Present international monetary arrangements permit the fluctuation of exchange rates and movements that are sometimes wide and erratic. Exchange rate behavior is extremely difficult to predict. Problems are created for the parties whose activities are affected. These parties can be official or nonofficial. Both international and national law have had to respond in order to mitigate the difficulties and hardships created by fluctuating exchange rates. Modifications of earlier law and innovations of considerable importance have taken place, and the process continues.

Changed Role of U.S. Dollar

Present international monetary arrangements permit the fluctuation of exchange rates and movements that are sometimes wide and erratic. Exchange rate behavior is extremely difficult to predict. Problems are created for the parties whose activities are affected. These parties can be official or nonofficial. Both international and national law have had to respond in order to mitigate the difficulties and hardships created by fluctuating exchange rates. Modifications of earlier law and innovations of considerable importance have taken place, and the process continues.

The legal developments discussed in this monograph are to a large extent consequences of a change in the role of the U.S. dollar in the international monetary system. An early symptom of this change was the IMF’s negotiation of its General Arrangements to Borrow, which became effective on September 19, 1962. The other parties to this agreement were ten leading industrialized countries (acting in some instances through their central banks), which quickly took on a collective character as the Group of Ten. It was assumed originally that in the operation of the agreement the major, and perhaps the only, beneficiary might be the United States. The IMF would be able to resort to the General Arrangements if it needed to supplement its resources to meet a request by the United States for financial help because of a weak balance of payments position. This weakness might provoke, and be intensified by, an outflow of short-term capital from the United States to the other contracting countries, which would then, in effect, return through the mechanism of the IMF the capital that had flowed to them.

The preamble to the agreement referred not to the IMF’s possible need for supplementary resources to meet a request by the United States but to the need “to forestall or cope with an impairment of the international monetary system.”1 This language was not simply diplomatic courtesy. The soundness and stability of the dollar were seen to be essential for the soundness and stability of the international monetary system as a whole.

The First Amendment of the IMF’s Articles, which took effect on July 28, 1969, is further evidence of the same trend. Once again, the objective was to increase official liquidity, although not by increasing the resources of the IMF or any other international organization. Instead, the IMF was authorized to allocate a new reserve asset, the SDR, to members of the IMF “[t]o meet the need, as and when it arises, for a supplement to existing reserve assets.”2 The need was defined as a “long-term global need.”3 Again, therefore, there was no reference to the United States, but it was well known that the need might arise if, as was hoped, the United States eliminated or curtailed the deficit in its balance of payments and ceased, as a result, to supply other countries with the growth in their reserves that they desired in their own interest and in the interest of the international economy.

The United States took the lead in negotiating the First Amendment, primarily with the other members of the Group of Ten, because it was hoped that the United States could preserve the official convertibility of the dollar by converting foreign official holdings of dollars with SDRs, although without abandoning its undertaking to provide gold for this purpose on request. That undertaking was the primary norm of the par value system.

These innovations failed to preserve the international monetary system that had been dependent legally and economically on the central role of the dollar. The process came to an end on August 15, 1971 when the United States terminated the official convertibility of the dollar and by this action brought the par value system of the Articles effectively to an end. An effort was made to control the fluctuation of exchange rates by means of the informal Smithsonian Agreement, under which exchange rates were realigned and the dollar was devalued. Exchange rates were then to be stable, it was hoped, although not in accordance with the provisions of the Articles. This agreement ceased to be observed in the early months of 1973, and this effort also was a failure.

The change in the role of the dollar must not be interpreted as a process by which the United States has been reduced to a minor influence in international monetary arrangements. Even the Second Amendment itself is evidence that such a view would be a misinterpretation. The provisions on exchange arrangements and exchange rates reflect the negotiating position of the United States, even though the need for the new provisions had been created by the weakness of the dollar. Furthermore, the proposals of the United States on these provisions and on other important aspects of the treaty prevailed notwithstanding the strong advocacy of different solutions by other negotiating countries.

Even if the United States cannot now always prevail when it makes proposals that affect the international monetary system, only rarely will the proposals of other countries succeed against the objection of the United States or without its support. Nevertheless, there are now other powerful players in the drama, and ensemble acting is more evident than in past performance. More is made of the desirability of voluntary collaboration among major countries in the choice of their policies than of new measures to regulate the international monetary system by legal obligations. Once again, however, the steps to achieve the voluntary coordination of national financial and economic policies and conjoint efforts to achieve order in the exchange markets have been undertaken at the prompting of the United States.

Regional arrangements, it seems, can be entered into, modified, and managed without the initiative and involvement of the United States and notwithstanding some dubiety on its part. The creation of the EMS is the outstanding example of this possibility. Participation in this mechanism is regional but its impact on nonparticipants, including the United States, is so profound that it becomes unrealistic to consider the EMS as a wholly local phenomenon.

The fluctuations that have been characteristic of exchange rates since early 1973, notwithstanding the collaborative efforts of recent years to achieve greater stability and the commitment of members under the Articles to promote a stable system of exchange rates, have been the major influence in producing the legal developments in international and national law that are discussed in this volume.

Change in International Monetary System

Once it became clear that a reformed par value system could not be instituted immediately and that the assured introduction of such a system after an interim period could not be negotiated, agreement was reached on the present provisions of the Second Amendment of the Articles. The new provisions can properly be regarded as the most important consequence in public international law of the fear that exchange rates might fluctuate excessively and chaotically.

The present Articles authorize each member to apply the exchange arrangement it prefers, except that a member may not maintain an external value for its currency in terms of gold. The contrast with the original Articles, which recognized only one exchange arrangement, a par value fixed in terms of gold, could not be stronger, even though the relationship to gold could be adjusted in the event of a fundamental disequilibrium. The concept of “exchange stability,” which had been overwhelmingly important in the original Articles, has been eliminated in favor of “a stable system of exchange rates.”4 Even though it may sound paradoxical, the concept of a stable system postulates changes in exchange rates if existing rates are inappropriate. In addition, more flexible exchange arrangements may be advisable for members if their existing arrangements do not permit the ready adaptation of exchange rates to changes in underlying economic and financial conditions. The IMF, in performing its function of firm surveillance over the exchange rate policies of members, frequently urges members to adopt more supple exchange arrangements in the interest of more beneficial international competitiveness or for other reasons.

The negotiators of the present Articles were aware that the permissiveness they were endorsing created the danger of disorder or chaos in exchange rates. Safeguards have been written into the Articles to prevent or rectify the unruly behavior of exchange rates, but the safeguards have not prevented volatile changes or misalignments in exchange rates. Even if the safeguards had been successful in preventing these undeniably perverse consequences, the likelihood was that there would be greater fluctuations and uncertainty in exchange rates than under the par value system, and that these conditions would create new or intensified legal problems. This expectation has led many observers to refer to the present system as one of floating or fluctuating exchange rates, while some critics have described it as no system at all. Both statements can be challenged as exaggerations, but the unsatisfactory behavior of exchange rates cannot be denied.

Skepticism is often expressed about the ability of monetary authorities to do much about eliminating or mitigating the undesirable behavior of exchange rates by official intervention in the exchange markets, except in the short run. This opinion must be qualified if a number of countries are willing to pool a sufficient degree of their individual authority to make their collective management effective. The EMS is an example of such a pooling, undertaken in accordance with legal obligations and different therefore from the informal efforts of the Group of Five or the Group of Seven to coordinate their policies. There may be an even more extensive pooling in the EC in the years to come.

