Abstract

A passing reference has already been made to the problem of reconsidering interpretations, and in particular those adopted with the formality of Article XVIII. The problem has arisen in connection with the interpretation agreed by the Executive Directors on September 26, 1946 as the result of a request made by the Governor for the United States pursuant to Section 13(a) of the U.S. Bretton Woods Agreements Act. The interpretation was submitted by the Executive Directors to the Board of Governors at the First Annual Meeting. The Board of Governors was not called upon to take any action in relation to it, and the Board took no action. The interpretation was not even discussed by the Board of Governors at the First, or at any subsequent, Annual Meeting.45

A passing reference has already been made to the problem of reconsidering interpretations, and in particular those adopted with the formality of Article XVIII. The problem has arisen in connection with the interpretation agreed by the Executive Directors on September 26, 1946 as the result of a request made by the Governor for the United States pursuant to Section 13(a) of the U.S. Bretton Woods Agreements Act. The interpretation was submitted by the Executive Directors to the Board of Governors at the First Annual Meeting. The Board of Governors was not called upon to take any action in relation to it, and the Board took no action. The interpretation was not even discussed by the Board of Governors at the First, or at any subsequent, Annual Meeting.45

In due course, it became desirable to establish exactly what this interpretation meant in connection with the use of the Fund’s resources to assist a member when its payments difficulties were occasioned to some extent by capital transfers. The question in Section 13 of the U.S. Bretton Woods Agreements Act and in the Resolution of the Board of Governors seemed to ask whether the Fund’s authority went beyond the financing of deficits on current account to the length of meeting a large or sustained outflow of capital. This was an infelicitous question, and as is often the case with such questions it produced an infelicitous reply. Perhaps the explanation of Section 13 was that it sought to reassure those elements of public opinion in the United States that were concerned that the Fund might provide financing for the purposes enumerated in the second part of Section 13(a), and the parliamentary draftsman tried to indicate in the first part of Section 13(a) the form in which the reassurance might be given and would give most comfort. What was unhappy about Section 13(a) was that it left no apparent place for the use of the Fund’s resources in respect of an outflow of capital that was not large or sustained. Under Article V, Section 3(a):

“A member shall be entitled to buy the currency of another member from the Fund in exchange for its own currency subject to the following conditions:

  • (i) The member desiring to purchase the currency represents that it is presently needed for making in that currency payments which are consistent with the provisions of this Agreement.…”

Among the provisions of the Agreement are those of Article VI, which is entitled “Capital Transfers.” Section 1 provides as follows:

“Use of the Fund’s resources for capital transfers.—(a) A member may not make net use of the Fund’s resources to meet a large or sustained outflow of capital, and the Fund may request a member to exercise controls to prevent such use of the resources of the Fund. If, after receiving such a request, a member fails to exercise appropriate controls, the Fund may declare the member ineligible to use the resources of the Fund.

  • (b) Nothing in this Section shall be deemed

  • (i) to prevent the use of the resources of the Fund for capital transactions of reasonable amount required for the expansion of exports or in the ordinary course of trade, banking or other business….”46

Prima facie, therefore, the question appeared to ignore a use of the Fund’s resources to meet an outflow of capital that was not deemed, according to whatever might be the appropriate criteria, to be “large or sustained” under Section 1 (a) or that constituted “capital transactions of reasonable amount” under Section 1(b)(i).

By 1961 it was felt that something should be done to cope with those semantic and legal uncertainties created by the interpretation that, in the words of the Managing Director, “had not already been dissipated by the practice of the Fund.”47 This had become all the more necessary because the restoration of broad convertibility for major currencies and freedom for exchange markets permitted greater fluidity for capital movements and often made it difficult to determine, except after the event, precisely to what extent payments problems were on current or on capital account.48 The legal issues raised by the particular interpretation were extremely complex and involved many refinements of the Articles, but these will not be pursued here. The issues discussed here will be those that relate to certain consequences of Article XVIII interpretations in general.

The basic difficulty was this. On the one hand, there was widespread, and perhaps even unanimous, agreement that the use of the Fund’s resources in connection with capital transfers was not wholly inadmissible. On the other hand, the interpretation might be read to leave no room for such a use of the Fund’s resources. The interpretation had been adopted under Article XVIII; and, in addition, it had been delivered in response to a question put by the U.S. Governor under Congressional instruction. In principle, there were two possible approaches: one was that the interpretation was wrong because it had been intended to reject all possibility of the use of the Fund’s resources in connection with capital transfers,49 and the other was that this had not been intended but that the language was unclear or misleading because it nevertheless suggested this.

