September 27, 1946.

Letter of Transmittal to the Board of Governors

September 27, 1946.


Section 10 of the By-Laws of the International Monetary Fund provides that “the Executive Director shall have prepared for presentation at the annual meeting of the Board of Governors an annual report in which shall be discussed the operations and policies of the Fund and which shall make recommendations to the Board of Governors on the problems confronting the Fund.” Because of the short time that has elapsed since the Inaugural Meeting of the Board of Governors, the present report is limited in scope and content.

The first major task of the Fund, the agreement with member countries concerning the initial par values for the currencies, has been undertaken. The Fund’s transactions will begin after the required number of par values has been agreed, as provided in the Fund Agreement.

The major considerations of policy which have occupied the Executive Board in the recent period are contained in the Rules and Regulations, which are presented with this report for review by the Board of Governors. It is believed they provide a sufficient basis for preliminary work.

In submitting this report to the Fund, I wish to make two brief comments.

The first is that the work of the Fund has been, to a very high degree, a work of mutual cooperation and understanding. In their concise form, the Rules and Regulations may seem to be a mere formulation of simple and indisputable principles. However, a good many are the result of long discussions concerning the organization as well as the initial policies and operations of the Fund.

During these discussions, delicate and important questions have been solved in a unanimous desire for agreement. It is true that some important problems have not yet been touched, but the short experience which we have just gone through allows us to look forward hopefully to the times ahead.

My second comment concerns the apprehensions which have been voiced in some quarters as to the future of the Fund. The difficult economic and political conditions under which the Fund is starting its operations have been emphasized. Some have wondered whether it would not be better to delay until greater stability prevails.

We have not thought so today in Washington, any more than we did in 1944 at Bretton Woods. Then, as today, we knew that the world would require time to recover from the terrible crises which have upset it since 1914. But we have thought that an effort should be made as soon as possible toward righting it again. It would, of course, have been highly desirable to make such efforts simultaneously in all fields: economic, political, monetary. These would have been the ideal conditions. Should the fact that these conditions do not prevail for the time being deter the Fund from starting its activities? Such has not been our opinion. Immobility is not a policy. To act entails risks. Not to act often entails greater risks. It is with open eyes, conscious of the possible dangers, conscious, too, of the constructive element that the Fund may be able to constitute in the reestablishment of a more stable world, that we enter the path indicated in the report. We know that our work can only be a beginning, that other elements will be needed to complete it. But we hope that the very fact of initiating it will have favorable effects, and that it will constitute both an example and an incentive.


Camille Gutt,

Chairman of the Executive Board and Managing Director.

Annual Report of the Executive Directors September 1946

Establishment of the Fund

This report, prepared in accordance with Section 10 of the By-Laws, covers the operations and policies of the International Monetary Fund in the period from May 6, 1946, when the Executive Directors held their first meeting in Washington, through early September 1946. In this period, the Fund was creating an organization and laying down the necessary rules for its operations. Since it is intended that in future years the annual report of the Executive Directors will cover the operations of the Fund in the preceding fiscal year, such figures as are here presented deal mainly with the period ending June 30, 1946.

Entry Into Force

The Articles of Agreement of the International Monetary Fund entered into force on December 27, 1945, when representatives of 30 countries met and participated in a ceremony of signature held in Washington, D. C. By December 31, 1945, 35 countries had signed and otherwise indicated their intention to become members. These were:

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Instruments of Acceptance have been deposited with the United States Government, as required by Article XX, Section 2 (a) of the Fund Agreement, on behalf of all the above countries.

Inaugural Meeting of the Board of Governors

In accordance with the provisions of Article XX, the Government of the United States called the first meeting of the Board of Governors of the Fund to meet jointly with the Board of Governors of the International Bank for Reconstruction and Development at Savannah, Ga., on March 8, 1946.

During the meeting, the Board adopted a resolution which extended from December 31, 1945, to December 31, 1946, the period in which countries listed in Schedule A of the Fund Agreement could join as original members. Under this resolution representatives of Cuba, El Salvador, Nicaragua, and Panama signed the articles in the course of the meeting. Denmark, with a quota fixed at $68,000,000 by the Board of Governors, likewise acquired membership under the authority of this resolution on March 30, 1946.

