in designation plans for SDRs but not in currency budgets (because arrangements had not been completed regarding the usability of their currencies in Fund transactions) were also indirectly included in the currency budget. This arrangement was fairer to those members whose currencies were in the currency budget.

The substitution of SDRs for currency was subject to agreement by the participants purchasing SDRs, who could use SDRs immediately, if they so desired, to obtain currency through a transaction with designation. In the 1977/78 financial year, the amount of SDRs included for sales in the four quarterly currency budgets averaged about SDR 300 million per budget, or 37 percent of the total budgeted sales of currencies and SDRs. Actual sales of SDRs through the currency budget amounted to 33 percent of total sales. The inclusion of SDRs in the budget meant that the name “currency budget” would have to be changed to “operational budget.”

Further Techniques with Regard to Currency Policy

By 1977/78 the Fund was heavily financing drawings through sales of SDRs. Nevertheless, the Fund also sold the currencies of several members whose balance of payments and reserve positions had improved and which wished to reduce their indebtedness to the Fund not only by making repurchases but also by having their currencies sold. In the financial year 1976/77, and again in 1977/78, the Fund agreed with certain creditor members whose currencies were not generally usable in Fund transactions, on the sale of their currencies to the equivalent of the amount of gold that the Fund distributed to them under its policies regarding gold distribution.7 Moreover, in accordance with established practice, large individual drawings, such as those of the United Kingdom in 1977/78, were not included in the operational budget, but were agreed on the basis of special consultations with Executive Directors.

In brief, the Fund’s tight liquidity position, especially from 1974 to 1977, and the absence of amended Articles meant that the staff had continuously to innovate procedures for the currencies to be used in drawings and repurchases.

Currency policy was finally to prove somewhat easier in the financial year ended April 30, 1978 when the Fund’s liquidity underwent its first large overall improvement since 1974/75. The volume of usable currencies held by the Fund more than doubled during the year, to about SDR 11.2 billion. This increase followed the substantial volume of net repurchases (SDR 2 billion) and of the inflow of currencies and SDRs that arose from members paying the increase in their subscriptions to which they had consented under the Sixth General Review of Quotas (SDR 2.7 billion). In fact, as members continued to pay their subscriptions under the Sixth General Review, the Fund’s holdings of usable currencies rose to SDR 14.5 billion by the end of June 1978.

Moreover, when the Second Amendment became effective in April 1978, provisions entered into force regarding the usability of the Fund’s holdings of the currencies of all members, as discussed in Chapter 38. This development made it possible to add to the total of usable currencies the equivalent of about SDR 1 billion in currencies not previously used by the Fund or sold only on an irregular basis in limited amounts. Nonetheless, the Fund’s holdings of only 11 creditor currencies totaled about 85 percent of all usable currencies at the end of April 1978, with the U.S. dollar representing 50 percent of the total.

Table 24 below lists the currencies in which drawings (other than those under the oil facility) and repurchases were made during the financial years 1972–78 and the amounts of gold and SDRs used. Forty-six currencies were used in drawings, almost double the number used in 1966–71.

Table 24.Drawings and Repurchases in Currencies, SDRs, and Gold, Financial Years 1972–78

(In millions of SDRs)

Drawings 1Repurchases
Algerian dinars1.0
Argentine pesos33.3
Australian dollars53.097.9
Austrian schillings237.1115.3
Bahrain dinars7.0
Belgian francs1,037.2815.0
Brazilian cruzeiros93.311.7
Canadian dollars686.0727.5
Colombian pesos39.7
CFA francs (Niger)1.0
CFA francs (Upper Volta)1.5
Danish kroner111.313.2
Deutsche mark2,646.81,843.7
Ecuadoran sucres10.0
Ethiopian birr0.5
Fiji dollars2.0
French francs1,158.8546.3
Guatemalan quetzales4.5
Indonesian rupiah20.0
Iranian rials21.5
Iraqi dinars1.0
Irish pounds57.414.0
Italian lire113.8142.0
Japanese yen1,567.7865.9
Kuwaiti dinars51.010.3
Luxembourg francs4.0
Malaysian ringgit14.2
Malta pounds10.71.1
Mexican pesos17.5
Netherlands guilders1,183.9733.6
Nigerian naira11.5
Norwegian kroner136.470.1
Paraguayan guaraníes2.0
Pounds sterling524.510.0
Qatar riyals12.02.7
Rials Omani3.0
Saudi Arabian riyals38.0
South African rand11.00.2
Spanish pesetas27.74.5
Swedish kronor175.282.5
Trinidad & Tobago dollars2.0
U.A.E. dirhams11.01.0
U.S. dollars4,381.72,268.1
Uruguayan new pesos5.0
Venezuelan bolívares223.880.6
Yemen rials3.0
Total in currencies14,737.08,474.6
SDRs1,729.41,979.3
Gold512.1
Total116,466.410.966.0

