16 SDR, ECU, and Judgments
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund


The complexities of claims in a foreign currency and judgments based on such claims suggest the question whether judgments can be expressed in the SDR or the ECU when one of these units of account is the contractual unit of account and the means of payment for discharging the obligation giving rise to the claim. If judgments can be expressed in this way and are discharged in instruments or deposits denominated in one of these units as the contractual unit of account and payment, the problem of choosing the appropriate date of an exchange rate disappears. The judgment would be satisfied by the defendant’s transfer of instruments or deposits denominated in the SDR or the ECU, as the case might be, in an amount equivalent to the amount of the judgment. If, however, a plaintiff sought enforcement in currency of a judgment expressed in the SDR or the ECU, or the defendant sought to discharge the judgment debt in currency, the problem of the exchange rate would have to be faced, provided that the plaintiff was entitled to this form of enforcement or the defendant was entitled to discharge his obligation in this way. A plaintiff might see some advantage in obtaining a judgment expressed in the ECU if he were entitled to obtain settlement in the currency of any member state of the Community. The problem of exchange rate might be less contentious, however, in view of the relative stability in the exchange value of the unit of account.

Validity of SDR or ECU Clauses

The complexities of claims in a foreign currency and judgments based on such claims suggest the question whether judgments can be expressed in the SDR or the ECU when one of these units of account is the contractual unit of account and the means of payment for discharging the obligation giving rise to the claim. If judgments can be expressed in this way and are discharged in instruments or deposits denominated in one of these units as the contractual unit of account and payment, the problem of choosing the appropriate date of an exchange rate disappears. The judgment would be satisfied by the defendant’s transfer of instruments or deposits denominated in the SDR or the ECU, as the case might be, in an amount equivalent to the amount of the judgment. If, however, a plaintiff sought enforcement in currency of a judgment expressed in the SDR or the ECU, or the defendant sought to discharge the judgment debt in currency, the problem of the exchange rate would have to be faced, provided that the plaintiff was entitled to this form of enforcement or the defendant was entitled to discharge his obligation in this way. A plaintiff might see some advantage in obtaining a judgment expressed in the ECU if he were entitled to obtain settlement in the currency of any member state of the Community. The problem of exchange rate might be less contentious, however, in view of the relative stability in the exchange value of the unit of account.

It must be assumed that a plaintiff who contracted on the basis of the SDR or the ECU as the unit of account saw some advantage in that form of agreement, whether the advantage was relative exchange stability of the unit or something else. Although hitherto the likelihood is that he entered into such a contract without the assurance that in the event of breach he could get judgment expressed in the unit of account, establishment of the principle that this form of judgment is possible might encourage more extensive use of the unit of account. The member states and officials of the EC constantly strive to promote a broader use of the so-called private ECU.

If sufficient interest were to exist in the expression of judgments in the SDR or the ECU, the legal feasibility of such judgments would depend on the answers to a number of questions.

The first question would be whether it was valid under the applicable law to contract in the SDR or the ECU as a unit of account. To contract in this way may be invalid, or the contract may be valid but may require a license from the authorities. In some countries of the EC, various exchange control restrictions have been imposed on transactions in ECUs. For example, the residents of a country may have been denied the right to establish deposits denominated in ECUs with banks in other countries. The invalidity of a composite unit of account does not mean that by reason of that fact a clause requiring payment in a currency or currencies in such circumstances must also be invalid. It is fairly common practice in certain kinds of transactions to provide that if denomination in the ECU is ineffective, settlement is to be made in a currency or currencies. The question of the appropriate exchange rate would then arise if it had not been specified in the terms of the transaction.

In Germany, the Currency Act of 1948 establishes and guarantees the deutsche mark in its role as the sole legal tender. Residents must be authorized by the Deutsche Bundesbank if they wish to contract in currencies other than the deutsche mark. The Foreign Trade and Payments Act of 1961 authorized residents to enter into commitments in foreign currencies with nonresidents, and in the same year the Bundesbank issued a general authorization allowing commitments in foreign currencies between residents. This general authorization was not applied to the ECU, on the ground that it was a form of indexation and not a foreign currency. The situation changed on June 16, 1987 when the Bundesbank decided to allow private use of the ECU under the same conditions as foreign currencies. Residents were authorized to open accounts denominated in ECUs with German banking institutions and to contract debts in ECUs with these same institutions. The Bundesbank decided also to grant authorization on demand for invoicing and settlement of contracts with nonresidents for transactions in goods and services denominated in ECUs.

Notice No. 1002/90 of the Bundesbank now spells out eight categories of obligations denominated in ECUs or SDRs that residents may contract. Other categories are subject to authorization by the central bank of the pertinent Land, but the Notice declares that ad hoc authorization will usually be granted for two further specified categories. Paragraph 3 of the Notice provides an example of invalidity. The authorization granted by the Notice does not cover contractual obligations denominated in the ECU or the SDR if the amount is to be determined by future currency or gold quotations or by the future price of other goods or services. The present tendency in all Community states is to treat transactions denominated in the ECU as if they were transactions in foreign exchange and subject therefore to the same freedom that exists for these latter transactions.1

The size of the financial and other markets in the United States makes it necessary to consider whether there is any legal impediment to the use of the SDR or the ECU as a contractual unit of account. On June 5, 1933, the Congress of the United States adopted the Joint Resolution to assure uniform value to the coins and currencies of the United States.2 The Joint Resolution provided that thereafter the discharge of obligations in the United States had to be made in U.S. legal tender, so that gold clauses became invalid. The Supreme Court of the United States construed the Joint Resolution to render unenforceable any clause for payment in foreign currency, including multicurrency clauses.3

After August 15, 1971 sentiment about legislation that prevented the private holding of gold and denied the validity of gold clauses began to change. The United States had terminated its willingness to convert foreign official holdings with gold, and was urging that the role of gold in the international monetary system should be reduced. Congress adopted statutes in September 1973 and August 1974 to permit private persons to purchase, hold, sell, or otherwise deal with gold in the United States or abroad.4 On October 28, 1977, Congress repealed the Joint Resolution with respect to obligations issued on or after the date of the relevant provision of the new enactment.5 This action disposed of the question that arose after the 1973 and 1974 legislation whether those statutes had implicitly repealed the Joint Resolution and had validated gold clauses and foreign currency clauses. The Treasury had thought that the Joint Resolution remained in effect. The Federal Reserve Bank of New York requested Chase Manhattan Bank to delay the initiation of services in New York involving the use of the SDR as a unit of account while the validity of the services was being studied. The Treasury sounded ominous in pointing out that the law on this question was subject to various legal interpretations and that, as in other cases of statutory construction, the courts would have to be the final arbiters.

In view of the 1977 statute, the Joint Resolution no longer interposes an obstacle in the United States to the private use of the SDR or the ECU as a unit of account, even though no statutory provision expressly recognizes the validity of the practice. The Uniform Foreign-Money Claims Act, however, states explicitly that the denomination of claims in units of account created by intergovernmental agreement would be valid. Section 3(b) provides that the parties may agree upon the money to be used in a transaction giving rise to a foreign money claim. Section 1(5) declares that foreign money means money other than money of the United States. “Money” is defined as follows by Section 1(7):

“Money” means a medium of exchange for the payment of obligations or a store of value authorized or adopted by a government or by inter-governmental agreement.

The corresponding definition in the draft of January 23, 1989 was even more explicit (Section 1(6)):

“Money” means a medium of exchange authorized or adopted as a part of its currency by a domestic or foreign government or adopted by inter-governmental agreement, for the payment of debts, or other obligations or as a store of value. The term includes European currency [sic] Units, Special Drawing Rights, and other composite stores of value now existing or hereafter created.

A comment in the final version makes it clear that the SDR and the ECU are within the concept of a store of value, because they are used to determine the quantity of payment in some international transactions. By implication, the SDR and the ECU are not covered by the concept of a medium of exchange, but the commentary nevertheless refers to them as “composite currencies.” The commentary states also that “foreign money” includes the SDR even though the United States is a member of the IMF. It would have been equally appropriate to add that the SDR is foreign money for the purposes of the Act even though the U.S. dollar is included in the basket of currencies according to which the SDR is valued.

The definition does not limit composite units of account in which it would be valid to express obligations to the SDR and the ECU, but any other unit of account would fall within the definition of “money” only if the unit of account was authorized or adopted by a domestic or foreign government or by international agreement. The definition does not specify the government that can authorize or adopt a medium of exchange or a store of value. It would seem that the government must be one in whose courts a claim denominated in a composite unit of account could be pursued.

