THE Fund’s general policies regarding the use of its resources, and in particular its policies on gold tranche drawings, stand-by arrangements, and the application of the waiver provisions of the Articles of Agreement, which were outlined in the Annual Reports for 1953 and 1954, have been maintained without change during the past year. The Fund is equipped to make its resources available to members, either to help them in meeting special temporary balance of payments difficulties or, in association with other measures under-taken by them, in ensuring exchange stability and avoiding restrictions, and in maintaining or establishing the convertibility of their currencies.
The record of Fund transactions since the reconsideration of policy which began in 1952 shows that the principle is now well established that, unless there are overwhelmingly strong reasons for not doing so, the Fund will invariably grant members’ requests for gold tranche drawings. Of the 20 purchases of currency made since February 1952, 14 were gold tranche transactions, on which only the Fund service charge of ½ per cent is payable by members.
Although no comparable principle applies to drawings beyond the gold tranche, a sufficient number of countries have requested and been granted such drawings to demonstrate that more substantial assistance is readily available in case of need to countries that are pursuing policies consistent with the objectives of the Fund. Applications for these drawings are naturally subject to a more detailed examination of all the relevant circumstances, and the larger the drawing in relation to a member’s quota the stronger is the justification required of the member.
In practice, the Fund’s attitude toward applications for drawings within the first credit tranche (i.e., drawings that raise the Fund’s holdings of a member’s currency above 100 per cent but not over 125 per cent of its quota) is a liberal one. Members are aware that, if they face balance of payments problems of a temporary nature, they may confidently expect a favorable response from the Fund to a request for a drawing within the first credit tranche, provided they are themselves making reasonable efforts to solve their problems.
There is not as yet the same body of precedent for drawings beyond the first credit tranche, but several such transactions have been approved. Should the need arise, and should the justification be substantial, members need not doubt that drawings on subsequent tranches will be permitted. Foremost among the developments that the Fund foresees as justifying liberal approval of such drawings are transactions in support of the establishment or maintenance of convertibility.
The Fund’s stand-by arrangements have now been applied often enough to show that they are valuable to members and helpful in achieving the purposes of the Fund. As further progress is made toward convertibility, the stand-by arrangements should become still more useful. The amount of supplementary support which would in fact ensure adequate protection to a member against any immediate pressure upon reserves that might arise as a consequence of a formal declaration of convertibility cannot easily be estimated with any precision. However, in the formulation of national policies in relation to convertibility, the Fund’s resources can confidently be regarded as an important supplement to members’ reserves.
The Fund will continue to consider the further appropriate development of its practices so that, without neglecting the importance of maintaining proper standards, its operations may be made more helpful to members. In its practices, the Fund has recognized that it is appropriate, where necessary to carry out any of the policies outlined above, to grant a waiver under Article V, Section 4, to permit countries to draw more than the 25 per cent of quota normally permitted during a 12-month period. Several such waivers have already been granted, including one which permitted a member to draw 50 per cent of its quota, of which half was within the gold tranche.
During the year ended April 30, 1955, demands for the Fund’s resources were very light. Three members purchased currencies from the Fund amounting to a total of $48,750,000. This was smaller than the total of purchases from the Fund in either of the two previous fiscal years, and considerably less than the total repurchases of more than $275 million during the fiscal year 1954-55. Both the number and the total amount of repurchases were much higher than in any previous reporting year, and at the end of the year the Fund was in a more liquid position than it had been for some time.
The history of Fund transactions during the last year is rightly interpreted as one indication of the widespread relaxation of balance of payments pressures and the strengthening of the monetary reserves of many Fund members, referred to in other sections of this Report. The number of members that have had special balance of payments difficulties has been smaller than in previous years. The past year’s record of transactions can, however, hardly be regarded as normal. One of the purposes of the Fund is “to give confidence to members by making the Fund’s resources available to them under adequate safeguards,” so that the balance of payments maladjustments which are to be expected from time to time may be corrected “without resorting to measures destructive of national or international prosperity.” Even in circumstances where there were few special situations which justified recourse to the Fund’s resources, balance of payments deficits might be expected in the normal course of events, which would properly be alleviated by transactions on a larger scale than that of the past year. In addition, access to the Fund’s resources may be regarded as a means for helping members to accelerate the relaxation and removal of restrictions. It might have been expected that during the past year members that, on account of the inadequacy of their own reserves, have hesitated to remove restrictions more rapidly or have felt obliged to intensify their restrictions, would have made more use of the Fund’s facilities.
The revised schedule of charges referred to in last year’s Annual Report, which expired on December 31, 1954, was extended for another year by a decision of the Executive Board. However, the Fund’s attitude to its schedule of charges remains flexible, and is being kept under review. A general study of the principles under-lying the system of the Fund’s charges, which is now in preparation, will be reviewed by the Executive Board during the year.
In accordance with Article III, Section 2, of the Articles of Agreement, the Fund has an obligation to review the quotas of its members at intervals of five years. As the next such review is due in 1956, the Executive Board has constituted itself as a Committee of the Whole to study the problems and to prepare a report in accordance with Rule D-3 of the Fund’s Rules and Regulations.