Exclusive of drawings under the oil facility for which different arrangements applied.

Components may not add to totals because of rounding of figures for individual members.

Exclusive of drawings under the oil facility for which different arrangements applied.

Components may not add to totals because of rounding of figures for individual members.

The number of currencies (24) used for repurchases in 1972–78 was only about half that used for drawings, but was still larger than the number of currencies used for repurchases in 1966–71. Nevertheless, nearly SDR 2 billion of the SDR 11 billion of repurchases was effected in SDRs, and the bulk of other repurchases was effected in seven currencies, U.S. dollars, deutsche mark, Japanese yen, Belgian francs, Netherlands guilders, Canadian dollars, and French francs.

THE FUND’S LIQUIDITY

The foregoing description of the implementation of currency policy suggests how difficult it was in 1972–78 to gauge the Fund’s ability to meet demands on its resources. It was nevertheless imperative for the Executive Directors and for the Managing Director and staff, especially of the Treasurer’s Department, to be able to assess this ability accurately so that decisions about prospective new borrowings or requests for further increases in members’ quotas could be taken “in light of the facts.” To help this assessment, the staff of the Treasurer’s Department gradually evolved the concept of the Fund’s liquidity.

The concept of the Fund’s liquidity was essentially that of the relationship between the Fund’s readily usable assets and the demands that might be made on them. It differed from the “Fund’s financial position,” which referred to the total income and expenditures of the Fund, both operational and administrative, that is, to the Fund’s budget, discussed in the next chapter.

In assessing the Fund’s liquidity, both the Fund’s readily available assets and its liquid liabilities had to be added up and their adequacy appraised. On the side of readily available assets, the Fund had, of course, its own resources derived from members’ subscriptions. Initially these resources were in the form of gold and members’ currencies. After 1969 they were also in the form of the SDRs held in the General Account, obtained when members settled their obligations to the Fund, such as charges and repurchases, in SDRs. To give an indication of magnitudes, at the end of 1978 the Fund’s own resources in gold, currencies, and SDRs totaled a little over SDR 44 billion. Holdings of members’ currencies were SDR 39 billion; holdings of approximately 118 million ounces of gold, valued at SDR 35 an ounce, came to a little over SDR 4 billion, and holdings of SDRs were a little over 1 billion. If the Fund’s gold holdings were valued at the market price for gold at the end of 1978, they would have been the equivalent of SDR 22 billion. But they were not so valued.8

All these ready assets did not have the same degree of usability or liquidity, however. While the Fund’s gold holdings were an important part of its assets, providing the Fund’s creditors considerable confidence, they could not be considered immediately usable. Decisions about the Fund’s gold were difficult and, until the Second Amendment, there were many legal constraints on what the Fund could do with its gold. The Fund’s holdings of SDRs, on the other hand, were readily available to finance the Fund’s transactions and operations. They could be sold directly to members making drawings on the Fund, and the recipients could, if they wished, use them immediately to acquire foreign exchange. Alternatively, the Fund itself could sell SDRs to acquire currency that could be provided to a member making a drawing. But, despite their usability, because the Fund’s holdings of SDRs were small, they were not an important element in the Fund’s liquidity as of the end of 1978.