For a composite unit of account created by intergovernmental agreement to be considered money, it is not required that the agreement must provide that the unit of account can be used for denominating claims of the kind that are being pursued. Private units of account that do not reflect the value of a composite unit of value created by intergovernmental agreement would not qualify as money under the Act, unless authorized or adopted by a government. The reference to units of account created by intergovernmental agreement resembles the test the IMF applies in authorizing the settlement in SDRs of obligations denominated in a unit of account that is “composed of currencies and is applied under an intergovernmental agreement.”6

A question that might arise under the Uniform Act is whether a contractual composite unit of account that reflects the value of a unit of account created by intergovernmental agreement but not the current value would be covered by the definition of money. A contract may provide that an earlier method of valuing the composite unit of account shall apply under the contract, or that a change in the method shall not have immediate effect for the purposes of the contract. The Act allows parties to agree on an exchange rate for a currency that departs from provisions of the Act, without concluding that a currency is no longer involved. It would seem, therefore, that if the parties agree on an exchange rate for a composite unit of account, the choice should not be deemed to deprive the unit of account of its character as money as defined by the Act. The IMF itself agreed at one time to repay borrowings on the basis of an earlier valuation of the SDR.7

Most American States have usury laws regulating the maximum rate of interest that may be charged for the use of money, and that impose civil or criminal sanctions for violation of the law. These laws do not regard the form of a transaction as conclusive and may go beyond it to determine that the parties have agreed on a rate of return on a loan that exceeds the rate permitted by law.8 Sometimes, in the past, State courts have decided that contracts in which there is a foreign exchange index are usurious. In some cases in the past the courts have found that usury existed when the contract provided for a discount on disbursements of a loan or a premium on repayment of it for the alleged purpose of compensation for the risk of exchange rate fluctuations or the costs of transactions. The courts found that these terms were stratagems designed in reality to provide for an excessive rate of interest. The explanation of the absence of recent cases may be that courts are disinclined to apply usury laws in an era of higher interest rates and the increased use of foreign currencies in commercial transactions entered into by residents of the United States. It is unlikely, therefore, that the use of the SDR or the ECU as a unit of account will be held nowadays to be a cloak for usury.

The Uniform Foreign-Money Claims Act contains a provision designed to fend off the application of usury laws. Section 5(c) declares that “[a] monetary claim is neither usurious nor unconscionable because the agreement on which it is based provides that the amount of the debtor’s obligation to be paid in the debtor’s money, when received by the creditor, must equal a specified amount of the foreign money of the country of the creditor.” The provision would apply, for example, to a borrowing of U.S. dollars by an American enterprise from a Japanese bank, which had purchased with yen the dollars to be lent. The borrower is entitled to repay in dollars, but the lender requires that it receive ultimately the same amount of yen that it had expended to purchase the dollars. To ensure this result, the loan agreement contains the following term, which is in common use:

The payment obligations of the Company and the Guarantor under this Agreement shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to Japanese yen and transferred to the Bank in Tokyo under normal banking procedures does not yield the amount of Japanese yen due hereunder. The Company and the Guarantor each hereby agrees as a separate obligation and notwithstanding any judgment to pay on demand any difference between the sum in yen due hereunder in Tokyo and the amount of yen actually received in Tokyo by the Bank as a result of payments made on any judgment or voluntarily.

It is not clear how the provision on usury in the Act would affect monetary claims in which the SDR or the ECU is the unit of account. The references to the “debtor’s money” and the “foreign money of the country of the creditor” might seem to prevent application of the provision to contracts in which the SDR or the ECU is the unit of account. It is possible, however, that the definition of “money” in the Act would make it possible to hold that the provision on usury applies to these contracts also. There would seem to be no reason of policy why it should not.

Canada has adopted legislation to establish the validity of units of account. An Act to amend the Currency and Exchange Act and to amend other Acts in consequence thereof was passed in 1977 and has added subparagraph (b) to an earlier statutory provision:

Subsection 12(1) of the Currency and Exchange Act is repealed and the following substituted therefor:

“12.(1) Every contract, sale, payment, bill, note, instrument and security for money and every transaction, dealing, matter and thing whatever relating to money or involving the payment of or the liability to pay any money, that is made, executed or entered into, done or had, shall be made, executed, entered into, done and had according to the currency of Canada, unless it is made, executed, entered into, done or had, according to

  • (a) the currency of a country other than Canada; or

  • (b) a unit of account that is defined in terms of the currencies of two or more countries.”9

This provision permits Canadian authorities and private parties to enter into obligations expressed in terms of the SDR or the ECU or any other unit of account defined in terms of at least two currencies. It is also valid for Canadians to enter into obligations expressed in a single non-Canadian currency.

It is not a condition of the validity of a composite unit of account under the Canadian provision that the unit of account is created by intergovernmental agreement. Furthermore, composite units of account covered by category (b) are not declared to be money.


In the United States, the Uniform Commercial Code (UCC), which has been adopted, in the same or slightly modified form, in most States of the United States, raises some questions of the effect of denomination in SDRs or ECUs on negotiability. The same questions may arise under any system of law. The UCC requires as a condition of negotiability that an instrument, such as a draft, check, certificate of deposit, or note, contains “an unconditional promise or order to pay a sum certain in money.”10 A promise or order to pay a sum in a foreign currency is for a sum certain in money. Unless the instrument specifies a different medium of payment, the promise or order may be satisfied by payment in U.S. dollars at the buying sight rate for that currency on the day on which the instrument is payable or, if payable on demand, on the day of demand. If the instrument specifies a foreign currency as the medium of payment, the instrument is payable in that currency.11

An official comment states that the test of a foreign currency is whether it carries the sanction of the government that recognizes the circulating medium in the currency as a part of the official currency of that government.12 There is no mention of a unit of account composed of currencies, but if it is indeed regarded as a composite of currencies, all of them carry the sanction of the governments that issue them. If this view were taken, a claim denominated in a composite unit of account could be recognized as a claim to pay a sum certain in money. Nevertheless, the question whether the SDR or the ECU is itself a money might arise.

Article IV, Section 1(b) of the World Bank’s Articles of Agreement provides that the Bank may borrow funds or guarantee loans in accordance with Section 1(a) only with the approval of the member of the Bank in whose markets the funds are raised and the member in whose currency the loan is denominated, and again only if those members agree that the proceeds may be exchanged for the currency of any other member without restriction. When the Bank made its first borrowing denominated in the ECU, the General Counsel of the Bank concluded that the ECU was not the “currency of the member” within the meaning of Article IV, Section 1(b), so that the requirement of the consent of any member based on the involvement of its currency could not readily be applied. He held that only if the ECU ceased to be used in the EMS could the requirement of a member’s consent be applied. The consent in that event would be the consent of each of the members whose currencies were substituted for the ECU by the fiscal agent in accordance with the fiscal agency agreement.

The position taken in the World Bank means that, at least for the purpose of Article IV, Section 1(b), the question whether the ECU itself is a currency does not arise. The issue was whether the ECU was the currency of a member of the Bank and it was concluded that the ECU was not. The conclusion meant that, for the purpose of the provision in the Bank’s Articles, the ECU would not be considered the currencies of the members whose currencies composed the definition of the ECU.

The concept of a “sum certain” in the UCC does not create a difficulty if an instrument is denominated in a foreign currency but is payable in U.S. dollars. An official comment states that for the purposes of negotiability the UCC clarifies that such an instrument is for a sum certain, notwithstanding fluctuations in exchange rates.13 Therefore, no problem of negotiability should arise with respect to the concept of a sum certain because of denomination of an instrument in the SDR or the ECU. If an instrument fails to meet the criteria for negotiability, the instrument may nevertheless be enforceable as a contract.

Convention on Negotiable Instruments

The proposed United Nations Convention on International Bills of Exchange and International Promissory Notes14 deals explicitly with issues left to conjecture by the UCC. A bill of exchange is defined as a written instrument that satisfies four criteria, one of which is that it contains an unconditional order by which the drawer directs the drawee to pay “a definite sum of money” to the payee or to his order.15 “Money” or “currency”

includes a monetary unit of account which is established by an intergovernmental institution or by agreement between two or more States, provided that this Convention shall apply without prejudice to the rules of the intergovernmental institution or to the stipulations of the agreement.16

This broad language covers the SDR and the ECU as well as units of account established by states without action by an intergovernmental institution. The provision reflects the understanding that in the discretionary system of exchange arrangements steps may be taken by governments to create various monetary units of account. The word “monetary” may mean that the unit of account serves purposes or performs functions deemed to be monetary. The word may be taken, however, to mean that the units of account must be composed of currencies and not, for example, commodities.

