The Fund has adopted no more than ten interpretations under Article XVIII. Special circumstances have been responsible for the resort to Article XVIII in these cases. For one reason or another, a member wanted, or the Fund thought it appropriate to give, finality and maximum solemnity to these interpretations. It should be noted that the procedure of Article XVIII can be employed for resolving a problem even though it does not involve a dispute. It is sufficient that a question of interpreting the provisions of the Agreement has arisen between the Fund and a member or between members. Thus, the procedure is available, not merely for the settlement of disputes, but also for the resolution of doubts.
Of the interpretations under Article XVIII, two were connected with the understandings which two countries sought in accepting membership in the Fund. The first of these was the result of a request by the United Kingdom at the Inaugural Meeting of the Board of Governors of the Fund at Savannah, Georgia, in March 1946. This request related to Article IV, Section 5(/), of the Fund’s charter. This article declares that the Fund shall concur in a proposal by a member to change the par value of its currency if the Fund is satisfied that the change is necessary to correct a fundamental disequilibrium. If it is so satisfied, the Fund shall not object because of the domestic policies of the member proposing the change. What the United Kingdom wished to have clarified was “whether, having regard to the intention of the Government of the United Kingdom to maintain full employment and to the terms of Article I (ii) and (v) of the Articles of Agreement, 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.”5 On September 26, 1946, the Executive Directors adopted an interpretation to the effect that the steps referred to “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.”6
The second interpretation was requested by the United States, again at the Savannah Conference. It was requested pursuant to Section 13 of the U.S. Bretton Woods Agreements Act:
“(a) The governor and executive director of the Fund appointed by the United States are hereby directed to obtain promptly an official interpretation by the Fund as to whether its authority to use its resources extends beyond current monetary stabilization operations to afford temporary assistance to members in connection with seasonal, cyclical, and emergency fluctuations in the balance of payments of any member for current transactions, and whether it has authority to use its resources to provide facilities for relief, reconstruction, or armaments, or to meet a large or sustained outflow of capital on the part of any member.
(b) If the interpretation by the Fund answers in the affirmative any of the questions stated in subsection (a), the governor of the Fund representing the United States is hereby directed to propose promptly and support an amendment to the Articles of Agreement for the purpose of expressly negativing such interpretation. The President is hereby authorized and directed to accept an amendment to that effect on behalf of the United States.”7
On March 18, 1946, the Board of Governors adopted a Resolution inviting the Executive Directors, at the request of the Governor for the United States:
“to interpret the Articles of Agreement, pursuant to Article XVIII (a), as to whether the authority of the Fund to use its resources extends beyond current monetary stabilization operations to afford temporary assistance to members in connection with seasonal, cyclical, and emergency fluctuations in the balance of payments of any member for current transactions, and whether the Fund has authority to use its resources to provide facilities for relief, reconstruction, or armaments, or to meet a large or sustained outflow of capital on the part of any member.”
The Executive Directors adopted an interpretation in response to this Resolution on September 26, 1946:
“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.”
Certain aspects of this interpretation are considered later in this pamphlet.
At the Savannah Conference a third interpretation under Article XVIII was requested, in this case by India. Article XII, Section 3(b), provides that five executive directors shall be appointed by the five members having the largest quotas and the rest of the executive directors shall be elected by other members at intervals of two years. Section 3(f) provides that directors shall continue in office until their successors are appointed or elected, and that if the office of an elected director becomes vacant a new director shall be elected for the remainder of the term by the members that elected the former director. India had the lowest of the five largest quotas and was therefore entitled to appoint an executive director. However, it wondered what its position would be if before the next regular election of directors occurred a country joined the Fund with a quota larger than India’s. It therefore requested an interpretation of the provisions referred to.8 On May 8, 1946, the Executive Directors adopted an interpretation to the effect that any member having one of the five largest quotas at the date of a regular election or at any date between regular elections was entitled to appoint an executive director who would hold office until the next regular election without prejudice to the right of a member admitted later to appoint an executive director if that member had one of the five largest quotas.9
The next two interpretations were made by the Executive Directors in order to ensure uniformity among members in their application of certain provisions in the charter. The first of these was an interpretation, adopted on June 10, 1949, of the first sentence of Article VIII, Section 2(b). The following is the text of this interpretation:
“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 Agreement. 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.”10
The other interpretation which seeks to ensure the uniform application by members of a provision in the Articles involves the Fund’s privilege for communications under Article IX, Section 7:
“The official communications of the Fund shall be accorded by members the same treatment as the official communications of other members.”
The interpretation, which was adopted on February 20, 1950, was in reply to certain questions put to the Executive Directors by the executive director for the United States at the request of the U.S. National Advisory Council on International Monetary and Financial Problems.11 Although the questions and the interpretation dealt with other aspects of the privilege in relation to the official cable communications of the Fund, the fundamental problem was whether the privilege embraced the rates charged for such communications. The Executive Directors decided that it did.12 Article IX, Section 7, and the Fund’s interpretation have been the subject of extensive examination in the proceeding already referred to before the U.S. Federal Communications Commission, an agency which exercises regulatory powers over the rates charged for cable telecommunications.