The success of an arrangement like the EMS requires not only legal commitments with respect to the level of exchange rates and intervention to support these rates, but also the pursuit by each participating country of national macroeconomic policies that are coherent as a program and also consistent among all such countries. The scope of this commitment and the limitation it imposes on the national choice of policies help to explain why the Groups of Five or Seven, in which the United States is a powerful force, avoid legal undertakings.

The countries that constitute these Groups have had loose understandings on exchange rates and policies, particularly since the Plaza and Louvre Accords. These understandings have been less successful than the EMS for a variety of reasons: the participating countries are heterogeneous and not related to each other by any communal link; understandings on the levels or ranges of exchange rates are imprecise and not binding; the participating countries are not firmly committed to the pursuit of compatible domestic or external policies; no sanctions can be invoked or public obloquy expressed if understandings are not observed. As the participants prefer to retain national autonomy, their representatives tend to take collective decisions only when serious incompatibility among policies has produced exchange rates deemed to be misaligned and seriously detrimental to the group or to some members of it. The effect of such a procedure is that exchange rates among the currencies of the group are likely to fluctuate more than they do among the currencies subject to the EMS. The currencies of the group can fall more severely out of an appropriate alignment and provoke instability.

The central banks of many countries, including the central banks of the leading industrialized countries, engage in frequent, indeed daily, efforts to manage exchange rates. These efforts, however, can do little more than smooth out the short-run behavior of exchange rates in the market. To eliminate or mitigate the volatility and misalignment of exchange rates beyond this modest degree of management requires a commitment by ministers to the pursuit of compatible macroeconomic policies and steady adherence to the commitment. If there is no such commitment and behavior, the markets take cognizance of this failure. Exchange rates fluctuate as the result of sentiment in the markets and largely under the influence of short-term or long-term flows of capital. If central banks intervene to affect exchange rates, the markets will probably soon return to a trend that intervention may have interrupted. If, in some cases, intervention succeeds, the explanation may be that it was designed to support a trend that had already begun to appear in the markets.

The participants in the EMS and in the Group of Seven are not wholly discrete combinations of countries. The partial overlap in participation gives the leading industrialized countries an opportunity to enter into understandings on a more desirable behavior of exchange rates, or, in other words, to approach closer to the ideal of a stable system of exchange rates in accordance with Article IV of the IMF’s Articles. The question then is whether substantial success can be achieved without some shared concept of an international monetary system that includes all the essential elements. Article IV, Section 4 of the IMF’s Articles5 may contain these elements, although this suggestion does not imply that success can be achieved only by bringing the par value system of Schedule C into operation.

In the field of international law, the main consequence of the fluctuation of exchange rates has been validation of the freedom of members not only to choose their exchange arrangements but also to determine the exchange rate of their currencies by whatever degree of management of the rate, including total abstention from management, that each member sees fit to practice. To avoid the dangers inherent in this freedom, two legal safeguards are included in the Second Amendment. The first consists of some obligations that members must observe in pursuing domestic and external policies that could affect exchange rates, with the object of achieving orderly exchange arrangements and a stable system of exchange rates. The second safeguard is a responsibility imposed on the IMF to see that members observe these obligations:

The Fund shall oversee the international monetary system in order to ensure its effective operation, and shall oversee the compliance of each member with its obligations under Section 1 of this Article.6

The provision mentioned in this text sets forth the obligations of members referred to above.

Change in International Law

In the field of international law, another major development has been change in the definition of the SDR by substituting reference to a basket of prescribed amounts of specified currencies for reference to gold. So pressing was the need for this change that it was made even before the Second Amendment took effect, and therefore at a time when the SDR was still defined by the Articles in terms of a quantity of gold. The role that the SDR as now defined performs within the IMF and under numerous other multilateral treaties is a central one, even though the volume of SDRs allocated so far has been disappointingly small in proportion to other reserve assets. The concept of an SDR defined by reference to a basket of currencies has been a model for the definition of the ECU and other composite units of account adapted to the particular uses for which they have been developed.

The EMS, in which the ECU performs a number of essential functions, can be described as a third important development in international law that can be attributed to the fluctuation of exchange rates. The importance of the EMS and its promise for the future are not minimized by awarding it this place in a hierarchy of consequences in international law. Logic compels this order. The EMS is a regional arrangement, while the Articles set forth the legal obligations of all members with respect to exchange arrangements and other aspects of the international monetary system. Furthermore, the Articles make legal room for an arrangement such as the EMS by declaring that “cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members”7 are consistent with the Articles. This language was adopted specifically in order to put beyond controversy the validity under the Articles of the predecessor of the EMS, the European narrow margins arrangement (the “snake”).

Fluctuations in the exchange rates of currencies, particularly the oscillations of the rate for the dollar, threatened the economic and political objectives of the EC. The member states took the imaginative action of creating the EMS as a zone of monetary stability that would be less susceptible to the disturbing influence of the behavior of the dollar.

The EMS has a number of similarities to the par value system of the original Articles and the par value system that would be governed by Schedule C of the present Articles if that system were ever called into operation. The most fundamental similarity is that the provisions governing all three systems have the common objective of limiting the fluctuation of exchange rates by legal obligation. Defined margins for exchange rates are regarded as inevitable because the stability of exchange rates is the paramount objective of such systems. A modest degree of fluctuation is considered desirable as a safety valve for preservation of the system and economy in the use of monetary reserves. In addition, provision is made for the adjustment of exchange rates by changing the relationship of a currency to the common denominator of the system, but according to an express or implied legal criterion that makes frequent adjustments unlikely.

A similarity between the EMS and the par value system of the original Articles is the central role of a single currency in each. In the par value system, the U.S. dollar undeniably filled this role. The deutsche mark can be said to function in the same way in the EMS.8 A country can have such a central role in international monetary affairs only if it maintains the stability of its currency. By observing such a policy, the country gives other countries the opportunity to maintain the stability of their currencies in relation to the central currency and therefore to the currencies of like-minded countries. The country of the central currency pursues its macroeconomic policies in a noninflationary manner, while other countries strive for price stability by following monetary policies that help to preserve a stable exchange rate relationship to the central currency.

The responsibility of a country to maintain the stability of its currency as a central currency has not been undertaken as a treaty obligation. It might be argued, however, that there was some evidence in the IMF’s original Articles that there would be a central currency in the par value system and that it was going to be the U.S. dollar. No such evidence can be found in the legal instruments of the EMS. The question suggested by experience is whether, to build a successful international exchange rate system governed by law, it is necessary, expressly or tacitly, to enable or even to encourage a single currency to perform a hegemonic role. The negotiators of the Second Amendment came to an opposite conclusion. The Articles provide that the SDR should be the principal reserve asset in the international monetary system,9 and that if the par value system of Schedule C were to come into operation the common denominator of the system must not be a currency.10

The negotiators were, or course, influenced by the collapse of the par value system. They concluded from the collapse and the vicissitudes that had preceded it that an international monetary system should not be hostage to the policies of any country. The negotiators were aware also that the United States had complained that its central role in the par value system had denied it the flexibility that other countries had enjoyed in managing the exchange rates for their countries. In short, the United States had seen itself as the hostage of the par value system. The central role of a currency provokes political as well as economic strains.11

Composite Units of Account

The fluctuation of exchange rates has led to the use of composite units of account defined by reference to a combination of specified amounts of selected currencies. The SDR and the ECU were created as monetary assets to be held by countries and a few other public entities, but the official method of valuing these assets has become useful for numerous purposes unrelated to the character or functions of the SDR and ECU as monetary reserve assets. The authorities have taken steps to encourage the use of the SDR and the ECU as units of account by both official and nonofficial entities, with the result that the SDR and the ECU have become the most prominent composite units of account. More active measures of this kind have been taken in relation to the ECU, with correspondingly greater success in the use made of it as a unit of account within and outwith the EC. The SDR, however, has functioned increasingly as the unit of account in treaties, particularly those of a multilateral character, with little other use.