This meeting took the necessary preliminary steps to organize the Fund. By-Laws were adopted to establish procedures for the meetings of the Board of Governors and to govern the operations. A number of special tasks were assigned to the Executive Directors. The Board of Governors appointed a temporary secretary, Mr. Roman L. Home, to make the arrangements for the first meeting of the Executive Directors, and fixed the date of the first meeting at the beginning of May.

First Executive Directors

The Executive Directors, who were appointed or elected in accordance with the provisions of the Fund Agreement, were as follows:

Appointed Executive Directors

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Interim Period

The necessary arrangements for the first meetings in Washington of the Executive Directors were made by the Temporary Secretary, Mr. Home, who with the assistance of a small staff found and equipped quarters, collected, edited, and published the documents of the Inaugural Meeting and carried on the necessary correspondence.

Selection of the Managing Director

At their first meeting on May 6, 1946, the Executive Directors selected as Managing Director Mr. Camille Gutt of Belgium, who, upon accepting, resigned as Executive Director. On this date the Managing Director assumed the chairmanship of the Executive Directors and the responsibility for organizing and directing the staff.

Organization of the Operating Staff

The Executive Directors, as a first order of business, discussed the general organization of the staff. By mid-June a general plan of organization had been agreed. Reporting to the Managing Director, the staff is divided into five primary departments and offices, as follows:

  • Operations Department.

  • Legal Department.

  • Research Department.

  • Office of the Comptroller.

  • Office of the Secretary.

Each of those departments and offices has a director or head who is responsible to the Managing Director. The departments and offices are further subdivided into divisions under chiefs. It is intended that the organization should be simple and flexible.

By the beginning of September, the Managing Director had appointed the head or acting head of each of the major staff units of the Fund and these officials had assumed their duties in Washington. They are:

  • Mr. John L. Fisher (U. K.), Director Operations Department

  • Mr. Edward M. Bernstein (U. S.), Assistant Director, Acting in Charge Research Department

  • Mr. A. van Campenhout (Belgium), Director Legal Department

  • Mr. Charles M. Powell (Canada), Assistant Comptroller Office of the Comptroller

  • Mr. Frank Coe (U. S.), Secretary Office of the Secretary

That portion of the Fund’s operating staff which had reported for duty numbered approximately 100 persons, recruited from 15 countries. Equipment and supplies had been procured and necessary procedures had been established to direct the work of the staff through the early period.

The Fund has adopted for its employees the salary scale and grades of the United Nations.

In appointing the staff, the Managing Director has, as required by the Fund Agreement, “subject to the paramount importance of securing the highest standards of efficiency and of technical competence,” paid “due regard to the importance of recruiting personnel on as wide a geographical basis as possible.” It has proved difficult and time-consuming to negotiate with and select prospective staff members who are scattered all over the world. In most countries there is a shortage of the kinds of skilled financial and economic personnel that the Fund and other international organizations are seeking. Because of this shortage, the treasuries, central and private banks and exchange departments of many countries are unable or reluctant to release their personnel. Of those who can be released, a considerable number are reluctant to give up established positions to undertake new work in another country.

Financial Statement

Section 20 of the By-Laws requires that the Executive Directors shall have an audit of the accounts of the Fund made at least once each year and on the basis of this audit submit a balance sheet and statement of operations of the Fund to be considered by the Board of Governors at their annual meeting.

Since operations have not yet commenced, the financial presentation in this instance is in the form of a Statement of Receipts and Payments from inception to June 30, 1946, which is annexed to this report (Appendix E). It will be seen that the Receipts are solely subscriptions of one one-bundredth of 1 percent of quotas of member countries as provided for by Section 2(d) of Article XX of the Fund Agreement, while the payments are limited to administrative expenses. As required, the Executive Directors have had an audit of the accounts made for the fiscal year which ended on June 30, 1946. Although plans are going forward for an independent audit, this one was conducted by the Assistant Comptroller, Mr. C. M. Powell. The Statement of Receipts and Payments, based on this audit, was prepared under the supervision of the Managing Director and approved by the Executive Directors for submission to the Board of Governors.