Three of the five further interpretations under Article XVIII deal with the Fund’s investment program.13 In an interpretation of January 25, 1956, the Executive Directors decided that the Fund had an implied power to sell a portion of its gold for U.S. dollars in order to invest the proceeds in short-term U.S. Government securities. The purpose of the investment was to earn income that would offset the capital impairment resulting from the excess of administrative expenses over income. One important feature of the elaborate interpretation is the determination that the Articles require the United States to maintain the gold value of the U.S. Government securities in which the Fund has invested, notwithstanding changes in the par or foreign exchange value of the U.S. dollar.14 The interpretation was the product of study and discussion over a number of years, but very soon after it was adopted the Fund’s accumulated deficit disappeared. On November 27, 1957, the Executive Directors amplified the original interpretation to provide that the investment program should be continued in order to provide a reserve against possible future deficits of the same kind. In an interpretation under Article XVIII of July 24, 1959, the Executive Directors decided that there was authority to invest in U.S. Government securities having a term to maturity not exceeding 12 months. By a later decision, this was extended to 15 months in the case of one particular issue of U.S. Treasury securities.15
The ninth interpretation, adopted on August 24, 1955, deals with the meaning of the provision in Article V, Section 3(a) (iii), under which a member may purchase the currencies of other members from the Fund without the necessity of a waiver when
“The proposed purchase would not cause the Fund’s holdings of the purchasing member’s currency to increase by more than twenty-five percent of its quota during the period of twelve months ending on the date of the purchase….”
If these words were taken to refer to the difference between the level of the Fund’s holdings of the member’s currency 12 months previously and the level to which they would be increased by a proposed purchase, the provision could permit the continuous use of the Fund’s resources in very great amounts in terms of quota. If a member purchases foreign exchange from the Fund, the member transfers an equivalent amount of its own currency to the Fund, and it is supposed to ensure that its use of the Fund’s resources will be temporary by repurchasing its currency from the Fund with gold or the currencies of other members within a brief period of years. In this way, the Fund’s resources can be made to revolve for the benefit of all members. Suppose that a member has made a number of purchases equal to 75 per cent of its quota, and then makes equivalent repurchases of its currency from the Fund. The effect of interpreting the provision to involve the comparison of the two levels of the Fund’s holdings would immediately enable the member, without the need for a waiver, to purchase exchange equal to 75 per cent of quota, and another 25 per cent as well depending on the dates of the earlier purchases. The Executive Directors decided that such an interpretation would be repugnant to the basic ideas of a temporary use of the Fund’s resources and the revolving character of those resources. They decided instead that in any period of 12 months a member can purchase exchange equal to a basic amount of 25 per cent of its quota. Repurchases made during the period and before such a purchase do not augment that amount. Repurchases made after the purchase restore the right to purchase pro tanto but not in excess of 25 per cent of quota.16
It should be apparent from this brief treatment of nine of the Article XVIII interpretations that there have been varied motives for recourse to that provision. In two early cases, a country sought reassurance, in connection with its assumption of membership, on some feature of the Articles which it regarded as peculiarly important to itself. Another early interpretation resulted from the concern felt by one member that it might be unable to have its votes cast for a temporary period. Other interpretations were designed to ensure that members would follow a uniform practice in the application of certain provisions. The interpretations dealing with investment were primarily for the purpose of defining certain implied powers of the Fund to conserve its resources. Another interpretation was adopted in order to dispel the ambiguities that obscured an important aspect of members’ rights to use the Fund’s resources. Notwithstanding the diversity of motives responsible for these interpretations, none of them involved disputes between the Fund and a member in the ordinary sense of that word. That is to say, although frequently there were differences of opinion on the correct interpretation, and differences which were sometimes resolutely argued over long periods, the cases were less in the nature of adversary proceedings between a member and the Fund than cooperative efforts to find solutions to legal problems.
All the interpretations were adopted by the Executive Directors, even when the request for an interpretation was made in the Board of Governors. This is in accordance with Article XVIII (a), which declares that questions of interpretation shall be submitted to the Executive Directors, Once the Executive Directors have given a decision on a question of interpretation under Article XVIII (a), any member may require that the question be referred to the Board of Governors, and the power to decide these appeals cannot be delegated to the Executive Directors.17 None of the nine interpretations that have been described so far was referred to the Board of Governors after the Executive Directors adopted their decision. This brings the discussion to the remaining interpretation under Article XVIII, the one adopted in the case of the compulsory withdrawal of Czechoslovakia from the Fund. There are a number of legal features of this interpretation that are unique in the experience of the Fund, and these, as well as other aspects of the episode, justify a more extensive treatment of the interpretation.