An explanation of the greater zeal that has inspired the member states of the EC to promote use of the ECU as a unit of account is that the ECU is both a symbol and an instrument of an advance toward greater political and economic unity in the EC. No similar zeal in promoting the use of the SDR has been demonstrated or can be foreseen, because the membership of the IMF is large and diverse and there is no comparable movement to unity on such a scale. From time to time, those who deplore that the SDR has not become the principal reserve asset in the international monetary system advocate efforts to encourage the use of the private SDR as a strategy for enhancing the status of the official SDR. One idea that has been advanced is the establishment of a clearing mechanism for obligations denominated in the SDR. History develops in unexpected ways: the SDR influenced the creation, characteristics, and uses of the ECU, but those who hope to increase the use of the private SDR cite the example of the ECU and wish to see it emulated.

Some who share this view argue for a greater volume of official SDRs, or at least maintenance of an earlier ratio of SDRs to total official liquidity, as an indirect means of encouraging use of the private SDR. As a minimum, this policy would set an example for private parties. The adherents of such a recommendation regret that new allocations of SDRs have not been made for some years. According to a widespread opinion, however, the official ECU has not attained the central role in the EMS that was intended for it. It can be argued that nevertheless the private ECU has outstripped the official ECU as a monetary phenomenon.

The objective of the EMS as a mechanism to achieve a zone of monetary stability, and the credibility of the idea that the participants were serious about that aim, seem to have been the more persuasive explanations of the success of the private ECU. The aim of the Articles that the SDR should be the principal reserve asset in the international monetary system implied a strong system based on a stable system of exchange rates. Experience has not promoted confidence that this aim was being seriously pursued or was likely to be attained.

The success of the ECU as a unit of account is not solely the result of official promotion. No amount of promotion could be effective unless parties saw advantage in using the ECU as a unit of account. A fundamental advantage is the composition of the ECU, which gives the promise of greater stability in relation to currencies than does the use of any one currency. Furthermore, the ECU offers a reasonable compromise between the competing wishes of parties to a transaction, each of whom might prefer its own choice of a currency as the unit of account. However, it is the commitment of member states of the EC to the ECU as an indispensable feature of a more tightly knit community that seems likely to produce the only legal advances toward greater stability in exchange rates that can be foreseen with confidence.

Units of account, other than the ECU and SDR, have been adopted for the purpose of a particular treaty or international organization. In some instances, two or more units of account are applied because of differences of interest among contracting parties to a treaty or because of the various functions of an organization. An example of different interests is the coexistence of members and nonmembers of the IMF as contracting parties to a treaty. The tendency in such cases has been toward acceptance of the SDR directly for members and indirectly for nonmembers. Some treaties in which the unit of account is defined in terms of gold have survived the disappearance of the par value system, with the result that problems of interpretation arise now that there is no official price for gold unless there is a surviving or new national statute that relates the gold unit of account to the national currency.

The problem of interpreting the U.S. dollar defined in relation to gold as a unit of account has been particularly acute for the World Bank. The disposition of all members of the Bank, except the United States, has been to translate the unit of account into SDRs and then to relate currencies to the IMF’s valuation of the SDR. The United States has so far successfully resisted this solution because of the budgetary problem the United States alleges it would face. Although a solution has been found, it is not the SDR, but it may be doubted that the solution is cast in concrete. One reason for this doubt is that the United States is the only member of the World Bank that is not bound to engage in periodic adjustments of the Bank’s holdings of members’ currencies as a result of fluctuations in exchange rates. A peculiarity of the Bretton Woods institutions is that they are applying different units of account.

A problem of fluctuating exchange rates arises because a treaty or statute may prescribe a limit in terms of a unit of account for specified transactions or for some other purpose. The fluctuation of exchange rates may bring about an excess over the limit without volition on the part of anyone. It does not seem possible to suggest a uniform solution for dealing with all cases in which such an excess occurs. For each kind of case, a solution must be found that is appropriate for the category to which the case belongs.

The experience of IDA shows that an international organization may face problems if its credit commitments to members are expressed in a currency as the unit of account, and the members subscribing other currencies do not undertake to maintain the value of the organization’s holdings of their currencies in terms of the currency that is the unit of account for the credit commitments. The other currencies can depreciate against the currency that is the unit of account for credit commitments and thus reduce the value of the organization’s resources. It is apparent from the case of IDA that the United States is not the only member that may allege budgetary difficulties as a reason for opposing a new or reinterpreted maintenance of value obligation. IDA has had to find solutions while continuing to accept the denomination of subscriptions and contributions in a variety of units of account at the same time that the unit of account for credit commitments and the repayment obligations to which the commitments give rise are now denominated in the SDR.

In an environment of fluctuating exchange rates, rules are required for determining the appropriate currency for the resolution of some problem or for determining the applicable exchange rate of the appropriate currency. Often, a basic rule of international or national law is that the parties immediately involved are free to decide these matters by agreement. Rules must be prescribed, however, for cases in which the parties are not given this freedom or for cases in which they do not exercise the freedom that has been recognized by the applicable law.

Some treaties provide that the applicable exchange rate shall be an average of the exchange rates prevailing over a period deemed suitable, on the ground that the exchange rate prevailing on any one day may be untypical of the trend over the period. Under other treaties, if the exchange rate applies to a transaction assimilated to a spot exchange transaction, and the recipient of the currency is required or is likely to use the currency at once or soon, an exchange rate prevailing at or close to the time of the transaction is selected. National courts, however, are not likely to decide that average exchange rates are to be applied as a requirement of the lex fori unless there is the compulsion of a treaty.

Change in National Law

In national law, the most dramatic impact of fluctuating exchange rates has been on the law relating to the currency in which judgments (or arbitral awards) can be, or must be, expressed. The courts of one of the two countries whose currencies have had a hegemonic role in international monetary relations in the twentieth century have abandoned the earlier national rule that judgments could be expressed only in the national currency, in this instance sterling. The old rule was inspired by the belief, no longer tenable, that sterling as a hegemonic currency was stable. If exchange rates between sterling and other currencies fluctuated, it was the instability of the other currencies that produced this effect. As a result of the decision of the House of Lords in the Miliangos case, which properly has been described as revolutionary,12 and subsequent decisions in the same mode, it is now firmly established in England that in certain circumstances judgments must be expressed in the appropriate foreign currency. It is also settled that the judgment debtor is entitled to discharge his liability either by paying the number of units of the foreign currency stated in the judgment or the sterling equivalent at the exchange rate prevailing at the time of actual payment. The earlier rule provided that the exchange rate between sterling and the foreign currency prevailing at the date of breach had to be applied. The effect of the Miliangos doctrine is being felt in many branches of English law. The new law is also exerting influence in jurisdictions of the Commonwealth that normally regard English decisions, at least of the higher courts, as strongly persuasive.