Administrative Budget

It has not proved possible during the period covered by this report to prepare an administrative budget for submission to the Board of Governors. The Fund’s major operations have not begun and will not begin until the required number of par values has been agreed. The amount and number of the Fund’s transactions cannot be determined now, and therefore the basis for estimating the staff and other administrative requirements for these transactions is lacking. Similarly, the volume of work which will be necessary in connection with exchange rates, exchange restrictions, and the other obligations of members, cannot be foreseen at this time. For these reasons the Managing Director has not considered it desirable to define the detailed organization of the various departments and offices, which are being operated by nuclear staffs.

The Financial Statement presented in Appendix E shows that administrative expenditures through June 30, 1946, covering a period of approximately 3 months, amounted to approximately $97,000. In July and August, administrative expenditures were at a higher rate and a total of approximately $150,000 was spent. Of this, about half, or $74,000, was for salaries and wages and slightly more than one-third, or $54,000, was for supplies and equipment. The remainder was expended principally on offices, travel, communication, and expenses for the meeting of the Board of Governors.

Status of the Fund

Applications for Membership

At its Inaugural Meeting the Board of Governors received applications for membership from the Governments of Lebanon, Italy, Syria, and Turkey, which were referred to the Executive Directors for consideration and recommendations. In conformity with Section 21 of the By-Laws, the recommendations of the Executive Directors are being separately submitted to the Board of Governors.

Revision of Quotas

At the Inaugural Meeting the Governor of Paraguay requested that the quota of Paraguay in the Fund should be increased. The Board of Governors referred this request to the Executive Directors for consideration and recommendations. The report to the Board of Governors on this matter is separately submitted.

On September 6, 1946, the Government of France requested the Fund to consider an increase in its quota. On September 18 the Government of China made a similar request. The reports of the Executive Directors on these requests are being submitted separately.

Relations With Other International Organizations

The Fund and the Bank have maintained close relations throughout the period of organization. The Managing Director of the Fund and the President of the Bank and their subordinates have worked together on common problems, and joint committees of the two Boards of Executive Directors have been utilized as a device for effecting necessary coordination. Steps have been taken to ensure that the policies and operations of the Fund and the Bank will complement each other.

As permitted by the Fund Agreement, informal arrangements for cooperation with other international organizations have been initiated. The Fund was represented at the UNRRA conference held in Geneva in August 1946 and the FAO conference held in Copenhagen in September. Liaison has been established between the Fund and the United Nations on public information. Similarly, representatives of the Fund have participated in meetings with the Secretariat of the United Nations on problems of personnel, travel, and pensions. The Fund looks forward to continuing cooperation with the United Nations and the various specialized agencies and expects these relations to develop on many fronts during the next few years.

As requested by the Board of Governors at its Inaugural Meeting, the Fund, together with the Bank, has conferred with representatives of the Economic and Social Council concerning collaboration. No recommendations to the Governors have been prepared, since it is not believed that a formal agreement is required at this time. The correspondence is reported in Appendix D.


Rules and Regulations

The Executive Directors have during the past few months devoted a large part of their time to the preparation of the Rules and Regulations which are presented with this report for review by the Board of Governors (Appendix B). During the course of this work, the purposes and functions of the Fund have been carefully analyzed and an effort made to establish those procedures and rules of conduct which will facilitate the Fund’s operations and create practical working relationships with the members. Emphasis has been placed on the principal problems which will face the Fund in the coming year and therefore the procedures and rules of conduct concerning these matters have been worked out in greater detail than those which deal with problems unlikely to arise until a later date.