If the sum payable is expressed in a monetary unit of account within the meaning of the Convention and the monetary unit is transferable between the person making payment and the person receiving it, payment is to be made by transfer of the monetary units of account, unless the instrument specifies a currency of payment. If the monetary unit of account is not transferable between payor and payee, payment must be made in the currency specified in the instrument, or if no currency is specified, in the currency of the place of payment.17

The sum payable under an instrument is deemed to be for a definite sum even though the instrument provides that it is to be paid (i) according to a rate of exchange indicated in the instrument or to be determined as directed by the instrument, or (ii) in a currency other than the currency in which the sum is expressed in the instrument.18

Issues similar to those mentioned above have been examined in the United Kingdom by the Review Committee on Banking Services Law appointed by the Chancellor of the Exchequer and the Governor of the Bank of England. The committee submitted its report on December 30, 1988, and it was presented to Parliament in February 1989.19 The terms of reference of the committee were to examine the need for reform of law and practice relating to the provision of banking services. Chapter 8 of the report deals with negotiable instruments.20 The committee recommended that a new Negotiable Instruments Act should replace the Bills of Exchange Act 1882.

The committee concluded that the new statute should contain provisions to deal with units of account.

It is clearly desirable to change the definition of a bill of exchange and a promissory note in order to include those drawn in units of account such as the ECU (European Currency Unit), since it is probable that, as the law now stands, these units of account would not be regarded as “a sum certain in money” (Sections 3(1) and 83(1) of the 1882 Act).21

It is not completely clear whether the committee thought that instruments expressed in a composite unit of account probably did not meet the test of a “sum certain in money” because a composite unit of account might not be regarded as “money,” or because the unit fluctuates in value in relation to money and thus does not provide for a “sum certain,” or perhaps because of both objections. On the whole, it seems that the reason for the doubt was that as a unit of account fluctuates in value, the amount of an instrument expressed in a unit could not be ascertained at the date of issue of the instrument.22 According to this same reasoning, in the discretionary system of exchange arrangements an instrument expressed in one currency that provides for payment in another currency would fail to meet the test if the instrument did not specify a rate of exchange.

The committee recommended that the words “a sum certain in money” in the Bills of Exchange Act 1882 should be replaced by “a certain or ordinarily determinable sum,” but to avoid doubt the new Act should also provide that this new expression embraced “a monetary unit of account established by an inter-governmental institution.”23

To assist in the determination of the amount payable in accordance with instruments expressed otherwise than in sterling, the committee recommended that:

  • (a) instruments are ordinarily payable in the currency in which they are expressed;

  • (b) the amount may be expressed in one currency with provision for payment in another;

  • (c) if an instrument is expressed in a unit of account which is capable of being freely transferred from one person to another, it is so payable; if, however, it is expressed in a unit of account which is not transferable, and no currency of payment is specified, payment should be made in the currency of the place of payment;

  • (d) where a currency conversion is necessary to determine the amount payable, the rate of exchange or the method of determining the rate of exchange may be stated on the instrument or, failing that, it should be determined by reference to the paying bank’s sight draft rate or some other generally acceptable published rate on the day of payment (or dishonour). For units of account, the conversion should be an appropriate published rate for that same day.24

In one important respect, the language quoted above goes beyond the draft of a new statute prepared by an advisor that was circulated by the committee without carrying its endorsement. The text proposed that:

A sum payable by an instrument may be certain or ordinarily determinable within the meaning of this Act, although it is required to be performed:




(e) In a currency the value of which can be determined only by reference to the value of one or more other currencies.25

This language would provide for payment only in a currency even if the amount was expressed in another currency or a unit composed of other currencies. The committee’s recommendation contemplated payment in a composite unit of account, although the committee avoided any conclusion that, say, the ECU or the SDR was a currency or that the committee was restricting its recommendation to composite units that had been recognized as currencies.

The committee’s recommendation was narrower in one respect than the advisor’s draft. He did not define his composite unit of account, but the committee had in mind only monetary units of account established by an intergovernmental institution. The committee’s main concentration was clearly on the ECU.

The committee’s category of composite units of account is narrower than the version accepted by the United Nations Convention discussed above, because the Convention refers not only to composite units adopted by an intergovernmental institution but also to units adopted by agreement between states. The latter units also, it must be presumed, are composed of currencies. The proposed U.S. Uniform Foreign-Money Claims Act also refers to composite units established by intergovernmental institutions. The amendment of Canada’s Currency and Exchange Act refers to any unit of account defined in terms of the currencies of two or more countries. Negotiability is not the subject matter of the proposed U.S. measure and the Canadian statute but all these proposed or existing measures demonstrate growing recognition of the advisability in the discretionary system of exchange arrangements of making provision for composite units of account in various areas of the law. Experience also shows that choices have to be made among possible categories of composite units of account and that policy may dictate the selection of a broad or a narrow category.

The Government’s response to the committee’s report was published in March 1990.26 The Government did not accept the recommendation that the Bills of Exchange Act 1882 should be replaced by a new statute, but the Government decided instead that the existing statute should be amended27 in some respects to take account of modern conditions. The Government stated that:

The Review Committee recommended (Rec 8(5)) that the sum payable on a negotiable instrument should no longer have to be certain at the date of issue provided it is “certain or ordinarily determinable” in accordance with provisions which will be set out in amending legislation. This recommendation was intended to facilitate the use of instruments denominated in units of account like the ECU. The Government accepts that bills denominated in units of account like the ECU should be brought clearly within the 1882 Act and the 1882 Act will therefore be modified in due course so that the expression “a sum certain in money” is defined to include “a monetary unit of account established by an intergovernmental institution” or by agreement between two or more states.28

The category (or, more properly, categories) of units of account chosen by the Government accords with the United Nations Convention.

Validity Examined Further

In England, there might have been doubt at one time about the validity of the denomination of obligations in the SDR or the ECU. A case decided in 1956 raised for the first time the question whether a gold value clause was valid in a purely domestic contract.29 The issue was not settled because the court construed the clause in question as one that dealt with the mode of discharging the debt and not as measuring its extent. It was held that the obligor was permitted alternative modes of payment of a fixed amount of sterling, one of which was a specified amount of “gold sterling” and the other the same specified amount of Bank of England notes. The obligor was entitled to settle in accordance with the latter alternative and was not required to pay the market value of the specified amount of gold sovereigns or their gold content. The validity of a gold value clause in a domestic English contract was questioned, however, in one of the opinions in the Court of Appeal. Lord Justice Denning, as he then was, declared that although it was common for parties to protect themselves against depreciation by means of a gold clause, in England a pound was always looked upon as a pound whatever its international value might be.

This opinion was obiter, and in a later case30 the court did not follow it. In a domestic transaction, a loan was made on a mortgage under which the principal repayable and the interest were expressed in sterling but subject to adjustment. The payments were to be “increased or decreased proportionately, if at the close of business on the day preceding the day on which payment is made the rate of exchange between the Swiss franc and the pound sterling shall vary by more than three per cent” from the specified rate prevailing on the date of the mortgage.

The court held that this clause was enforceable and was not contrary to public policy.31 Among the reasons given for this conclusion were the widespread use of index clauses in relation to amounts expressed in sterling, particularly in long-term commercial contracts and contracts of employment; the linking of pensions and savings bonds to the cost of living under Parliamentary authority, which cannot, therefore, be deemed to be contrary to public policy; the disagreement among economists on the question whether indexing promoted inflation; the rapid erosion of the value of the currency; the danger that capital might not be forthcoming if lenders could not protect themselves; and the validity of indexing in some other countries. Moreover, in connection with a somewhat analogous problem it had been held in the Miliangos case that judgments could be expressed in currencies other than sterling. Lord Denning himself joined in this departure from the nominalist principle on which he had relied in 1956.

The decision can be taken to imply that a clause in a domestic or transnational contract providing that an obligation expressed in sterling was to be varied in accordance with the value of sterling in terms of the SDR or the ECU would be valid in English law. The decision probably implies also that it is valid to express an obligation in SDRs or ECUs.

One of the questions with which the court dealt was the question whether equitable relief was available because of the substantial depreciation of sterling. The court’s reaction deserves to be recalled, particularly in view of the discussion of hardship earlier in this monograph.32

In opening, the plaintiffs advanced the contention that even if at the date the mortgage was entered into it was unobjectionable the court would not now enforce it in its full rigour because the dramatic fall in the value of the pound was not foreseen in 1966 and hardship would be caused to the plaintiffs. I am not sure that such contention was persisted in, but I know of no such dispensing power vested in the court and I agree … that, if there was such a power, the doctrine of frustration of contracts and all the legal difficulty that it has caused would have been unnecessary. A contract is not frustrated just because the parties had not foreseen the event which occurred, but only if the provisions of the contract do not cover that event.