It was thus the Fund’s holdings of currencies that generally provided the bulk of the Fund’s readily available resources. Nonetheless, as the previous section indicates, until the Second Amendment went into effect, the Fund’s ability to use all these currencies was also a complex matter. In addition to its own resources, the Fund’s ready assets included its access to borrowed money. The amounts available under the GAB, under the borrowing agreements for the oil facility, and under the borrowing agreements for the supplementary financing facility could all be considered part of the Fund’s liquid assets.

Against these assets were the Fund’s liabilities. The most liquid liabilities were immediately encashable claims of members, that is, members’ reserve tranche positions in the Fund and their loan claims on the Fund derived from borrowing by the Fund. The Fund had to be in a position to finance at once any reserve tranche drawings and to redeem any loan claims. Sizable amounts were involved. As of the end of 1978, for example, readily encashable claims amounted to close to SDR 15 billion, reserve tranche positions being SDR 8.5 billion and loan claims being SDR 6.4 billion. The rest of the Fund’s liquid liability was in the form of the Fund’s need to finance drawings in the credit tranches and under its various special facilities.

In order to judge the adequacy of the Fund’s readily available assets in the light of these liquid liabilities, the extent to which members were likely to request drawings had to be forecast. Here it was necessary to judge many factors. Possible demands for the encashment of reserve tranche positions or of loan claims on the Fund depended, for example, on developments in the balances of payments of the members that held them, the composition of the reserves of these members, and the attractiveness of liquid claims on the Fund as reserve assets. Possible requests for use of the Fund’s resources in the credit tranches or under the Fund’s various special facilities were even harder to gauge. These requests were influenced in varying degrees by the conditionality attached to the different facilities, by the levels of the Fund’s charges, and by alternative financing available to members.

In other words, in order to determine the adequacy of the Fund’s assets or liquidity, some judgment had to be made about the distribution among members of balance of payments surpluses and deficits, changes in members’ reserve levels, the willingness of members to finance their deficits by using their reserve positions in the Fund or by drawing on Fund credit, and the willingness of creditors to increase their reserve positions in the Fund, including lending to the Fund. The concept of the Fund’s liquidity was accordingly complex, involving many elements of judgment. The concept was also dynamic. It varied over time as the character of the Fund’s operations changed. The introduction of new facilities or the establishment of new means of financing changed the ingredients making up the Fund’s liquidity. Moreover, once assessment of the Fund’s liquidity had been made, the position could change rapidly. A large drawing, such as that by the United States in November 1978, could suddenly and drastically reduce the Fund’s holdings of usable currencies and place the Fund in the position of being unable to use its holdings of the currency of the drawing country, U.S. dollars in this case. It was therefore exceedingly difficult for the staff to make assessments of the Fund’s liquidity with any degree of firmness even for as short a time as a year ahead.

Table 25 and Table 26 below indicate the kind of tables that the staff used to analyze the Fund’s liquidity and to present relevant data to the Executive Board; these tables usually provided data for the variables used for several previous years. Table 25 lists the absolute magnitudes for quotas, usable currencies, holdings of SDRs, holdings of gold, the amounts available under borrowing arrangements, the size of reserve positions in the Fund, and the use of Fund credit at the end of each of the years 1972–78. From this table it can be determined, for example, that, as of the end of 1977, the Fund’s total readily available assets (total quotas, holdings of SDRs, and amounts available under borrowing arrangements) were SDR 35.4 billion to finance possible liquid claims (use of Fund credit and reserve positions in the Fund) of over SDR 31 billion. Usable currencies were only SDR 6 billion. The Fund’s liquidity was distinctly better as of the end of 1978. The three sources of readily available assets of SDR 45.7 billion were available to finance possible Fund credit and reserve positions of just over SDR 25 billion; usable currencies were SDR 10 billion.