In the era of fluctuating exchange rates, the new English law is having a powerful effect not only in other countries of the Commonwealth but also in the country of the currency that took over the role of the hegemonic currency. In the United States also the established view had been that the U.S. dollar was a stable currency, although the rule that judgments of courts in the United States could be expressed only in dollars had origins beyond belief in the stability of the dollar. It was assumed, for example, that the earlier English rule was part of the common law that the United States had inherited. The view that the dollar is a stable currency is an obvious fiction in present conditions. It is not only the untenability of the view that is responsible for reformist tendencies: it is also apparent, as it was in England, that the traditional law produces unfair consequences and is therefore detrimental to international trade and finance and to other national interests of the United States.13

In the United States, courts and legislatures have not yet followed the English lead, but the New York legislature has made a partial move in the same direction. Influential professional bodies, however, are urging courts and legislatures to substitute new legal principles closely related to the Miliangos revolution for the traditional law.

Changing attitudes in the United States to the expression of judgments in foreign currencies are the result not only of fluctuations in the exchange rate of the dollar but also of the spreading use of foreign currencies as the unit of account in contracts entered into by residents of the United States. That practice itself is a consequence of an unstable dollar. These developments are symptoms of change in the position of the dollar in the international monetary system and of the strength of other currencies. The changes are profound enough to have inspired suggestions by nonofficial observers from time to time in the past that the monetary authorities of the United States should issue securities denominated in foreign currency that could be held by foreign public and private purchasers. Foreign holders would then hold claims that would not be subject to the risk of depreciation of the dollar. The swap arrangements between the monetary authorities of the United States and other countries have had a similar character.

The monetary authorities of the United States have not made any public pronouncement on the question of the expression of judgments in foreign currencies. The authorities may have conveyed to the drafters of the Third Restatement any official views on the three provisions that deal with monetary law, but it is not known whether these views included any attitude to the provision on judgments. Noting New York’s leadership in international trade and commerce, the Legislators’ Memorandum in Support of the amendment of Section 27 of the New York Judiciary Law concluded that:

Because of the varying nationalities of the parties…and because of the current volatility of international exchange rates, judgments in dollars, in such cases, may not give the parties the benefit of the bargain they originally entered into. When the parties expect to pay and receive payment in another currency than United States dollars and that agreement is based in this state, New York courts should have the power to enforce it.14

Administrative officials in New York seem to have withheld any reaction to the amendment when proposed.15 The reactions of the legislatures and officials of other States will become apparent when they consider the invitation to adopt the Uniform Foreign-Money Claims Act proposed by the National Conference of Commissioners on Uniform State Laws. Most of the other States will necessarily be less motivated by an appeal based on preservation of the role of a State as a leading center of international finance and commerce, and not at all by the sense that it is the pre-eminent international and financial center in the United States. For these other States, it can be assumed that emphasis in support of a bill based on the proposed uniform law will be on the fairness of the new approach and the unfairness of the present law.

The question then is fairness or unfairness to whom? The Miliangos decision was inspired largely by the desire to ensure that nonresidents of the United Kingdom were treated properly, and the realization that national interests would be promoted if this assurance were given. A consideration of this kind must have had a powerful effect in New York, as is evident from the reference to “the varying nationalities of the parties” in the passage from the legislators’ memorandum quoted above. In many other States, however, the foreigner is much less likely to be a party to legal proceedings. The implication of this fact might be that for the legislators of other States the main appeal of the proposed statute will be the prospect of more equitable treatment for residents of the State.

In the United States, there is less controversy about the justification for permitting the expression of judgments in a foreign currency than there is about the proper rate of exchange for translating into dollars the amount of foreign currency in which a judgment is expressed. The United States is not the only country in which differences of opinion exist on this problem and on other legal consequences of the fluctuation of exchange rates. Some of the main sources of opinion are the conclusions and recommendations of expert bodies (for example, the National Conference of Commissioners on Uniform Laws and the American Law Institute), and the reports of statutory bodies (for example, the English Law Commission and the Law Revision Commission of British Columbia). To this material, one can add the New York and Ontario statutes and the growing body of jurisprudence in common law countries in which the courts consider the effect of the Miliangos decision on their own law.

It is clear that the problem of the appropriate exchange rate is controversial, and that the absence of uniform solutions is regrettable. A plaintiff should recover the same value wherever he sues. In the absence of uniformity, he may be encouraged to go forum shopping. He may not be able to bring suit in more than one jurisdiction, or there may be no incentive to sue in an available jurisdiction because the defendant has no assets situated there, although the possibility may exist of obtaining judgment in one jurisdiction and getting recognition and enforcement of the judgment in another jurisdiction.

Foreign Currency Claims and Fairness

It may be, as the Reports of both the English Law Commission and the British Columbia Law Revision Commission recognize, that it is impossible to formulate rules on the choice of exchange rate that will ensure fair results in all circumstances. This realization has induced some support for an option on the part of the plaintiff to choose the currency of the judgment and the appropriate exchange rate. Others have preferred to give the courts a discretion to choose the appropriate exchange rate. Sometimes, both techniques are combined to give an option to the plaintiff but a discretion to the court to overrule the plaintiff’s choice and select the exchange rate the court considers justifiable.

To do justice between the parties in an environment of fluctuating exchange rates, it is submitted that the law on judgments (and awards) to plaintiffs when foreign currencies are involved should be guided by the following principles:

(i) The rules of law should be formulated with as much certainty as possible. The conduct of commerce and finance would be facilitated by such rules. Absolute certainty is not possible and should not be attempted, if only because courts must be free to draw deductions from facts, for example in determining the proper currency of a claim.

(ii) Application of this first principle should mean that the plaintiff receives no option, and the court has no discretion, with respect to the currency in which judgment should be expressed once the court finds that the plaintiff has a claim to a foreign currency. Neither the plaintiff nor the court should be able to change the character of a contractual claim or determine that the currency of the plaintiff’s loss was other than the one in which the court finds he suffered true financial loss.

(iii) A foreign currency claim retains that character even though the defendant can discharge the claim in either the foreign currency or the currency of the forum.

(iv) An objective of the rules should be restitutio in integrum for the plaintiff if the defendant has failed to satisfy the plaintiff’s proper claim.

(v) As far as possible, there should be corresponding treatment for the depreciation and appreciation of the currencies that are relevant to the pursuit of unsatisfied claims.

The elements in the judgments that can be awarded to a plaintiff can be classified as follows:

(a) Prejudgment interest can help to compensate a plaintiff for being kept out of the money to which he is entitled.16 Whether or not such interest is regarded as damages, it would be preferable if the court had a discretion to determine the rate of interest, in the light, for example, of the rate of inflation.