If equity could, ever since 1875, have relieved a party from the harsh consequences of unforeseen events, one would expect the point at least to have been argued in some case: but I have not been referred to any such case. On the contrary in White and Carter (Councils) Ltd. v. McGregor [1962] A.C. 413, 445 Lord Hodson said:

‘It is trite that equity will not rewrite an improvident contract where there is no disability on either side. There is no duty laid upon a party to a subsisting contract to vary it at the behest of the other party so as to deprive himself of the benefit given to him by the contract. To hold otherwise would be to introduce a novel equitable doctrine that a party was not to be held to his contract unless the court in a given instance thought it reasonable so to do. In this case it would make an action for debt a claim for a discretionary remedy. This would introduce an uncertainty into the field of contract which appears to be unsupported by authority either in English or Scottish law save for the one case upon which the Court of Session founded its opinion and which must, in my judgment, be taken to have been wrongly decided.’

Therefore although I have considerable sympathy for Mr. and Mrs. Mara who will obviously suffer considerable hardship as a result of the unforeseen fall in the value of the pound sterling, I must declare that the whole of the provisions of clause 6 of the mortgage are valid and enforceable.33

In this context, it is appropriate to recall the English case entitled The Rosa S,34 decided on July 21, 1988. In this case, the contract was not domestic. The decision shows that there is no objection to the continuing effectiveness of a gold value clause in such a case. The question was the meaning of the pound sterling as the monetary unit for the limitation of liability under the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading dated August 25, 1924 (the Hague Rules), which provides that the monetary unit was to be taken to be gold value. The bills of lading in the case had been made subject to the Hague Rules. The court held that it was still possible under English statutes to determine the gold content of one pound gold sterling (the sovereign). Acts of 1971 and 1983 preserve the concept of gold coins as currency and provide that gold coins can be legal tender. The gold clause prescribed a standard of value and not the means of payment.

The plaintiffs had properly claimed Kenya pounds under the Miliangos line of cases. The court decided that the limit on the defendants’ liability had to be calculated on the basis of the sterling value of the quantity of gold, determined in accordance with the gold value of sterling under English statutory law, and not on the basis of the nominal amount of sterling. The sterling value had to be translated into the nominal equivalent in Kenya pounds. The gold value of one gold pound sterling was taken to be 66.30 current pounds sterling.

Judgments and Currencies

The question whether judgments to enforce debts or to award damages must be expressed in a “currency” or “money” is one to be decided by the lex fori. It is probably safe to guess that most legal systems require such judgments to be expressed in this way, even though there may be differences among systems in defining precisely what is meant by “currency” or “money.” As was said by one English judge:

I have, of course, no power to make an award in oil. I can only make an award in money. If, however, it was necessary for me to choose the currency which most closely represented oil, on the evidence before me that currency would be the US dollar.35

It is likely that a rationale of the requirement that a judgment to enforce a debt or to award damages can be expressed only in currency or money is associated with the execution of judgments. How will the executive officers of the legal system know how much to collect in satisfaction of a judgment they are instructed to enforce unless the court tells them in what currency and how much they are to collect? This rationale, according to the Miliangos case, was the foundation on which the pre-Miliangos law rested. In those days, a foreign currency was usually considered a commodity, and judgments could not be given in commodities. Even when the Miliangos decision changed the law, the new principle was accompanied by the further principle that a judgment expressed in a foreign currency could be discharged or enforced in sterling.

Present English law does not prevent a defendant from making payment into court in a foreign currency if

  • (i) the payment is lodged in satisfaction of a claim for debt or liquidated demand and is in the currency in which the claim is made, or

  • (ii) the court so directs or permits.

The English Law Commission has recommended that the leave of the court should not be required if the defendant wishes to pay into court sterling in discharge of a claim to unliquidated damages expressed in a foreign currency.36

Although it may be that a judgment must be expressed in a currency, the question may arise in what means of payment the judgment must or may be performed. Here the problem is sometimes described as what is meant by “money.” For example, it is possible that a court may hold that an indebtedness can be discharged in some form that does not meet the concept of money under the applicable law. The court may hold that the obligation to pay a sum certain in a currency can be discharged in a manner other than the transfer of legal tender bills denominated in the currency. The reason may be that the court considers it absurd in modern conditions and beyond the contemplation of the parties to require payment in legal tender. Between banks, for example, an unconditional payment order involving no element of credit for the debtor may be treated as equivalent to cash.37 Settlement with such means of payment may be possible, however, only on the theory that settlement in this form is expressly or implicitly prescribed or permitted by the contract between the parties.

Is the SDR or the ECU a Currency?

If it is concluded that in a particular jurisdiction an SDR or ECU clause is valid, that judgments to enforce debts or award damages must be expressed in a currency, and that judgments can be expressed in a foreign currency, the next question is whether judgments can be expressed in the SDR or the ECU as a foreign currency. This question can arise with respect to the ECU in the courts of member states of the EC or in the courts of other countries. In a single issue of one well-known periodical,38 an extraordinary number of references by authors are made to the ECU as being, or becoming, a currency basket, foreign currency, foreign currency sui generis, parallel currency, international money, Community currency, joint European currency, proper currency, fully fledged currency, and quasi-national currency.39 In this extensive glossary, there is evidence of considerable differences of opinion, including the view that the ECU is a currency, that it is not a currency, and that if it is a currency it is not a traditional currency. It must be recognized, however, that the traditional view of a currency as an expression of the sovereignty of a state has not prevented the emergence of common currencies, or the use of the currency of one country as the currency of another country, or the co-existence of two or more currencies as legal tender within a territory.40

Delors Committee Report

In early 1989, the Committee for the Study of Economic and Monetary Union, appointed under a mandate of the European Council, with Jacques Delors as Chairman, issued its Report on economic and monetary union in the European Community. The Report sets forth the ideas and recommendations of members of the Committee in their personal capacities. The mandate of the Delors Committee was to study and propose concrete stages leading toward economic and monetary union within the EC. One topic the Report considers is the role of the ECU, and in the course of that discussion the Report refers to the character of the ECU.

The most interesting passage on this aspect of the ECU runs as follows:

Firstly, the Committee examined the role of the ECU in connection with an eventual move to a single currency. Although a monetary union does not necessarily require a single currency, it would be a desirable feature of a monetary union. The Committee was of the opinion that the ECU has the potential to be developed into such a common currency. This would imply that the ECU would be transformed from a basket of currencies into a genuine currency. The irrevocable fixing of exchange rates would imply that there would be no discontinuity between the ECU and the single currency of the union and that ECU obligations would be payable at face value in ECUs if the transition to the single currency had been made by the time the contract matured.41

This paragraph might seem to deal only with the question whether the ECU should develop into a common currency, but it is also said that the ECU is now “a basket of currencies” and not “a genuine currency.” This analysis is supported by language elsewhere in the Delors Committee Report. For example, the Committee states that

ECU-denominated deposits by the non-bank sector have stagnated since 1985, suggesting that the ECU’s appeal as a near money substitute and store of liquidity is modest.42

The Report makes it clear in addition that the Committee does not regard the present ECU as a parallel currency:

Secondly, the Committee considered the possibility of adopting a parallel currency strategy as a means of accelerating the pace of the monetary union process. Under this approach the definition of the ECU as a basket of currencies would be abandoned at an early stage and the new fully-fledged currency, called the ECU, would be created autonomously and issued in addition to the existing Community currencies, competing with them. The proponents of this strategy expect that the gradual crowding-out of national currencies by the ECU would make it possible to circumvent the institutional and economic difficulties of establishing a monetary union. The Committee felt that this strategy was not to be recommended for two main reasons. Firstly, an additional source of money creation without a precise linkage to economic activity could jeopardize price stability. Secondly, the addition of a new currency, with its own independent monetary implications, would further complicate the already difficult endeavour of coordinating different national monetary policies.43


The SDR or the ECU as a unit of account, and not as the official SDR or the official ECU, has been the subject of legislation in a number of countries. A distinction must be made between a formulation that declares the SDR or the ECU to be a foreign currency and a formulation that requires the private SDR or the private ECU to be treated for a specified purpose or purposes as if it were a foreign currency. The first model would seem to confer on the SDR or the ECU the status of a foreign currency, but courts might nevertheless interpret the language to refer exclusively to the purposes of the statute in which the language appears. The second model would seem to create a legal fiction, according to which the unit of account was to be treated in the same way as if it were a foreign currency for limited purposes without declaring that it was a foreign currency. A slight variant on the second model would be the formulation that operations in the ECU were to be treated as if they were operations in a foreign currency. A third basic model can be imagined between the extremes of the two models: the ECU or the SDR is declared to be a foreign currency for particular purposes.