The conclusion that the first approach had to be followed would have made it necessary to deal with a number of questions. Some of these might have arisen under U.S. law. For example, if this approach led to the repeal of the interpretation, Section 13(a) of the U.S. Bretton Woods legislation would be left unanswered. It seems, however, that reformulation of the interpretation so that it corresponded expressly with the general understanding of the legal position would have created little, if any, difficulty for the United States.50

For the Fund, the main legal questions would have involved the central issue of the reversibility (whether by revocation or substantial alteration) of interpretations that had been adopted under Article XVIII. Could the Executive Directors themselves reverse an interpretation which they had adopted, or could this be done only by the Board of Governors? Could an interpretation of the Executive Directors be referred to the Board of Governors under Article XVIII (b) after almost 15 years? Could it be referred to the Board of Governors when the Board of Governors had requested the interpretation, received it, and taken no action in respect of it? Suppose that in the past the question had been referred to the Board of Governors, which had then taken a decision. Could the Board of Governors reverse its own decision? In connection with this last question, was the long silence of the Board of Governors somehow equivalent legally to a decision by it on a reference under Article XVIII (b)?

The answers to some of these questions would undoubtedly involve consideration of the words “whose decision shall be final” in Article XVIII (b). It is possible that these words mean only that no appeal lies from the Board of Governors to some other body, whether within or outside the Fund, and that they do not deal with the reversal by the Executive Directors or the Board of Governors of past interpretations. At the same time, it would seem unjustifiable to regard Article XVIII as establishing no more than a procedure for the settlement of disputes under which the effect of an interpretation by the Board of Governors would be to dispose of the dispute in which it was adopted without affecting later disputes between other parties.51 Article XVIII may apply to cases that are truly adversary proceedings and can therefore be regarded as involving “disputes,” but the provision also applies to cases in which the parties are seeking to arrive at the best interpretation and not simply to win an argument. Commentators outside the Fund tend to overemphasize the former kind of case. In practice, the overwhelming proportion of interpretations, whether under Article XVIII or outside it, falls into the latter category. Whatever the character of the case, however, it is clear that the decisions of the Executive Directors and the Board of Governors under Article XVIII are meant to be interpretations of the Articles and therefore to have general application.

If it were concluded that an interpretation under Article XVIII could not be revoked or substantially altered by later decisions of the organs of the Fund, the consequence would be that a misinterpretation could be corrected only by amendment of the Articles. In effect, the misinterpretation would have amended the Articles without observing the provisions of Article XVII on amendment. Moreover, if the misinterpretation involved the neglect of the language of the Articles—as might have been the case in connection with Article VI, Section 1—the remedy would be an odd one. It would consist in the reconfirmation of the language that had been neglected.

In all of the questions that have been mentioned as arising on a misinterpretation a further refinement may be introduced. Does the legal effect of a misinterpretation by the Executive Directors under Article XVIII(a), or by the Board of Governors under Article XVIII (b), depend on whether the misinterpretation has affected the practice of the Fund and its members? This would have been a relevant question if it had been decided that the interpretation of September 1946 was in fact a misinterpretation because it had been intended to deny any use of the Fund’s resources in connection with capital transfers. It could not have been demonstrated that any such understanding of the interpretation had shaped the practice of the Fund. On the contrary, from the early years of the Fund and throughout its history, there had been instances in which the Fund’s resources had been made available to members to assist them in circumstances in which their payments difficulties involved some element of capital outflow. For example, in one substantial group of cases the Fund’s resources had been made available explicitly for the support of free exchange markets, and it is safe to assume that a certain amount of capital must have been transferred through those markets.

The questions that would have become pertinent if the first approach had been pursued were never answered. The Executive Directors concluded, taking into account such considerations as the practice of the Fund, that it had not been intended by the interpretation to negate the use of the Fund’s resources in connection with capital transfers where this was permitted by the express language of the Articles. On July 28, 1961, the Executive Directors came to the following decision:

“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” (Selected Decisions, p. 54).

The procedure was one of clarification by the Executive Directors of their 1946 decision, in contrast to the correction of that decision or the adoption of a new decision. The action had a certain similarity to the procedure of the International Court of Justice in construing a judgment where there is a dispute as to its “meaning or scope.”52