(b) As the defendant is allowed, unless his contract provides otherwise, to satisfy his liability either in the foreign currency expressed in the judgment or in the currency of the forum, a rate of exchange is necessary for translating the amount of the foreign currency into an equivalent amount of the currency of the forum. The objective of the choice of exchange rate is not damages but to give the plaintiff what he bargained for or the equivalent (or to reimburse him for his loss or the equivalent in a noncontractual case). Restitutio in integrum has been considered the dominant principle in selecting the exchange rate for the translation. A choice is necessary because of the fluctuation of exchange rates, but foreseeability of the course taken by exchange rates should not enter into determination of the choice.

(c) Considerations similar to those responsible for (a) above justify postjudgment interest, with strong additional emphasis on compliance with the judicial process as a justification. This latter consideration explains why usually the rate of postjudgment interest is fixed by law and is not subject to variation by the court.

(d) Damages can be a further element in the remedy awarded to a plaintiff. The proposition might be advanced that restitutio in integrum should take care of any loss the plaintiff has suffered, but whether this happens will depend on what is meant by restitutio in integrum. In view of the possibility that the plaintiff has suffered loss for which he does not receive compensation under (a), (b), and (c) above, the conclusion might be that damages should make up for the shortfall. Foreseeability by the parties of such special loss suffered by the plaintiff is sometimes said to be a condition for the recovery of damages. If that condition must be satisfied, foreseeability should relate not to the propensity of exchange rates to fluctuate or the actual development of exchange rates but to some other circumstance that causes loss to the plaintiff.

The principles and the elements of the remedy listed above could lead to the following solution. If the currency of the foreign money claim has depreciated against the currency of the forum, the plaintiff receives judgment in the nominal amount of the foreign money claim, which can be discharged either in the foreign currency or in an equivalent amount of the currency of the forum calculated at the exchange rate prevailing on the date of actual payment. The plaintiff should be entitled to damages for having been deprived of the opportunity to use or exchange the foreign currency if the defendant had made prompt payment, provided that the plaintiff can show that he would have used the currency profitably or made the exchange. Damages might prevent the defendant from profiting by being able, as a result of his delay, to expend less of his own currency to obtain the nominal amount of the foreign currency awarded by the judgment.

Any rules of law that impede recognition of such a right should be swept away as antiquated in present conditions. In these days of fluctuating exchange rates, the prospect that a plaintiff may suffer the loss he has sustained as a result of fluctuation in the exchange rate of the currency withheld from him should be taken to be within the contemplation of the parties.17 There should be no greater difficulty in taking this step on damages than the difficulty that confronted the House of Lords in the Miliangos case.

If the foreign currency of the claim has appreciated against the currency of the forum, the plaintiff once again should receive judgment in the foreign currency for the nominal amount of his claim. The defendant should be able to discharge this judgment either by paying the nominal amount of the foreign currency or the equivalent in the currency of the forum calculated at the exchange rate prevailing at the date of actual payment. The defendant should not be entitled to object that he suffers disadvantage by such a solution, because it is the effect of his own delay. Furthermore, the plaintiff would have had the opportunity to retain the amount of the foreign currency had it been paid promptly, and thus benefit from the development in exchange rates that has occurred. The defendant should not be able to argue successfully that the plaintiff would not have retained the foreign currency if it had been paid promptly, because the defendant would then be relying on his own failure. The plaintiff, however, should still be able to prove that the change in exchange rate does not fully compensate him for his loss, and he should be entitled to claim the balance as damages.

It is worth emphasizing that the courts have sometimes found it difficult to conclude that contracting parties contemplated that the plaintiff would suffer loss as the result of the defendant’s delay in making payment. The courts have sometimes found similar difficulty in finding that the parties contemplated the currency in which the plaintiff would suffer loss. The artificiality of these difficulties should be obvious. It is often unlikely that the parties have considered the possibility of breach or other wrongdoing and have considered the currency in which reparation for wrongdoing should be made. That contracting parties have the breach of their contract in contemplation when they enter into the contract is reminiscent of the definition of a contract as a promise to pay damages for nonperformance. The problem of deciding whether parties had something in contemplation can often be resolved by applying the test of reasonable men and by holding that as such they must be deemed to have had the something in contemplation. Courts are familiar with this technique.

Some Generalizations on Fluctuation

Some generalizations can be ventured as deductions from the subject matter of this book:

(1) The fluctuation of exchange rates has resulted in adaptation of the law or practice of international organizations in order to provide or extend protection against changes in exchange rates for the benefit of the organization, the member whose currency fluctuates in exchange value, other members, or all members. The IMF’s powers of investment under the Second Amendment are an example of the first kind of protection; the guidelines for applying Article II:6(a) of the GATT is an example of the second kind; the IMF’s practice of notices to the Executive Board of changes in the exchange rate of a currency is within the third category; and the World Bank’s Currency Pooling System falls into the final category.

The fluctuation of exchange rates has been responsible, however, for the denial of protection under international auspices against omnipresent risks of the devaluation or depreciation of currencies. To provide protection is considered too costly or too burdensome. Examples of this reaction are the limitations on obligations to maintain the value of the IMF’s assets held in some Accounts and the refusal to apply the SDR as the World Bank’s unit of account for the valuation of capital and for maintenance of value.

(2) The problem of protection against fluctuation has arisen in national law. For example, the question has been considered whether the law recognizes such general principles as impracticability and unconscionability to give relief to a contracting party who suffers increased burdens because of changes in exchange rates. The extent to which so-called hardship clauses in contracts can give relief may be a problem, but it may be no more than a problem of interpreting the particular hardship clause that has been included in a contract.

Once again, however, there is a tendency, this time on the part of courts, to deny relief to a contracting party. A court may decide that the absence of a hardship clause, or other protective clauses, in a contract means that the party seeking relief agreed by implication to accept the risk of the burden that fluctuating exchange rates might impose on him. A similar inference may be drawn from a contracting party’s failure to enter into forward exchange contracts as a hedge against exchange risk. Courts seem to be unwilling to interfere in what they understand to be the allocation of risk by the parties themselves, at least if there is no great imbalance in the bargaining strength of the parties to a contract.18

The foreseeability of fluctuations in exchange rates may thus be a reason for denying as well as for granting relief. The role of foreseeability in connection with various judicial doctrines has not been fully worked out. Whether the issue is the granting or the denial of relief, it should be held that the reasonable man is, or should be, aware that exchange rates are fluctuating. Yet there may be circumstances in which the exchange arrangements of the members whose currencies are involved would give the reasonable man justification for confidence that the exchange rate between two currencies would not change substantially.

National laws on insolvency can be understood to provide protection to creditors with claims to the currency of the forum if their dividends are enhanced by the choice of the exchange rate for translating the foreign currency claims of other creditors into the currency of the forum. This practice can equally be regarded as denying protection to the creditors with foreign currency claims because the exchange rate prevailing on some date other than the one applied by the forum would be more favorable for these creditors.

(3) The theme that unites most of the problems discussed in this volume is fairness in selecting the applicable exchange rate. Fairness is the objective whether the situation in which the problem arises is bilateral or multilateral as those terms have been defined in this study. An obvious example of a multilateral situation in national law is one mentioned in (2) above, namely, insolvency proceedings. Contests regarding the appropriate exchange rate may be provoked between creditors with domestic currency claims and creditors with foreign currency claims, or among classes of creditors with different rankings in claims to assets, or between creditors and shareholders. Similar contests can arise when there are multiple claims to share in other funds that are too limited to satisfy all claims in full. The IMF’s doctrine of equal value and the World Bank’s Currency Pooling System are obvious examples of fairness as a guiding principle in the practice of international financial organizations.