Some of the provisions of the Rules and Regulations are procedural in nature and others embody decisions of policy which, in the opinion of the Executive Directors, should be made before operations begin. In view of the fact that they have been drafted without benefit of the knowledge which will be gained by experience with the Fund’s operations, modifications and additions will have to be made as new problems are encountered. Many of these problems cannot be foreseen at this time. Others have been considered by the Executive Directors, but their solution has been postponed wherever practicable in order that the formulation of the Rules and Regulations to handle them may reflect the experience of the Fund. The modifications and additions will be presented for review at future meetings of the Board of Governors.


Under the Fund Agreement one of the functions of the Executive Directors is to make interpretations of the Agreement. At their Inaugural Meeting, in Resolutions Nos. 5, 6, and 7, the Board of Governors requested the Executive Directors to make interpretations on points raised by the Governors for the United Kingdom, the United States, and India. The interpretations requested and made are presented in Appendix C.


Initial Par Values

The first major task of the International Monetary Fund is the initial determination of par values. Article XX, Section 4(a) states that “when the Fund is of the opinion that it will shortly be in a position to begin exchange transactions, it shall so notify the members and shall request each member to communicate within 30 days the par value of its currency based on the rates of exchange prevailing on the sixtieth day before the entry into force of this Agreement.”

In their early meetings, the Executive Directors considered that from the standpoint of its organization the Fund should be far enough advanced by September to warrant undertaking this task. This goal was realized and, accordingly, on Stepember 12, the following cable was sent to all member governments (with minor variations in the last paragraph) :

Cable to Member Governments


Pursuant to a decision of the Executive Directors of the International Monetary Fund on September 4, 1946, and in accordance with the Fund Agreement, I have the honor to inform your Government that:

(1) In accordance with Article XX, Section 4(a) of the Agreement, the Fund “will shortly be in a position to begin exchange transactions.”

(2) Your Government is requested, pursuant to Article XX, Section 4 of the Agreement, to communicate within 30 days the par value of its currency based on the rates of exchange prevailing on October 28, 1945, which is the sixtieth day before the entry into force of the Agreement.

(3) Your Government is requested to acknowledge receipt of this communication by cable, and to state in such acknowledgment the date on which this communication is received.

(4) The provisions of Article XX, Section 4(b), apply to Governments whose metropolitan territory has not been occupied by the enemy.

(5) The provisions of Article XX, Section 4(d), apply to Governments whose metropolitan territory has been occupied by the enemy.

(6) If separate currencies exist in the territories in respect of which your Government has accepted the Agreement, the provisions of Article XX, Section 4(g) apply in respect of the communication of par values.

(7) The Fund is prepared to discuss with your Government all matters related to the initial determination of par values. If your Government wishes to make any special arrangements for discussion, the Fund would like to be so informed at an early date.

(8) A signed copy of this communication is being sent to your Legation in Washington for transmittal to you. It will be appreciated if you will notify all interested agencies or persons in your Government of the contents of this communication.

Camille Gutt,

Managing Director,

Problems Facing the Fund

Initial Parities

As a result of the call for the communication of par values, the Fund will seek agreement with 39 countries in the next few months on the structure of exchange rates which will govern most of the foreign transactions of the world. This is a formidable task, especially for an international organization which is still in its infancy.

In deciding to proceed to the active phase of the Fund’s work, the Executive Directors were mindful of a number of reasons which could be advanced for postponement. Many countries have only begun to recover from the devastation of war; and the reconstruction of their economic and monetary systems will take several years. The wartime economic controls of many members of the Fund are still in force. Inflation, in varying degrees of intensity, is in progress throughout much of the world. International trade and international investment are only partially restored. Concrete measures for international economic cooperation, in spheres other than the financial, are not as far advanced as had earlier been hoped. International political cooperation leaves much to be desired.

These and other factors undoubtedly make it more difficult to determine what is an appropriate structure of exchange rates. Nevertheless, it is the opinion of the Executive Directors that it is desirable to proceed with the establishment of initial par values. When the Bretton Woods Agreements were signed, it was generally foreseen that the Fund would have to begin its work in a period of disorder and devastation, and allowance for these conditions was made in a number of provisions of the Fund Agreement. One of the major purposes of the governments that established the Fund was to ensure the maximum of monetary cooperation in the transition period from war to peace. In adjusting their economies to new postwar conditions, many countries will have to continue to control their exchanges, and some countries may also need to adjust the foreign-exchange value of their currencies. These conditions emphasize the difficulty of the task of restoring a healthy world economy.