The third model may be made clearer by citing the example of an English statute, the Export Guarantees and Overseas Investment Act 1978.44 Section 15(1) provides that for the purposes of the statute

“foreign currency” means any currency other than sterling, including special drawing rights; “foreign currency liabilities” means liabilities which are measured in a foreign currency, whether or not they are to be discharged in a foreign currency;

If in a jurisdiction there is a statute in the form of the first model, the bold statement that the SDR or the ECU is a foreign currency should mean, at least prima facie, that judgments can be expressed in SDRs or ECUs by the courts of that jurisdiction. There would be no such presumption if the second model, or its variant, is adopted, unless one of the specified purposes is the expression of judgments. The third model would seem to be closer to the second model than to the first, unless again the expression of judgments is among the specified limited purposes. All three models relate to the SDR or the ECU as a foreign currency. It is doubtful that at present they would be declared by law to be a parallel domestic currency. If, however, this step were taken, there would be no reason why judgments could not be expressed in the SDR or the ECU, unless the statute contained language to prevent this consequence.

Without the close analysis of statutory texts that would enable one to determine which of the three models had been followed, it can be said that over time there have been three distinct official reactions to the characterization of the private ECU. It has been seen that one reaction, in Germany, had been that the ECU was simply a form of indexation and, as such, could not serve as a unit of account for residents; but that by a decision of June 16, 1987 the Deutsche Bundesbank now authorizes the private use of the ECU on the same conditions as apply to foreign currencies. Italy was the first country to give official recognition to the private ECU and to treat it as a convertible foreign currency. France, Belgium, and Luxembourg have given the ECU the official status of a foreign currency. In Ireland, the Netherlands, and the United Kingdom, there has been no explicit general recognition of the private ECU as a foreign currency, but neither is there the denial of such a status. It could be said that there has been tacit recognition of the validity of the use of the ECU as a unit of account, but it is debatable whether this permissiveness is equivalent to tacit recognition of the ECU as a foreign currency even in the transactions and operations in which the ECU has served as the unit of account.

According to one author,45 the former official view in Germany that the ECU was not a currency, or qualified to be treated as if it were, rested mainly on four objections: (a) The ECU is not backed by an independent monetary authority responsible for its internal and external value. (b) There is no guarantee of continuity in the value of the ECU as long as changes can be made in the weights of currencies in the basket. (c) There is no institution or arrangement to ensure the ready convertibility of the ECU into reserve currencies. (d) There is no clear way to establish a role for the ECU as an intervention currency. Even for economists, who often take a broader view of what constitutes a currency than do some lawyers,46 the ECU lacks some of the salient characteristics that are traditionally associated with a currency. The ECU, for example, is not issued by a monetary authority and is not legal tender anywhere, so that it has no home.47

The English Law Commission’s Report notes that a step has been taken to enable a “Community judgment” to be registered for enforcement under English law. Originally, it had been provided that such a judgment or order had to be translated into sterling at the rate of exchange prevailing when the judgment or order was given. After the Miliangos case, the original English measure was amended by omitting any reference to the date of the exchange rate. The English Law Commission concludes that a Community judgment will be registered in the currency in which it is expressed, “[i]ncluding presumably, European Units of Account.”48

The Report points out that Community judgments mean, not the judgments of the courts of member states of the EC, but the judgments or orders of certain specified Community bodies. The Report states that although normally the Community judgments would be those of the European Commission imposing fines or penalties formulated either as lump sums expressed in the EUA or as percentages of an offending firm’s turnover, the judgments of the European Court of Justice were included in the concept of Community judgments.

The English Law Commission refers inexplicably to the EUA, which had been replaced by the ECU in Community accounts in 1979, some years before the English Law Commission issued its Report, but nothing should turn on this sequence of events for the purpose of the present discussion. That is to say, the English Law Commission’s conclusion about the EUA must be taken to apply to the ECU, and indeed even more forcibly in view of the much enhanced role of the ECU as compared to the EUA. The original composition of the ECU was the same as that of the EUA.

A Decision of the European Court of Justice

Reference to the EUA recalls Société anonyme générale Sucrière and Others v. Commission of the European Communities and Others,49 a case decided by the European Court of Justice in which the EUA was involved. The European Commission had imposed fines on some companies because they had offended provisions of the Treaty of Rome by engaging in practices deemed to be in restraint of trade. The European Commission was authorized to impose fines of 1,000 to 1,000,000 u.a. (namely EUA) or fines of a greater amount but not exceeding 10 percent of a company’s turnover in the preceding business year. The fines were formulated as a number of u.a. followed by an amount of currency, on these lines: “a fine of 400 000 u.a. . . ., that is FF 2 221 676.”50 By a decision of December 16, 1975, the court annulled some fines and reduced others, using the following formula: “80 000 u.a. (FF 444 335.20).”51 The currency mentioned in the decision was the currency of the member state in which a delinquent company had its principal place of business. On February 6, 1976, two companies on which reduced fines had been imposed paid amounts of Italian lire to the Commission in attempted settlement of fines expressed in French francs as well as units of account. The lira at that time was the weakest of the Community currencies. The Commission was willing to accept payment in the currency of any member state but contended that the amount of the debt was the amount of currency shown in the judgment and that this amount had to be translated into another currency at the rate of exchange prevailing on the day of actual payment.

The EUA was defined as equivalent to 0.88867088 gram of fine gold. The payments were made on the basis of the par value for the lira as established under the IMF’s Articles. Legally, the par value was still in existence under the Articles when the payments were made, because the Second Amendment had not yet become effective. The amounts of French francs in the court’s decision were based on the par value of the French franc under the Articles. The lira had depreciated in the market, so that the payments were made in substantially fewer lire than if the exchange rate in the market had been the basis for the calculation.

The companies challenged the European Commission’s view that Italian lire had to be paid on the basis of the market exchange rate between the lira and the French franc if the lira was the currency of payment. The companies argued that the amounts of the debts were fixed by the court in EUAs and that the amounts in French francs were no more than “an indication.” A regulation of the Council authorized the Commission to impose fines in the unit of account used in drawing up the Community’s budget. The regulation on the budget provided that

[t]he financial contributions from Member States fixed by the budget shall be expressed in units of account as defined in Article 10. They shall be converted into the respective national currencies on the basis of the relationship existing on the day of their payment between the weight of fine gold contained in a unit of account as referred to above and the weight of fine gold corresponding to parity in respect of each of those currencies as declared to the International Monetary Fund. Should the currency of one or more of the Member States cease to have any declared parity with the International Monetary Fund, the Commission shall propose appropriate measures to the Council.52

An argument of the companies was that the regulation had to be applied as written until it was amended. The Commission had submitted a proposal to the Council for amendment of the regulation on the unit of account that would define the unit in terms of a basket of currencies and would provide for translation of this unit into a member state’s currency by reference to daily exchange rates. The companies argued that the court could not take account of exchange rates in the market as if the amendment had already taken effect.

The Advocate General reminded the court that both decisions of the Commission imposing fines and judgments of the court were enforceable in the member states of the Community according to the rules of civil procedure of the state in which enforcement was carried out. Although there were states of the Community—such as Germany, Italy, and the United Kingdom—in which execution could be levied on a judgment for an amount in foreign currency, there was no country in which an obligation expressed in EUA alone could be enforced. It was essential, therefore, that while fines and judgments had to be expressed in EUA to ensure that the prescribed limits on fines were being observed, fines and judgments had to be expressed in a currency as well so that they could be enforced. When the court included an amount of currency in its decision, as in this case, the court intended that this was the amount of the fine the Commission was to be allowed to collect by means of execution if necessary. Nothing prevented the Commission from accepting another currency, but it was not bound to accept it at any rate of exchange other than the market rate prevailing on the date of actual payment.

The Advocate General argued that the regulation establishing the limits on fines referred only to units of account because it was promulgated in the days of the par value system. At that time, it had made no difference whether fines were denominated in units of account defined in relation to gold or in a currency for which there was a par value. This argument of the Advocate General was not wholly persuasive, because a currency might have been revalued or devalued after a fine was imposed and before judgment. He did not consider this objection to be forceful, however, because changes of par value were rare events.

The court held, on its interpretation of the regulation, that neither the European Commission nor the court was precluded from expressing a fine in terms of a currency. Indeed, it was essential to do so in order to make enforcement possible. The court agreed that sums were expressed in units of account only to ascertain that the prescribed limits on fines were not exceeded.

The court agreed, therefore, that the Commission was entitled to express the fines in French francs, and that the Commission could accept payment in another Community currency. No regulation determined how the currency in which the fine was expressed had to be translated into the currency of payment. The conditions in which par values had been established no longer existed. There was no reason, therefore, why, given the silence of the regulations, par values had to be applied for the purpose of translating one currency into another. The Commission had to ensure that the actual value of payments made in another currency corresponded to the value of the amount of currency in which fines were expressed. The actual value had to be determined by reference to exchange rates prevailing in the market on the day that payment was made.

Notwithstanding the change in circumstances since the case was decided, some deductions can be drawn from the decision that are relevant to the question whether decisions can be expressed in ECUs. First, the European Court of Justice found nothing to prevent it from expressing its judgment in EUAs. This fact must carry some weight, even though it is obvious that the courts of each national jurisdiction would have to decide this question in accordance with their own law.