Fairness is not a criterion that can be applied automatically. The Miliangos doctrine is inspired by the objective of fairness, but it has been seen that there are differences of opinion on what fairness requires in all the manifold situations that can arise because of the behavior of exchange rates. This difficulty may be responsible for the emphasis placed on certainty. Firm rules can be some compensation for the uncertainty about what would be fair in all circumstances. Firm rules, however, may produce their own unfairness. For this reason, some solutions grant courts the authority to depart from prima facie rules and to apply the choice of exchange rate that appears fair to the court in the particular circumstances of the case. The same attitude may explain why it is considered a primary rule that the parties can determine the contractual currency and, if their agreement goes so far, the exchange rate for translating the contractual currency into another currency. If the parties agree on these matters, neither party can complain that the consequences are unfair. Finally, interest and damages can be seen to be attempts to be fair to a plaintiff who has suffered by the defendant’s delay in discharging his foreign currency liability.

(4) Unless there is some consideration of greater weight, the latest exchange rate that it is feasible to apply will often be the rate that is regarded as the one that most effectively meets the criterion of fairness. The Miliangos doctrine is an outstanding example in national law of the acceptance of this principle.

The Miliangos case has been a persuasive precedent for the courts of some other countries. Even when the courts of a country continue to hold that they cannot express judgments in a foreign currency, or have doubts about whether this practice would be consistent with the law of the forum, other changes have been made in the lex fori, or are recommended, to approximate the effect of the Miliangos doctrine. These courts have decided, for example, in favor of, or been sympathetic to: application of the exchange rate prevailing at the date of judgment, or even the date of actual payment; the award of the foreign rate of interest on the foreign currency of a claim; or the grant of damages for delay in the payment of a claim. In addition, the Miliangos doctrine has already had a powerful impact, particularly in England, on branches of the national law in which exchange rates are not directly in issue.

In the United States, the Third Restatement expresses the view that as the pre-Miliangos law was not part of the common law, as is the message of the Miliangos decision, courts in the United States could follow that decision without the need for legislation. The Commissioners on Uniform State Laws imply that legislation is either necessary or desirable.

(5) Notwithstanding the generalization advanced in (4) above, numerous exceptions to what might be called the principle of the exchange rate prevailing on the latest date have been adopted. Some exceptions have been recognized because considerations of greater weight are taken into account. Sometimes, however, it is considered not practicable to apply the principle. In other words, in these latter cases it is held that the choice of a later exchange rate is not feasible. The solution of the exchange rate prevailing on the single date of the commencement of insolvency proceedings is sometimes defended as the only practicable one to ensure that all creditors will be treated equally or will have a complete picture of their shares in the available assets. Yet it has been doubted that it would be impracticable to apply other exchange rates to the translation of foreign currency claims, and it has been urged that other exchange rates should be selected in some circumstances to ensure fairness.

The IMF’s three-business-day rule for the choice of the exchange rate to be applied in transactions and operations carried out through the General Resources Account can be considered an exception to the principle of the latest date, because modern technology would permit the choice of a later exchange rate. If a later rate were applied, however, it might be seriously difficult or less easy for members to manage their reserves and supply the currency to be provided to the member engaging in the transaction or operation with the IMF. This exception can be viewed either as a concession to practicability or as deference to a weightier consideration.

It is easier to cite examples of departures from the principle of the latest date that are unambiguously dictated solely by weightier considerations. The rule that the parties are authorized to reach agreement on an exchange rate prevailing on a date other than the one that would be applied under the Miliangos doctrine can be considered an expression of the importance attached to freedom of contract. Fairness itself can be the consideration that outweighs the principle of the latest date, even though fairness is the justification for the principle when it is applied. The averaging of exchange rates is an example of departure from the principle in the interest of fairness.

As suggested above, convenience may be the ruling consideration. An example of a practice based on this consideration is the IMF’s forbearance from calling for an adjustment of its holdings under maintenance of value obligations when a transaction or an operation is carried out in a currency solely with the member issuing that currency. No advantage or disadvantage for the IMF or the member follows from conducting the transaction or operation on the basis of the book rate at which the IMF is already accounting for the currency. It would be nothing but a nuisance to apply the later exchange rate in accordance with the three-business-day rule.

(6) The choice of an appropriate exchange rate is affected sometimes by a tendency to penalize a nonperforming party or to ensure that he does not profit by his failure. The influence of this consideration may be present in the preference for the exchange rate prevailing at the date of actual payment, because frequently the cases involve a currency of the forum that is depreciating. Similarly, although the avowed purpose of restitutio in integrum is not a sanction, traces of penalty can be detected in some views of what the remedy requires. The motive is even more noticeable in provisions of the proposed Convention on International Bills of Exchange and International Promissory Notes and in the IMF’s refusal to make adjustments by returning currency to a member in certain circumstances under maintenance of value provisions.

(7) The fluctuation of exchange rates has suggested the desirability of providing in treaties for the automatic or discretionary modification of financial terms of the treaties to take account of changes in exchange rates. This practice, however, is relatively uncommon. Guidelines for the application of Article II:6(a) of the GATT are an example of the modification not of the provisions of a treaty but of a commitment undertaken pursuant to the treaty. Efforts may be made to provide under national law for the automatic adaptation of the administrative regulations of an industry in the light of fluctuating exchange rates. The experience of the U.S. Maritime Commission with CAFs and the SEC with convenience translations illustrates the difficulties that may be encountered because of the complexities of the regulated industry. Finally, hardship clauses may be designed to bring about modifications in the terms of individual contracts because of the behavior of exchange rates. A growing body of law and commentary is developing on this topic.

(8) As there is now no anchor in the international monetary system for the exchange rates of all currencies, as there was in the par value system, there is no unit of account that is in general use by governments or other parties. An essential characteristic of the discretionary system of exchange arrangements is that there is no currency that is considered stable in external value and can serve as an anchor. In such a system, it is not surprising that composite units of account, defined by reference to a group of currencies, are often adopted as a unit of account in intergovernmental or other activities. The most prominent units of account of this character are the SDR and the ECU. They have not, however, taken over the whole field, even though safeguards are built into the law relating to these units of account, such as the revision of their composition in the light of economic changes.

These two official units of account have not occupied the whole field even in official activities. The replenishments of IDA demonstrate that the diverse interests of governments may result in the use of a range of units of account. The most recent adaptations of the legal instruments of the International Telecommunication Union and the Universal Postal Union are other illustrations of the uniqueness of provisions on units of account that can result from the political and practical interests of governments in some activity and their reluctance to depart from the practice of the past.

The use of the SDR and the ECU as units of account has prompted the question whether judgments can be expressed in them. According to one view, the answer depends on whether the SDR or the ECU can be considered a currency. Most of the discussion has related to the ECU because of the wider use of it in transactions involving only private parties. The process of thought quite often is that as the ECU is not the domestic currency of the country in which the question arises, the ECU must be a foreign currency if it is a currency at all. The argument continues that as the ECU performs some of the functions of a currency, particularly its function as a unit of account, the ECU should be regarded as a foreign currency. This conclusion has been reached by numerous authors even though the ECU is stateless.