A number of countries, particularly in Europe and the Far East, find their international economic position seriously deteriorated as a result of the war. Their first task is to restore agricultural and industrial production on a modern and efficient basis and to bring it into line with the new requirements of the market. In the Far East, the restoration of production has just begun. On the European continent, members of the Fund as a group have in the past year succeeded in raising their industrial output, but it still remains considerably below the prewar level. Agricultural production in Europe has also risen and this year will be not far below prewar. Nevertheless, in some countries recovery still lags, and in all countries there are difficulties in reaching and surpassing the 1938 level of output.

The road ahead is not an easy one. Although foreign aid has been of great assistance, it is important to recognize that recovery in the occupied countries has depended and will continue to depend primarily on their own efforts. In order to raise agricultural and industrial production to levels commensurate with the technical progress of the past decade, reconstruction must be given priority above all other economic needs with the exception of maintaining consumption essential to the health and efficiency of the people. The countries that suffered destruction and devastation are still short of equipment, transport, raw materials and, in certain cases, food and shelter. These shortages must be made good before their labor efficiency and productive power can be fully realized.

The countries which suffered from enemy occupation still need considerable external assistance to help them in restoring production. The countries that can provide capital in significant amount out of their present resources are limited in number. Even so, there has been a gratifying willingness on the part of some countries, themselves in need, to provide to others the moderate credits they are in a position to offer. But the only substantial sources of foreign capital are the countries whose large domestic output and strong international economic position enable them to maintain an export surplus. In the past year, the United States and Canada have made capital available on a very large scale for urgent reconstruction needs. Since the end of the war the United States Government has authorized credits in excess of $8 billion and the Canadian Government has authorized credits of $2 billion. A number of countries in Europe have also helped by making credits available for trade and reconstruction. The provision of additional foreign capital remains, nevertheless, of the greatest importance to the restoration of the world economy.

Efforts to maintain and to restore production and international investment cannot have anything like their full effect without a reasonable degree of monetary and exchange stability. In fact, only few countries have succeeded in maintaining even moderate stability of prices. In some countries inflation has been extreme. In others, it has previously been held in check, although in a few cases controls have recently been weakening. The inflationary forces generated during the war are being augmented by a continuation of budgetary deficits and the further expansion of money. Almost every country is spending far more for military purposes than was anticipated. With these inflationary forces superimposed on the disruption of world economic relations caused by the war, it is not surprising that the present pattern of exchange relationships contains a number of grave distortions. The elimination of these distortions and the promotion of currency stability and expanding trade are among the important tasks facing the Fund.

Exchange Controls

During the war exchange controls and restrictions were essential to mobilize and conserve foreign exchange resources; their continuance now reflects the inadequacy of a country’s foreign exchange resources relative to its needs and the importance of guarding against disturbing capital movements. In most countries there is a severe shortage of goods of all kinds that must be obtained from abroad. In such countries, exchange restrictions are unavoidable for a time in order to assure that the most essential requirements for consumption and reconstruction will be met out of their limited foreign exchange resources. Then, too, there is the ever-present danger of capital flight, particularly in periods of adjustment. The Fund Agreement recognizes that many countries will have to continue to use the machinery of exchange control to prevent the dissipation of their exchange resources and the weakening of their international economic position through capital flight.

These considerations should not discourage rapid progress toward the elimination of unnecessary exchange restrictions on current transactions. The more currencies become convertible, the easier will be the task of freeing the remaining currencies from such restrictions. It is fortunate that there is now every prospect for an early resumption of the convertibility of sterling in connection with current transactions. The credits made available to the United Kingdom by the United States and Canada will enable Britain to buy essential imports and to pay for them with convertible sterling. The British Government has also expressed its intention to make agreements with the countries concerned, varying according to the circumstances of each case, for an early settlement covering the sterling balances accumulated by sterling area and other countries. These developments will help in restoring convertibility of currencies and freedom in current trans actions in accordance with the provisions of the Fund Agree ment.