Table 25.Factors Relevant to the Fund’s Liquidity, 1972–78(In billions of SDRs)
As of December 31
1972197319741975197619771978
Total quotas29.229.229.229.229.229.239.0
Usable currencies15.310.013.19.15.66.110.2
U.S. dollars5.05.24.82.93.2
Holdings of SDRs0.60.50.50.60.71.21.2
Holdings of gold5.45.45.45.45.24.64.1
Amounts available under
borrowing arrangements5.85.66.96.96.35.05.5
GAB5.85.65.55.56.34.85.3
Oil facility1.31.4
Other0.20.2
Use of Fund credit21.11.03.77.412.713.310.3
Compensatory financing facility0.40.50.50.72.72.82.9
Oil facility1.74.86.76.45.0
Reserve positions in the
Fund6.36.28.812.617.718.114.8
Reserve tranche positions6.36.27.17.911.09.98.5
Loan claims1.74.86.78.26.4

The total of the Fund’s holdings of currencies of all members listed in the currency budget at the end of each year, except for the currencies of members whose holdings by the Fund were in excess of quota.

Use of Fund’s resources other than in the reserve tranche.

The total of the Fund’s holdings of currencies of all members listed in the currency budget at the end of each year, except for the currencies of members whose holdings by the Fund were in excess of quota.

Use of Fund’s resources other than in the reserve tranche.

Table 26.Ratios of Fund Liquidity, 1972–78(In percentages)
As of December 31
1972197319741975197619771978
Use of Fund credit as percentage of quotas of all members
Total Fund credit4426434626
Compensatory financing facility12229108
Oil facility616232213
Use of Fund credit as percentage of quotas of all members using Fund credit
Total Fund credit38356811811311886
Compensatory financing facility13161011242424
Oil facility3175605742
Usable currencies as percentage of
Reserve tranche positions841611841155162121
Total reserve positions (including loan claims)8416114872323469

Table 26 lists a number of ratios used by the staff in assessing the Fund’s liquidity and the actual figures for these ratios as of the end of each year, 1972–78. Again, the tight liquidity position of the Fund in some years and its easing in others can be seen in these ratios. As of the end of 1977, for example, the use of Fund credit was 46 percent of members’ quotas. Usable currencies were only 34 percent of members’ total reserve positions in the Fund. These ratios improved greatly in 1978. The use of Fund credit was only 26 percent of the quotas of all members and usable currencies were 69 percent of members’ total reserve positions in the Fund. As 1978 ended, the Fund staff was still developing the concept of the Fund’s liquidity.

Further information on the Fund’s charges from 1945 to 1971 can be found in the earlier Histories. See History, 1945–65, Vol. I, for example, pp. 84–86, 103–104, 229–30, 321–23, 371–72, 417, 457–60, 527–30, and 562, and Vol. II, pp. 428–36; and History, 1966–71, Vol. I, pp. 378–81 and pp. 385–92.

E.B. Decision No. 4239-(74/67), June 13, 1974; Selected Decisions, 10th Issue, p. 110.

E.B. Decision No. 4087-(73/105), November 9, 1973; Vol. III below, p. 523.

E.B. Decision No. 1371-(62/36), July 20, 1962; History, 1945–65, Vol. III, pp. 235–38.

Further details on the Fund’s policies with regard to the currencies used in drawings and repurchases through the end of 1971 can be found in History, 1945–65, Vol. II, pp. 448–59 and History, 1966–71, Vol. I, pp. 322–29.

After Venezuela accepted the obligations of Article VIII on July 1, 1976, its currency became fully usable for repurchase even in the absence of this decision.

See Chap. 34.

Because of the definition of the SDR, the official price of gold in terms of SDRs remained at SDR 35 an ounce, although the official price of gold in dollars after the two devaluations of the dollar rose to $38 an ounce in December 1971 and $42 in February 1972. Under the Articles of Agreement as amended in 1969, the value of the SDR was set as equal to US$1 with gold content of the weight and fineness in effect on July 1, 1944. The SDR was thus not devalued in terms of gold when the U.S. dollar was devalued in terms of gold. The Fund’s gold holdings continued to be valued at SDR 35 an ounce rather than at the market price for gold because the Fund’s equivalent liabilities to the members which had contributed the gold in the first place—members’ reserve (gold) tranche positions in the Fund—were also valued at SDR 35 an ounce. The valuation and enlargement of reserve tranche positions in accordance with the market price of gold would unduly reduce the relative size of credit tranche positions and cause other complications for the Fund’s transactions and operations.

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