The process of thought described above has been encouraged by the growing number of actions by the authorities of member states of the EC to treat the ECU as if it were a foreign currency for the particular purpose of a statute, regulation, or practice. Such treatment does not lead logically to the conclusion that the ECU must be a foreign currency for a purpose for which it has not been officially designated a foreign currency. However, there is likely to be a cumulative effect of a growing number of designations, so that there may emerge in time general recognition of the ECU as a foreign currency for all purposes or at least recognition for the purpose of expressing judgments in ECUs.

The soundest way by which to reach this last result would undoubtedly be by legislation. An effort of this kind is being made by the National Conference of Commissioners on Uniform State Laws in the United States. The effort is consistent with post-Miliangos developments. That is to say, the fluctuation of exchange rates has justified the expression of judgments in foreign currency because of the widespread practice in international business of denominating claims in foreign currency and the similar practice of denominating claims in the ECU. This claim cannot be made for the SDR, but it is likely to be treated in the same way as the ECU, because both are the consequences of intergovernmental agreement to create a reserve asset.

The conclusion that the ECU and perhaps the SDR are sufficiently like a currency for the purpose of expressing judgments in them would be consistent with the changes that are occurring in economic and governmental attitudes to what should be regarded as money for the determination of policy. These attitudes are emerging under the influence of the enormous developments that are taking place in the world of finance. Markets for traditional financial instruments have expanded, new financial markets for nontraditional instruments have opened up, and secondary markets have been created to increase the liquidity of old and new financial instruments. New technology has facilitated the convenience and rapidity of access to financial instruments and has reduced the costs of transactions and transfers among accounts.19 The Miliangos spirit is needed to prevent the law from becoming too antiquated to be useful in current and future conditions. In this spirit, the courts could recognize that the ECU has enough “moneyness” to justify the expression of judgments in the ECU even if the ECU cannot be considered a currency according to traditional concepts.

Judgments expressed in the ECU could correspond to the form of judgment endorsed by the European Court of Justice in P. Dumortier Frères S.A. and others v. Council of the European Communities.20 That decision is helpful because the court gave effect to a judgment expressed in both the EUA and a national currency. If judgments were to be expressed in the ECU, they would provide, on the analogy of the Miliangos doctrine, for satisfaction in either ECUs or the equivalent in the currency of the forum at the exchange rate for the ECU prevailing at the date of actual payment. The only difference from the judgment in the Dumortier case would be that while the judgment in that case could not be satisfied in the EUA, a judgment expressed in ECUs could be satisfied in instruments or assets denominated in the ECU.

The view advanced here is that if judgments could be expressed in the SDR or the ECU this development would be a stimulus to the private use of these units and could achieve the beneficial results that would follow from a wider use of them. It is proposed, however, that courts could take this step without awaiting legislative measures “at later stages” to confer the quality of legal tender on the units, which is thought by some observers to be necessary to authorize courts to express judgments in the SDR or the ECU.21

(9) The use of composite units of account has not prevented the U.S. dollar from continuing to perform an important role in the solution of problems that arise as the result of fluctuating exchange rates. The more obvious examples of this role are the selection of a U.S. dollar of fixed value as the unit of account for various purposes of the World Bank and MIGA and the use of the current dollar as the unit of account for the World Bank’s Currency Pooling System. Less obvious solutions are the use of the dollar in calculations relating to the SDR or the ECU for the purpose of various transactions, operations, and functions of the IMF or the EMS.

The explanation of the role of the U.S. dollar in international monetary matters and in the multitudinous public and private activities in which it serves as the unit of account is not that the dollar has a stable exchange value. The explanation is the power of the United States in the world economy and the strength and breadth of its financial and exchange markets, as well as the stability of its political system. This power gives the United States a de facto veto in much of the business of international organizations even when it has no de jure veto. It is power that should be exercised with maximum wisdom and with maximum concern for fairness in international and national monetary law.


Selected Decisions, Fifteenth Issue, p. 259.


Article XXI, Section 1 (First Amendment); now Article XV.


Article XXIV, Section 1(a) (First Amendment); now Article XVIII, Section 1(a).


Article IV, Section 1.


“The Fund may determine, by an eighty-five percent majority of the total voting power, that international economic conditions permit the introduction of a widespread system of exchange arrangements based on stable but adjustable par values. The Fund shall make the determination on the basis of the underlying stability of the world economy, and for this purpose shall take into account price movements and rates of expansion in the economies of members. The determination shall be made in light of the evolution of the international monetary system, with particular reference to sources of liquidity, and, in order to ensure the effective operation of a system of par values, to arrangements under which both members in surplus and members in deficit in their balances of payments take prompt, effective, and symmetrical action to achieve adjustment, as well as to arrangements for intervention and the treatment of imbalances. Upon making such determination, the Fund shall notify members that the provisions of Schedule C apply.”


Article IV, Section 3(a).


Article IV, Section 2 (b).


See “Monetary Policy Issues in the 1990s,” speech by Prof. Leonhard Gleske, then a member of the Bundesbank’s Central Bank Council, at the Economic Policy Symposium of the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, on September 1, 1989, as reproduced in Deutsche Bundesbank, Auszüge aus Presseartikeln (Frankfurt am Main), No. 81 (October 12, 1989), p. 12:

“To some extent the DMark has moved into a similar position as the dollar in the Bretton Woods System. It became, due to the weight of the German economy within the EMS and its domestic stability the main intervention and reserve currency, serving as the ‘anchor’ of the system. The Federal Government and the Bundesbank did not strive for this role; it resulted from the decision of our partners who for good reasons and in their own interests wanted to keep their currency stable vis-à-vis the DMark. They were prepared to draw the necessary consequences for their monetary policy. As long as this role of the DMark is accepted by the other EMS partners, the Bundesbank enjoys even in such a system of fixed exchange rates and free movement of capital a relatively high degree of autonomy in the conduct of its monetary policy. Maybe this is true only as long as only a limited number of countries belongs to the narrow-band system of the EMS and that this situation will change if countries like Great Britain were to join the EMS and Italy and Spain to reduce the fluctuation band of their currencies.”


Article VIII, Section 7; Article XXII. For anchoring the future European Monetary Union not to a single currency but to an ECU composed of currencies that maintain purchasing power and irrevocably fixed exchange rates among themselves, see Jacques de Larosière, “M. de Larosière discusses the possibilities of making the ECU the European Community’s common currency and the scope for central banks to foster this process in the near future,” Bank for International Settlements, BIS Review (Basle), No. 35 (February 19, 1990), pp. 1–6.


Schedule C, paragraph 1.


Leonhard Gleske (see footnote 8 above):

“For some of our partners the pivotal role of the DMark in the EMS and Germany’s policy stance is certainly also a politico-psychological problem. Looking at the forthcoming complete removal of capital controls in the Community and the evolution of an integrated financial market, and looking at the reduced policy autonomy of our ERM partners, it is understandable that some of these countries favour a closer coordination of monetary policies at Community level. Monetary policy—it is said—should in such a Community like the EMS no longer be determined by one country only and its central bank.