Exchange Rates

In ordinary times, the pattern of exchange rates has an historical continuity which gives it an element of strength and stability. A great war radically alters the established position of currencies. In some respects our problems at present are less extreme than after the last war. There has been a greater realization of the need to keep prices and costs in hand and to keep the balance of payments in order. But we must frankly face the fact that currency systems of some countries have completely broken down and that they must be rehabilitated before they can be stabilized. There are other currencies in which some change in the present foreign exchange values may be necessary. While a start toward orderly exchange arrangements can be made by establishing initial par values for many currencies that already have an element of stability, there will remain the great task of rehabilitating weak currencies and integrating them in the world structure of exchange rates. For such countries, the Fund can extend the period of consultation, and an agreement on the initial par values can be postponed until their economic and monetary situation becomes more stable. In the meantime, the fact that initial par values have been established for other currencies will enable these countries to see more clearly the problem of fitting their currencies into the structure of exchange rates.

We recognize that in some cases the initial par values that are established may later be found incompatible with the maintenance of a balanced international payments position at a high level of domestic economic activity. Because the entire world is in need of goods, some countries may maintain foreign exchange values for their currencies which are not for the time being a great handicap to the sale of their exports, but which prove to be too high when production is revived all over the world and the immediate shortage of import goods is in large part met. Such countries may later find difficulty in selling sufficient exports to pay for needed imports. When this occurs, the Fund will be faced with new problems of adjustment and will have to recognize the unusual circumstances under which the initial par values were determined. It is just at such times that the Fund can be most useful in seeing that necessary exchange adjustments are made in an orderly manner and competitive exchange depreciation is avoided.

Use of the Fund’s Resources

The Fund provides facilities to countries that require temporary help in meeting balance of payments deficits. There are limitations on the use of the Fund’s resources by members. The use of the Fund’s resources must be consistent with the stated purposes of the Fund. Members must not use the Fund’s resources for a large and sustained outflow of capital, nor is the Fund intended to provide facilities for relief and reconstruction. In this connection a certain misunderstanding exists regarding the use of the Fund’s resources which should be cleared up at the beginning of its operations.

The Executive Directors do not think that it follows from the relavant provisions of the Fund Agreement that a member is necessarily debarred from using the Fund’s resources, because it is importing “relief-type” goods, i. e., goods of a type hitherto supplied by UNRRA, or because it is importing machinery and equipment to replace what was destroyed or worn out during the war. The Fund will not operate by examining the specific use which is made by members of each parcel of foreign exchange they purchase from it. Indeed, it would be futile to attempt this, as members will also be using their own exchange resources, and a member can allocate a particular outlay of exchange to one or the other source. What is significant is the magnitude of the use which a member makes of the Fund’s resources and the prospective balance of payments position of that member.

It is from this point of view that the avoidance of use of the Fund’s resources for relief and reconstruction must be regarded. The Fund will clearly not serve as a relief agency like UNRRA: it cannot give foreign exchange away. Nor would it sell foreign exchange to a member when there is no reasonable prospect that the member will be able to repay the Fund. Members could not properly use the Fund to finance long-term reconstruction plans which involve sustained use of the Fund’s resources to meet a continuing deficit in their balance of international payments. The Fund is not empowered to provide financing of that sort. The essential test of the propriety of use of the Fund’s resources is not the character of the goods imported, but rather whether the prospective balance of payments position of the country concerned (including long-term capital movements) will be such that its use of the Fund’s resources will be of relatively short duration.

It is clear that in starting operations at a time when much remains to be done in reconstructing the war-devastated economies, the Fund runs the risk that some of its resources may be used for other than temporary assistance. There will at times be differences of opinion as to whether a member is making proper use of the Fund’s resources. There are certain to be disappointments because of the restraints placed on use of the Fund’s resources by some members. And there will, no doubt, be errors of judgment in assuming risks of one kind or another. The Executive Directors consider it their duty to bring to the attention of the Board of Governors the fact that in the early period of its operations the Fund may take risks that would not be justified under normal circumstances.

