An important feature of the Articles of Agreement of the International Monetary Fund is the power which is conferred upon the Fund to adopt final interpretations of its charter. This power is to be found in Article XVIII:

An important feature of the Articles of Agreement of the International Monetary Fund is the power which is conferred upon the Fund to adopt final interpretations of its charter. This power is to be found in Article XVIII:

  • (a) Any question of interpretation of the provisions of this Agreement arising between any member and the Fund or between any members of the Fund shall be submitted to the Executive Directors for their decision. If the question particularly affects any member not entitled to appoint an executive director it shall be entitled to representation in accordance with Article XII, Section 3 (j).

  • (b) In any case where the Executive Directors have given a decision under (a) above, any member may require that the question be referred to the Board of Governors, whose decision shall be final. Pending the result of the reference to the Board the Fund may, so far as it deems necessary, act on the basis of the decision of the Executive Directors.

  • (c) Whenever a disagreement arises between the Fund and a member which has withdrawn, or between the Fund and any member during liquidation of the Fund, such disagreement shall be submitted to arbitration by a tribunal of three arbitrators, one appointed by the Fund, another by the member or withdrawing member and an umpire who, unless the parties otherwise agree, shall be appointed by the President of the Permanent Court of International Justice or such other authority as may have been prescribed by regulation adopted by the Fund. The umpire shall have full power to settle all questions of procedure in any case where the parties are in disagreement with respect thereto.1

The power of interpretation created by this provision is an internal one in the sense that at no stage of the interpretative process is there any recourse to an agency external to the Fund itself. Moreover, no special organ of the Fund itself has been created for the purpose of exercising this power. It is exercised by the same organs of the Fund, the Executive Directors and the Board of Governors, as exercise most of the other powers of the institution. In addition, although it is now common practice in the Fund to avoid voting on decisions, if a vote had to be taken on a matter of interpretation, it would be taken in accordance with the system of weighted voting which prevails in the Fund, and a majority of the votes cast would decide the issue.2

The published records of the Bretton Woods Conference, at which the Articles of Agreement of the Fund were drafted, provide hardly any clue as to the reasons that led the drafters to vest a power of final interpretation in the Fund itself. One of the Committee reports states that:

“[The] problem consisted in keeping disputes concerning the interpretation of the Agreement between the Fund and any member country, within the setup of the Fund itself, but, at the same time, to secure for the member in question privileges of fair treatment. I think that members, when they read our proposals, will acknowledge that we have succeeded in finding a workable solution. If a conflict should end in the withdrawal of the member country, or disputes between member countries and the Fund should arise after its possible liquidation, we have drafted rules of arbitration. …”3

One may surmise that there was a feeling at Bretton Woods that frequent appeals to an external tribunal on questions of interpretation, particularly on matters in which the tribunal could not be expert, would impede the work of the Fund.

In their brief in the proceeding before the United States Federal Communications Commission which will be discussed in some detail later in this pamphlet, the Fund and the International Bank for Reconstruction and Development4 explained their powers of interpretation as follows:

‘The basic purpose of these provisions is to assure an expeditious, uniform interpretation of complicated financial agreements, which will enable the Bank and Fund to operate as effective institutions. It is apparent that one of the greatest difficulties in the operation of international organizations in the past has been that no mechanism was established for a speedy settlement of questions of interpretation arising under their basic charters, a settlement which would be binding on all their members.

This problem was particularly acute in the case of financial institutions like the Bank and Fund, whose charters are highly technical and where uniformity, speed and expertness of interpretation are vital to their success. Both the Bank and Fund are faced with difficult technical questions arising under their Agreements and on numerous occasions they have availed themselves of the interpretation machinery to decide certain of these questions. It is absolutely essential to an orderly functioning of these institutions that there be some machinery whereby interpretative questions can be settled with speed, with expert knowledge, with uniformity and with finality. The necessity for a procedure of this nature is not unlike the necessity for an administrative procedure in the United States where expert bodies can, on the basis of their special experience and competence, issue rules which have the force of law.

The interpretation machinery which was agreed to by the framers of the Bank and Fund Agreements at the Bretton Woods Conference in New Hampshire in 1944 is admirably suited to meet the special needs of the Bank and Fund. The Executive Directors are chosen for their special competence in international financial matters; and, functioning in continuous session, they can act with the dispatch and skill essential for operating organizations….”

This pamphlet deals with certain aspects of the practice of the Fund in the interpretation of its Articles. However, problems of interpretation arise on other instruments in the course of the Fund’s work, and this topic also is considered in the later sections of the pamphlet.