Second, the court was guided by pragmatic considerations. The par value system, though legally still in effect, was taken to be inappropriate as a basis for decision. Courts might be guided by a similar spirit when noting the growth of the private ECU market and the widespread opinion that the ECU has some of the characteristics of a currency even though it might not be regarded by many observers as a foreign currency.

Third, the court found it necessary to express its judgment in a fixed amount of a currency as well as in the EUA. The reason, however, was a difficulty that has now disappeared. The difficulty was that without the mention of a currency there was no way to enforce the fines in national courts. The EUA was in no sense a means of payment, and the value of the EUA in currencies could not be easily determined. The EUA was defined at the time of the decision in terms of gold and not currencies. If ineffective par values were to be avoided, the Commission and the European Court had to express fines in an amount of a currency as well as in units of account and had then to apply the market exchange rate between the currency of judgment and the currency of payment. It is true that the amount of the currency chosen for expressing a fine had to be based on its par value, even though the par value was ineffective, because there was no practical way in which to translate the EUA into a currency.53 This difficulty has disappeared because the ECU is defined in relation to currencies and has a readily ascertainable market value. At least one European author has written that the courts of most, but not all, Community countries would be able to express judgments in ECUs.54 There would be no need to incorporate a reference to a currency in such a judgment.

Finally, it should be noted as further evidence of the realistic attitude of the European Court in the case that the rate of exchange for translating the currency of the judgment into the currency of payment was the rate of exchange prevailing on the date of actual payment.

A problem that some courts might have to face would be whether it was possible to enforce a judgment expressed in ECUs in respect of a claim under a contract specifying that the ECU was the sole means of payment. Bank deposits in ECUs can be made easily and there is a wide range of instruments denominated in ECUs from which a debtor can choose a means of payment to discharge in ECUs an obligation in ECUs. The court might hold, however, that it lacked the procedural machinery to enforce a judgment if the court could not give the judgment debtor the option to discharge the debt in the currency of the forum. The court might decide that for this reason it could not express its judgment in ECUs. This conclusion might be much the same as English courts reached in holding before the Miliangos case that they could not express judgments in a foreign currency. Under many legal systems, however, impossibility is not a defense to monetary claims, and the courts in some countries might react by decreeing enforcement in the currency of the forum notwithstanding the terms of the contract.

The English Law Commission concluded in its report that parties should be permitted to make an enforceable contract to pay in England in a foreign currency only. The Commission recognized, however, that no process of execution would be available in England, except possibly by way of a garnishee order attaching a debt, such as a bank account that happened to be in the same currency as that of the judgment.55 The English case of Choice Investments Ltd. v. Jeromnimon,56 which dealt with garnishee orders, has been discussed earlier in Chapter 13 of this volume.57

U.S. Developments

The Securities and Exchange Commission (SEC) of the United States has been faced with the question whether the ECU is a currency for the purpose of the SEC’s jurisdiction under the Securities Exchange Act, 1934 and a rule under the statute.58 On April 12, 1985 the Philadelphia Stock Exchange filed with the SEC a proposed change of rule to enable the Stock Exchange to trade options on the ECU. In such trading, the Philadelphia Stock Exchange would follow its practice on trading in foreign currency options.

The Chicago Mercantile Exchange (CME) asserted that the SEC had no jurisdiction to approve the proposal by the Philadelphia Stock Exchange because options on ECUs are not securities as defined by the Act. The statute gave the SEC jurisdiction over “options … relating to foreign currency.” The Chicago Mercantile Exchange argued that this language meant “options … relating to [a] foreign currency,” but the ECU was not a medium of exchange or payment issued by a foreign national government. It argued further that Congress intended the term “foreign currency” to have its conventional meaning. That meaning included three characteristics: (1) the currency is issued by a sovereign government; (2) the currency is used in ordinary commerce; and (3) the issuing government has established the currency as legal tender. According to the Chicago Mercantile Exchange, the ECU had none of these characteristics.

If the Chicago Mercantile Exchange had prevailed, trading in options on the ECU would be subject to the jurisdiction of the Commodity Futures Trading Commission. If, however, the SEC permitted options on ECUs to be traded on national securities exchanges as options on foreign currency, trading would be subject to the exclusive jurisdiction of the SEC under the Securities Exchange Act. The Commodity Futures Trading Commission made substantially the same argument as the Chicago Mercantile Exchange that the ECU was a basket of currencies and not a currency itself, and that its value fluctuated against the U.S. dollar because the exchange rates of currencies in the basket fluctuated. Furthermore, no government provided a central clearing system or acted as a lender of last resort.

The Philadelphia Stock Exchange argued that because the ECU is a widespread medium of exchange and fluctuates in value against the U.S. dollar and other major currencies, the ECU came within the intended meaning of the Act. A letter dated December 5, 1985 from an official of the EC to the SEC stated that “the ECU has acquired by its particular nature and stability all the functional and fundamental characteristics of currency,” and that all member states of the Community, except Germany, treated the ECU as a currency.

The SEC’s ruling59 is not a completely forthright finding that the ECU is a foreign currency, because the SEC found that the Act applied even if the ECU is not itself a foreign currency but instead is a composite index or group of the underlying currencies. On either of these latter hypotheses, ECU options relate to foreign currency. Furthermore, the conclusion related solely to the question of jurisdiction under the Act with which the SEC was concerned.

The SEC concluded that the ECU was a foreign currency within the meaning of the Act. The term “foreign currency” as used in the Act meant that an instrument is used as a medium of exchange in ordinary commerce and that the value of the instrument fluctuates in value against other foreign currencies. For the purpose of the jurisdictional question under the Act, the SEC did not regard legal tender quality as a necessary additional characteristic of a foreign currency, or that a foreign currency had to be issued by a foreign sovereign government.

The SEC found no common meaning of “currency” in U.S. statutory law, but the second sentence of Article XIX(d) of the original Articles of the IMF was not mentioned:

The term currency for this purpose includes without limitation coins, paper money, bank balances, bank acceptances, and government obligations issued with a maturity not exceeding twelve months.

Some of these items were clearly not legal tender. The definition was not an abstract one; it was intended solely for the purposes of the Articles, as was indicated by the preliminary language of Article XIX (“Explanation of Terms”):

In interpreting the provisions of this Agreement the Fund and its members shall be guided by the following:

The phrase “without limitation” should not be overlooked. These words would have enabled the IMF to add items to those specified in the provision even though the additional items were not legal tender. The IMF took no action of this kind, and the provision has been omitted from the present Articles, but not for reasons that affect the issue considered here. It is true that the items listed in the definition that were not legal tender could readily be converted into legal tender. Nevertheless, the provision can be considered evidence to support the argument that the word “currency” in some legal instruments need not be confined to items that qualify as legal tender.

The SEC’s reasons for considering the ECU to be a foreign currency for the purposes of the Securities Exchange Act were formulated as follows:

As described above, Member States of the EEC maintain ECU reserves that are used to adjust claims arising from currency movements beyond the parity ranges established by the EMS. Furthermore, the ECU is used in pricing, invoicing and settling commercial transactions, and ECU-denominated travelers’ checks and credit cards are available. In addition, the ECU is now a major currency for denominating international debt issues in the Eurobond markets, and ECU denominated bonds have been publicly offered in the U.S. Furthermore, ECUs are used to purchase these bonds, and payments of principal and interest on these bonds are made in ECUs. In addition, ECU futures traded on the CME and New York Cotton Exchange (“NYCE”) settle in ECUs, as will the Phlx options. Significantly, the ECU is recognized as a foreign currency by the Member States of the EEC, except for West Germany, as well as by several countries outside the EEC. Moreover, according to the EEC, the ECU has “the fundamental and functional characteristics of a currency.” For these reasons, the Commission believes that the ECU is used as a medium of exchange in ordinary commerce. Moreover, the value of the ECU fluctuates in value vis-a-vis the U.S. dollar and other currencies. Thus, the Commission believes that the ECU is both a “currency” and a “foreign currency.”

Second, whether or not the ECU itself is a “foreign currency,” its value is comprised of the value of various foreign currencies. Thus, options on ECUs literally “relate to” foreign currency, and, thus, come within the plain meaning of section 3(a)(10).60

The SEC found that there were important reasons of policy, both economic and competitive, in support of its determination. ECU options could be used by investors in, and by issuers and underwriters of, ECU-denominated bonds to manage the exchange risk inherent in such positions. ECU options could be used to manage exchange rate risk associated either with transactions denominated in ECUs or with multinational transactions involving a combination of currencies. In connection with the latter transactions, the ECU option would represent a means not hitherto available of diversifying exchange risk without incurring the cost of transactions in a variety of foreign currency options. For these reasons of policy also, the SEC approved the proposed trading in options on the ECU.