For a variety of reasons, the risks involved may not, however, be as great as might appear at first sight. First, certain creditor countries in a position to do so have already made substantial loans to aid in reconstruction. Second, the International Bank of Reconstruction and Development will supplement what reconstruction loans are made available directly by governments and through the private capital market. Third, as indicated above, the Executive Directors will exercise the power to limit or postpone exchange operations with countries whose economies are so out of balance that their use of the Fund’s resources would be contrary to the purposes of the Fund Agreement or prejudicial to the Fund or the members. Finally, the Executive Directors will have the situation under constant review and will take appropriate action if the situation warrants.

Limited Scope of the Fund

It would be a serious mistake to regard the Fund as capable by itself of solving the economic problems the world now faces. It has neither the power nor the resources to do this, nor was it designed for this purpose. The function of the Fund is to aid members in maintaining arrangements that promote the balanced expansion of international trade and investment and in this way contribute to the maintenance of high levels of employment and real income. While the Fund can be of help in this direction, the attainment of these ultimate objectives—high levels of employment and production—must in the end depend upon the pursuit of appropriate national economic policies and upon the solution of other international economic and political problems. No monetary organization, however ably devised, can be a substitute for wise policies in the national and international sphere.

A balanced and expanding world economy cannot be attained without adequate production. Until countries are again producing on an efficient basis, they cannot export enough to pay for their essential imports. This is the fundamental condition for achieving a sustained balance in international payments in the long run. It is important, therefore, that in all countries in which output has been reduced by the war, special efforts should be made to increase production and to raise productive efficiency.

Monetary stability is also essential for maintaining orderly exchange arrangements. The primary sources of inflation or deflation are found in national policies. There is not a great deal that the Fund can do to eliminate the instability of domestic prices where the chief sources and price fluctuation are in domestic arrangements. But the Fund can help to minimize the effects of monetary instability by preventing it, to some extent, from spreading to other countries.

On the international side, too, important conditions will have to be fulfilled to achieve a balanced and expanding world economy. The Fund was conceived as one element in a many-sided approach to the task of reestablishing a functioning world economic system. Other elements were the solution of the immediate post-war problems of relief and rehabilitation, means for encouraging and regulating the flow of international investment, including financial provision for meeting the emergency requirements of countries most adversely affected by the war, liberal commercial policy arrangements of a multilateral character, and some provision for mitigating excessive fluctuations in the prices of primary products, including foodstuffs. Progress along some of these lines has been more rapid than along others. The accomplishments of UNRRA are well known, though it is not yet clear what measures will be adopted to take care of such continuing needs as there may be for relief without expectation of ultimate repayment. But much remains to be done in other fields of international economic cooperation.

All countries have shown an appreciation of the important role that international investment can play in reconstructing and developing the world economy. The members of the International Bank for Reconstruction and Development, by their subscriptions, are assuming much of the risk involved in international lending, and they are giving effective encouragement to the revival and expansion of sound and productive investment. Although large reconstruction loans have been made, there is a continuing need for foreign capital for productive purposes. It is expected that the International Bank will soon be in a position to carry some of this load.

The organization of international collaboration on commercial policy has proceeded less rapidly than might have been hoped. But the initial preparatory conference on world trade and employment is to be held in London next month. The Fund has clearly a very great interest in the successful outcome of the commercial policy discussions and in the achievement of trading arrangements among its members which are conducive to a high level of exchange of goods on a multilateral basis.

We have thought it well to give this brief review of some of the problems facing the Fund in order to indicate at the outset the perspective in which we see our work. We do not underestimate the difficulties facing us. But we feel that the Fund can make an important contribution to the solution of the economic problems confronting the world. The work of the Fund will be facilitated by appropriate domestic and international economic policies. Above all, it is imperative that the grave international political problems now restraining world recovery be progressively solved. An indispensable element in a prosperous world economy is cooperation among all countries for establishing and maintaining an enduring peace.