While agreeing that in the long run a development into something like a common decision-making process would become feasible, for the time being it appears that it would not be possible to dispense with the anchor-function of the DMark. The solution to the problem raised by some of our partners can only consist in a sufficiently large nucleus of countries within the Community reaching a high level of price stability. To the extent that other countries will be in a position to join the core stability group—as France is doing now with remarkable success—they will be able to make their own contribution towards determining the stability course of the Community and to that extent the ‘dominance’ of the Federal Republic will be reduced.”


The same “revolutionary” spirit did not inspire the majority of The English Court of Appeal in Tehno-Impex v. Gebr. Van Weelde Scheepvaartkantoor B.V. [1981] 1 Q.B. 648, a case not involving exchange rates, to award interest even though the result was “a curious and regrettable one and one which offends one’s sense of justice” (p. 667) and even though “modern conditions require an urgent reappraisal of the common law rule with regard to interest” (pp. 677–78). The majority relied on the principle that “whatever may have been the origins of a rule, there does, as it seems to me, come a time when it has been so long observed, so entrenched and so authoritatively pronounced that it must be accepted as part of the substantive law applied by the courts” (p. 672). Lord Denning, M.R., dissented, pointing out that in all other legal systems the general rule is that the withholding of a debt entitles the creditor to interest (p. 662); the rule applied by the majority was developed as a rule of procedure for the convenience of juries; the rule emerged when sterling was a stable currency, inflation was unknown, and interest was stigmatized as usury; and the monetary systems of the world have changed radically (p. 665). As evidence of a proper judicial response to the new conditions, he cited jugoslavenska Oceanska Plovidba v. Castle Investment Co. Inc. [1974] Q.B. 292; [1973] 3 All E.R. 498; [1973] 3 W.L.R. 847; Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443; [1975] 3 All E.R. 801; [1975] 3 W.L.R. 758; Multiservice Bookbinding Ltd. v. Marden [1979] 1 Ch. 84; [1978] 2 All E.R. 489; [1978] 2 W.L.R. 535; and Ozalid Group (Export) Ltd. v. African Continental Bank Ltd. [1979] 2 Lloyd’s Rep. 231, all of which are discussed in this volume.


Similar concern about national interests has been evident in the reform of English law relating to arbitration, and it is interesting to recall that the earliest English decision before the Miliangos case that signalled the new spirit was a case involving the expression of an arbitral award in a foreign currency (Jugoslavenska Oceenske Plovidba v. Castle Investment Co. inc.; see footnote 12 above). The Arbitration Act of the United Kingdom, which came into force on August 1, 1979, shows the importance attached to competitiveness with other commercial centers in attracting arbitration, particularly major international arbitrations, by giving special attention to foreign interests. See, for example, section 3, which provides that, except for certain limited categories of arbitration (which include those conducted under a “domestic arbitration agreement”), a court shall not grant leave to appeal from an arbitrators’ award if the parties have agreed to exclude that right of appeal.


I am indebted to Jennifer Freeman’s “Judgments in Foreign Currency—A Little Known Change in New York Law,” The International Lawyer (Chicago), Vol. 23, No. 3 (Fall 1989), pp. 737–53, at p. 748 for this quotation, and for other information on the amendment.


Ibid., p. 749, footnote 78. Bar associations gave strong support (pp. 748–49), in order to preserve the status of New York as “the pre-eminent international financial and legal center” or as “a leading center of international finance and commerce” (ibid., p. 748).


“The distinction between interest and damages is, as Brandon J. has said in The Aldora [1975] Q.B 748, 752, entirely artificial and unreal, and no one who, in the times in which we now live, enjoys banking facilities by way of overdraft could be in any doubt at all that he suffers damage by late payment.” (Tehno-Impex v. Gebr. Van Weelde Scheepvaartkantoor B.V. [1981] 1 Q.B., at p. 678, per Oliver, L.J.). See Shuna Lennon, “Interest on late payments of debts or damages in New Zealand: legal theory clashing with commercial reality,” New Zealand Law Journal (Wellington), March 1990, pp. 90–95, who cites at p. 90 a judicial dictum that

“it now verges on the unreal to say the law does not presume losses where payments are delayed, at least in a business context. The look of astonishment, if not pity, of a modern businessman when told the law will not assume he may lose money if a payment due to him is not made on time is a sufficient answer.”


James Vaux, “The interesting problem of damages for loss of use of money,” Financial Times (London), May 4, 1989, p. 14.


For example, it is considered unlikely that English courts would find any basis, apart from the breach of a contractual term, for holding a bank liable for failing to advise its customers against transactions in which customers suffer loss because of fluctuations in exchange rates. Australian courts have come to a similar conclusion in some cases, but in Giuseppe Foti and On. v. Banque Nationale de Paris (No, 60 of 1987, March 17, 1989, unreported), the Supreme Court of South Australia held the defendant bank liable in tort for failing to exercise the duty of care that a prudent bank holding itself out to have worldwide activities and acumen in the management of exchange rate risk would have exercised in the circumstances of the case. The plaintiffs, customers of the bank, were Italian immigrants who had begun as laborers but had become businessmen. They obtained a loan from the bank denominated in Swiss francs to finance the purchase of real estate. Their object in borrowing Swiss francs was to minimize interest, and they acted on the recommendation of the bank. It appeared that they were inexperienced in matters of foreign exchange and that they were not aware of the risk of unfavorable changes in exchange rates. The bank had given no advice on this possibility. The Swiss franc appreciated against the Australian dollar, resulting in a substantial loss by the plaintiffs that could have been avoided by hedging Considerations that led the court to hold the bank liable were the disparity in the business experience of the parties, and the fact that the relationship between the parties was not only that of a lender and borrowers but also that of a banker advising its customers and managing their interests in relation to the loan in circumstances in which the interests of bank and customers might be in conflict. The decision is primarily related to the particular facts of the case, (Journal of Business Law (London), November 1989, pp. 499–502; Australian Law Journal (North Ryde, New South Wales), Vol. 63, No. 6 (June 1989), pp. 385–86).

A commentator on some French cases has concluded from them that banks have a duty to provide information and advice to their customers on exchange risk, particularly in operations that could result in a loss for the client or an increase in the burden of repaying loans. The duty extends to the opening of foreign currency accounts, which is now possible after the elimination of exchange control. The duty exists in principle, but it may be difficult for a client to take advantage of it because he must prove that he was unaware of the risks connected with investing in foreign currency. A distinction is made, however, between a deposit account and the management of an investment portfolio. The bank, it seems, is held to a more rigorous standard in the latter circumstances because the bank makes the investment decisions, while in the former circumstances the choice of the foreign currency of the account is made solely by the client.—Revue de Droit Bancaire et de la Bourse (Paris), No. 19 (May-June 1990), p. 128, paragraph 6.


See Emmanuel O. Kumah, “Monetary Concepts and Definitions,” IMF Working Paper, No. 89/92 (Washington: International Monetary Fund, November 1, 1989).


[1982] E.C.R. 1733; [1979] E.C.R. 3091.


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), p. 66:

“These initiatives [to promote a wider use of the private ECU] would certainly have a strong impact, and could be taken immediately. Others could follow at later stages. In particular, legal tender status could be granted to the ecu, so as to ensure that contractual obligations in ecu are enforceable.”