The SEC issued an accompanying approval of a change in rule proposed by the Options Clearing Corporation to authorize the Corporation to issue standardized options on the ECU under the Securities Exchange Act, 1934.61 Under the proposed change, the ECU would be included within the term “foreign currency,” and Belgium would be designated the “country of origin” of ECUs. The proposal would allow the Options Clearing Corporation to adjust the terms of the Corporation’s foreign currency options if the monetary authorities of the EC issue a new currency to replace the ECU or if they officially alter the exchange rate or characteristics of the ECU. The test of such exceptional circumstances would be that fairness to holders and writers of ECU options required adjustment of the terms. The Options Clearing Corporation did not intend to adjust ECU options to reflect adjustments in the weight or currency composition of the ECU. In accordance with the Corporation’s long-standing policy, the Corporation would not adjust the terms in response to devaluations or revaluations of an underlying foreign currency. As Belgium would be designated the country of origin of ECUs, the Options Clearing Corporation would usually settle ECU option exercises with deliveries of currency in that country by means of bank wire. The SEC’s approval included all the features of the proposal noted here.

The SEC explained that to change the terms of options to reflect periodic adjustments or devaluations or revaluations would be inconsistent with the economic use of ECU options (and other foreign currency options) as a hedge against such changes in the relative value of the ECU (and of any other underlying foreign currency). These developments are “ordinary” risks in the sense that foreign currency option writers and holders contemplate the risks when deciding to sell or buy foreign currency obligations, including ECU options.

For the reasons explained above, the determinations and reasoning of the SEC, though important for the conduct of the business with which they deal, are of limited forcefulness as precedents for other legal purposes. If the Uniform Foreign-Money Claims Act is adopted by American States, the question whether the SDR and the ECU are to be treated as currencies for the purpose of the formulation of judgments will be settled definitively in those jurisdictions. The Uniform Act provides that if a foreign money claim succeeds, judgment must be awarded in the money of the claim.62 It has been seen that “money” as defined by the Act includes the SDR, the ECU, and other composite stores of value authorized or adopted by a government or by intergovernmental agreement.63 The judgment is payable in the money of the judgment or, at the option of the judgment debtor, in an amount of U.S. dollars, at the exchange rate prevailing on the conversion date as defined by the Act,64 that will be sufficient to purchase the amount of the money awarded by the judgment.65 The effect of this judicial practice may be powerful in encouraging recognition of the SDR and the ECU as currencies for other legal purposes.


Daniel Lefort, “Problèmes juridiques soulevés par l’utilisation privée des monnaies composites,” Journal du Droit International (Paris), No. 2 (1988), at pp. 389–94. See also Chris Sunt, Legal Aspects of the Ecu (London and Edinburgh: Butterworths, 1989). For the (translated) text of the Bundesbank’s Notice No. 1002/90, see International Banking Law (London), Vol. 9(1990), pp. 272–73.


Public Resolution No. 10, 73rd Congress [H.J. Res. 192]; 31 U.S.C. 463.


John M. Perry v. The United States, 294 U.S. 330 (1935); F. Eugene Nortz v. The United States, 294 U.S. 317 (1935); Norman v. Baltimore & O. R. Co., 294 U.S. 240 (1935); Guaranty Trust Company of New York v. Berryman Henwood, 307 U.S. 247 (1939); Bethlehem Steel Company v. Zurich General Accident & Liability Insurance Company Ltd., 307 U.S. 265 (1939).


Public Law 93–110, 87 Stat. 352; Public Law 93–373, 88 Stat. 445.


Public Law 95–147, 91 Stat. 1227, Section 4(c).


Selected Decisions, Fifteenth Issue, pp. 363, 364, 366, 368.


Joseph Gold, SDRs, Gold, and Currencies: Third Survey of New Legal Developments, IMF Pamphlet Series, No. 26 (Washington: International Monetary Fund, 1979), pp. 7–10; Joseph Gold, SDRs, Gold, and Currencies: Fourth Survey of New Legal Developments, IMF Pamphlet Series, No, 33 (Washington: International Monetary Fund, 1980), pp. 15–16.


45 Am. Jur. 2d, Interest and Usury, s. 111, at p. 97.


Chap. 38, sec. 3 (June 27, 1977), Canada Gazette, Part III, Vol. 2, No. 7, July 14, 1977.


Section 3–104 (1)(b) (UCC).


Section 3–107 (UCC).


Comment 1 on Section 3–107 (UCC).


Comment 4 on Section 3–107 (UCC).


UN Document A/43/820 of November 21,1988, pp.2–42; International Legal Materials (Washington), Vol. 28 (1989), pp. 170–211.


Ibid., Article 3, paragraph 1(a).


Ibid., Article 5(1).


Ibid., Article 75, paragraph 2.


Ibid., Article 7(d) and (e).


Banking Services: Law and Practice, Report by the Review Committee (London: H.M. Stationery Office, Cm 622, February 1989). The Chairman of the Committee, often called the Jack Committee, was Professor R.B. Jack.


Ibid., pp. 66–74.


Ibid., paragraph 8.17 (p. 69).


See, for example, ibid., pp. 210, 233–34.


Ibid., paragraph 8.19 (p. 69).


ibid., paragraph 8.20 (p. 69).


Ibid., p. 275.


Banking Services: Law and Practice (London: H.M. Stationery Office, Cm 1026).


“[W]hen other pressures on the legislative timetable permit.” Ibid., paragraph 6.2 (p. 26).


Ibid., paragraph 6.4 (p. 26).


Treseder-Griffin and Another v. Co-operative Insurance Society Ltd. [1956] 2 Q.B. 127.


Multiservice Bookbinding Ltd. and Others v. Marden [1979] 1 Ch. 84; |1978] 2 W.L.R. 535; [1978] 2 All E.R. 489.


Compare de Brancovan v. Mme Galitzine, Recueil Dalloz Sirey (1989), No. 8, Jurisprudence, p. 80, and comment by Philippe Malaurie. The defendant received a loan expressed in Swiss francs from the plaintiff. The Swiss franc apparently was the currency of account but not payment. The parties were residents of France. The Cour de Cassation held the agreement to be invalid, because it involved a form of indexation prohibited by ordinances of 1958 and 1959 in the case of domestic contracts. The commentator questions whether the reference to a foreign currency is a form of indexation if indexation is understood to be a method of pricing that provides for variation in accordance with changes in an index. The prohibition does not apply to indexation directly related to the purpose of the agreement or to the activity of one of the parties, which is interpreted to mean that one of the parties is a banker or financier. The commentator suggests that the interpretation of the ordinances is too narrow in confining the exception to bankers and financiers, because it ignores the exception based on the purpose of an agreement. Furthermore, the exception made for bankers or financiers is too broad, because it should apply only to such of their contracts as relate to the international market. Contracts for international payments are not subject to the ordinances, because the ordinances reflect only domestic public policy, but international contracts may be subject to exchange control regulations. To constitute an international payment it is sufficient that the contract is part of an international operation even if, taken alone, the contract would be domestic. The test of an international payment, he concludes, is that there is an exchange risk. Blanc v. Raynaud (La Semaine Juridique, January 3, 1990, II—Jurisprudence, Case 21393; Recueil Dalloz Sirey, March 22, 1990, No. 12, Jurisprudence, p. 167) has a bearing on some of these issues, without, however, resolving them. There is authority for the proposition that a domestic contract may validly provide for payment in a foreign currency if the currency of account is the French franc, but the jurisprudence seems not to be uniform. [Revue de Droit Bancaire et de la Bourse (Paris), No. 19 (May-June 1990), pp. 128–29.)

The Belgian Cour de Cassation has decided that there is nothing in Belgian law that prohibits the use of a foreign currency as the currency of payment, if payment is not prohibited by exchange control regulations, but the foreign currency must be the currency of payment and not merely the currency of account. (42 Revue Critique de Jurisprudence Beige, Premier Trimestre (1988), p. 102, note 197.)


Multiservice Bookbinding Ltd. and Others v. Marden [1979] 1 Ch., at pp. 112–13.


[1989] 1 All E.R. 489; [1989] 2 W.L.R. 162; [1988] 2 Lloyd’s Rep. 574.


Robert Goff J. in B.P. Exploration Co. (Libya) Ltd. v. Hunt (No. 2) [1982] 1 All E.R. 925, at p. 972.


English Law Commission’s Report, paragraphs 5.22–5.25. See also paragraphs 5.31–5.35, 5.63–5.69.


The Brimnes Tenax Steamship Co. Ltd. v. The Brimnes (Owners) [1975] 1 Q.B. 929; Mardorf Peach & Co. Ltd. ν Attica Sea Carriers Corporation of Liberia [1977] A.C. 850; Libyan Arab Foreign Bank v. Bankers Trust Company [1988] 1 Lloyd’s Rep. 259 (the most detailed discussion).


Revue de la Banque (Brussels), No. 2 (February 1984),


For helpful definitions of “common currency,” the two separate forms that it can take, namely “parallel currency” and “single currencv,” and “common numeraire,” see the paper by Gunter D. Baer and Tommaso Padoa-Schioppa entitled “The ECU, the common currency and the monetary union” attached to the Delors Committee Report, p. 209; see also Karl Otto Pöhl, “The further development of the European Monetary System,” ibid., pp. 129–55.


Ralph J. Mehnert, “The European Currency Unit—The ECU—Currency for the United States of Europe,” George Washington Journal of International Law and Economics (Washington), Vol. 23, No. 2 (1989), pp. 349–413 states (at p. 407) that the IMF has implicitly recognized the ECU as a currency. He bases this conclusion on the fact that the IMF includes ECUs and not the deposits of gold and U.S. dollars with the EMCF against which ECUs are issued in the calculations of reserves made by the IMF for the purpose of allocating SDRs. Allocations of SDRs are made on the basis of quotas and not reserves. ECUs are included in the calculations of reserves or of foreign exchange holdings by the IMF for various purposes, but these statistical actions do not carry the implication the author has detected, ECUs are included and deposits excluded for pragmatic reasons, such as the desire to avoid double counting. The paragraph in the IMF’s International Financial Statistics on which the author relies (see, for example, Vol. 43, No. 9, September 1990, p. 10) is not a legal analysis of any action by the IMF, and means no more than that for certain limited purposes the ECU is treated by the IMF as if it were a currency and not that it is a currency. The IMF’s decision was inspired by the illiquidity of the deposits rather than the character of the ECU.


Delors Committee Report, paragraph 46, p. 33. For an analysis of the Report, see Jean-Victor Louis, “A Monetary Union for Tomorrow?” Common Market Late Review (Dordrecht, Netherlands), Vol. 26, No. 2 (1989), pp. 301–26. On the question whether a monetary union can be fully achieved by an irrevocable fixity of parities among countries rather than by the adoption of a single currency as the common currency, and on related questions, see Lorenzo Bini Smaghi, Progressing towards European Monetary Unification: Selected Issues and Proposals, Temi di discussione del Servizio Studi, No. 133 (Rome: Bank of Italy, April 1990).


Delors Committee Report, paragraph 6, pp. 12–13.


Ibid., paragraph 47, p. 33. The ECU “is now maturing into a currency in its own right.”—Commission of the European Communities, Bulletin of the European Communities (Luxembourg), Vol. 22, No. 3 (1989), p. 8. For an excellent survey of some of the legal and other limitations on the private use of the ECU, see A Strategy for the ECU, a report prepared by Ernst & Young and the National Institute of Economic and Social Research on behalf of the Association for the Monetary Union of Europe (London: Kogan Page, 1990), Chapter 6, “Country Analyses of the Microeconomic Obstacles to the Private Use of the ECU,” pp. 79–125.


1978, Chapter 18.


Rainer Stefano Masera, An Increasing Role for the ECU: A Character in Search of a Script, Essays in International Finance, No. 167 (Princeton, New Jersey: Princeton University, 1987), p. 10.


See, for example, R.M. Goode, Payment Obligations in Commercial and Financial Transactions (London: Sweet & Maxwell, 1983), who, relying upon the legal definition of “money” by F.A. Mann (The Legal Aspect of Money (Oxford: Clarendon Press, 4th ed., 1982, p. 8)), lists (at pp. 1–6) the following ingredients of money: (1) money is a chattel; (2) money is issued by the state; (3) money is denominated with reference to a unit of account; (4) money is a universal means of exchange throughout the territory of the issuing state.

There are, however, other legal views of what constitutes money and a readiness to recognize that changes in the definition can develop. Note, for example, the following view:

“In these circumstances it seems to me that, in English and French law at least, while there is little probability that an obligation denominated in SDR’s would be considered as a money obligation if the payment mechanism does not involve conversion into a recognized currency, there is a good chance that an ECU obligation, even if not associated with a payment mechanism involving another currency, would be considered as a monetary obligation. This is because as analysed above judicial thinking about money seems to be moving away from the requirement that legal tender should be involved in the payment process and to be moving towards accepting market practice. Clearly, if the legal tender requirement is maintained, there is no chance of an obligation in ECU without a payment mechanism involving national currency being considered as money obligation because the ECU is not legal tender anywhere.”—John Trevor Brown, “Transactions Denominated in Composite Currencies—Legal, Drafting and Enforcement Problems,” in Composite Currencies: Financing, Accounting and Invoicing, Addresses given at the London Conference, April 1983 (Fondation pour 1’Étude du Droit et des Usages du Commerce International), pp. 191–215, at p. 213.

Mr. Brown points to the fact that, at the time he was writing, all that the ECU banking market lacked when compared with the domestic banking market was a clearing system. Such a system now exists for the private ECU (see Chapter 4 of this volume), but note that this system does not have a lender of last resort. On the necessity for a lender of last resort, see pp. 44–48 of the work by Polly Reynolds Allen referred to in the next footnote. See also Thomas M. Humphrey, “Lender of Last Resort: The Concept in History,” Federal Reserve Bank of Richmond, Economic Review (Richmond, Virginia), Vol. 75, No. 2 (1989), pp. 8–16; Thomas M. Humphrey and Robert E. Keleher, “The Lender of Last Resort: A Historical Perspective,” Cato Journal (Washington), Vol. 4, No. 1 (1984), pp. 275–318; Jack Guttentag and Richard Herring, The Lender-of-Last-Resort Function in an International Context, Essays in International Finance, No. 151 (Princeton, New Jersey: Princeton University, 1983).


Polly Reynolds Allen, The ECU: Birth of a New Currency, Occasional Papers, No. 20 (New York: Group of Thirty, 1986), particularly at pp. 26–43, Hugo J. Hahn, “The European Economic Community as a Currency Union from the European Monetary System towards a European Monetary Authority,” Rivista di Diritto Valutario e di Economia internazionale, Vol. 41 (1989), at pp. 729–30.


Paragraph 2.42 and footnotes 129 and 131 to that paragraph.


Joined Cases 41, 43, and 44/73 [1977] E.C.R. 445.


Ibid., p. 448.


Coöperatieve vereniging ‘Suiker Unie’ UA and Others v. Commission of the European Communities [1975] E.C.R. 1663, at p. 2026.


Financial Regulation of April 25, 1973 applicable to the general budget of the European Communities (73/91/ECSC, EEC, Euratom), Title III, Section I, Art. 27, European Communities, Official Journal of the European Communities (Luxembourg), Vol. 16, No. L 116, May 1, 1973 (English ed.), p. 10.


There was much discussion in the case of the alleged discriminatory effects of formulating the fines as an amount of currency. The court and the Advocate General advanced reasons to rebut these allegations. Nevertheless, it is doubtful that the unit of account, which was intended to ensure uniformity as one of its objectives, did achieve that effect. Uniformity must mean equality of value in relation to some standard. The decision chose the standard of par values. The fines were calculated according to the par value of the currency of the country in which a company had its principal place of business. Therefore, if a currency had appreciated in the market, the effective burden on a company was heavier in relation to other currencies than on a company whose currency had depreciated,


Daniel Lefort, “Problèmes juridiques soulevés par l’utilisation privée des monnaies composites,” Journal du Droit international (Paris), No. 2 (1988), at p. 400.


Footnote 295 to paragraph 5.16 of the Report.


[1981] 1 Q.B. 149.


For a detailed discussion of garnishee orders, see the English Law Commission’s Report, paragraphs 5.70–5.80.


15 U.S.C. 78, Section 19(b)(1)(1982); Rule 19b-4, 17 CFR 240.19b-4(1985).


SEC Release No. 22853; File Nos. SR-Phlx-85–10, Federal Register (Washington), Vol. 51, No. 28 (February 11, 1986), pp. 5129–34. Under regulations issued by the U.S. Internal Revenue Service in September 1989, the ECU has been included within the definition of “currency” for certain purposes. (Jim Fuller, “Internal Revenue Service Issues New Foreign Currency Regulations,” Tax Notes International (Arlington, Virginia), Vol. 1, No. 5 (November 1989), pp. 480–89, at p. 484.)


SEC Release (cited in footnote 59 above), footnotes omitted.


SEC Release No. 34–22854, File No. SR-OCC-85–14, Federal Register (Washington), Vol. 51, No. 28 (February 11, 1986), p. 5128.


Section 7(a).


Section 1(7).


Section 1(3).


Section 7(b).