Certain Fund members, as a matter of policy or of practice, allow exchange rates in their markets to fluctuate in such a way that exchange transactions in their currencies are not based on parity in accordance with Article IV, Section 3, of the Fund’s Articles of Agreement. For practical reasons, it seemed desirable to establish general rules to cover the operating problems which these situations create for the Fund, and on June 15, 1954 (see Appendix II) the Executive Board adopted a set of rules to deal with them. These rules make it possible for the Fund to engage in transactions in the currencies of these members on an equitable basis and to make the computations required by the Fund Agreement. In this latter respect they are intended to facilitate the periodic revaluations of the Fund’s holdings of fluctuating currencies, as well as their revaluation for the purpose of actual transactions. Other members of the Fund are not precluded by the fluctuations of a member’s currency from purchasing it from the Fund; nor is a member whose currency fluctuates necessarily deprived of its right to purchase the currencies of other members. The rules become operative in any given case only after the Fund has decided to apply Article IV, Section 8, to its holdings of a fluctuating currency. So far, the Fund has so decided in the cases of Canada and Peru, and the rules have been applied to the Fund’s holdings of the currencies of these two members. The rules are intended to be experimental, and they will be reviewed from time to time in the light of experience. They have the practical purpose of facilitating the operations of the Fund. The Fund’s general position on fluctuating rates, as set forth in the Annual Report for 1951, has not been changed by the adoption of these rules.
On October 15, 1954, the Executive Board restored France’s eligibility to use the Fund’s resources. France automatically became ineligible in January 1948, when it found itself unable to accept the modifications suggested by the Fund of the alterations in the French exchange system that were contemplated at that time, and decided instead to proceed with its own proposals. The Fund, accordingly, considered that France had made an unauthorized change of par value. The decision of October 15 was taken in light of the earlier abandonment by France of the multiple currency practices and discriminatory arrangements which the Fund had found unacceptable.
Fund Transactions
The stand-by arrangements with Belgium, Mexico, and Peru, described in last year’s Report, continued in effect during the year ended April 30, 1955, the arrangements with Mexico and Peru having been renewed. These arrangements permitted drawings up to $50 million, $27.5 million, and $12.5 million, respectively. No drawings were made during the year under any stand-by arrangement.
The three purchases of currencies from the Fund during the year, amounting to a total of $48,750,000, were made by Indonesia which purchased $15,000,000 for rupiah in August 1954, by Colombia which purchased $25,000,000 for pesos in December 1954, and by Iran which purchased $8,750,000 for rials in January 1955.
The purchase by Indonesia, which has not yet agreed a par value with the Fund, was made at the same provisional exchange rate as had been approved by the Executive Board for its subscription payment, and was within its gold tranche. Under a waiver pursuant to Article V, Section 4, Colombia purchased an amount equal to 50 per cent of its quota, and of this amount one half was within its gold tranche. Since Iran made a repurchase of $8,732,559.96 before its drawing in January 1955, the drawing made at that time was within its gold tranche.
As shown in Table 20, 12 members repurchased during the year amounts of their currency from the Fund for gold and dollars, equivalent to $276,275,398.29.
Repurchases of Currency from the Fund, Fiscal Year Ended April 30, 1955
(In U. S. dollars)
Repurchases of Currency from the Fund, Fiscal Year Ended April 30, 1955
(In U. S. dollars)
| Member | Amount of Repurchase | |
|---|---|---|
| Australia | 24,000,000.00 | |
| Austria | 7,499,741.79 | |
| Denmark | 10,963,500.00 | |
| Ethiopia | 1,434,142.18 | |
| Finland | 3,000,000.00 | |
| France | 20,000,000.00 | |
| Germany | 45,088,454.36 | |
| India | 36,182,000.00 | |
| Iran | 8,732,559.96 | |
| Paraguay | 375,000.00 | |
| Turkey | 7,000,000.00 | |
| United Kingdom | 112,000,000.00 | |
| Total | 276,275,398.29 | |
Repurchases of Currency from the Fund, Fiscal Year Ended April 30, 1955
(In U. S. dollars)
| Member | Amount of Repurchase | |
|---|---|---|
| Australia | 24,000,000.00 | |
| Austria | 7,499,741.79 | |
| Denmark | 10,963,500.00 | |
| Ethiopia | 1,434,142.18 | |
| Finland | 3,000,000.00 | |
| France | 20,000,000.00 | |
| Germany | 45,088,454.36 | |
| India | 36,182,000.00 | |
| Iran | 8,732,559.96 | |
| Paraguay | 375,000.00 | |
| Turkey | 7,000,000.00 | |
| United Kingdom | 112,000,000.00 | |
| Total | 276,275,398.29 | |
Iran’s repurchase obligation as of April 30, 1952 had been under discussion with the member for some time. At the member’s request, the Executive Board agreed to postpone payment of the obligation until January 1955. A further repurchase obligation as of April 30, 1954 was incurred by Iran, and both these obligations were discharged in January 1955.
At the time of Brazil’s drawing from the Fund in October 1953, a repurchase schedule had been agreed providing for payments in 1957 and 1958. A repurchase obligation under the provisions of Article V, Section 7(b), for $34,436,000 was subsequently computed by the Fund as having been incurred by Brazil as of April 30, 1953. After discussions between the Fund and Brazil, the member agreed with the Fund’s computation and requested that payment of this repurchase obligation be postponed to coincide with the payments to be made in accordance with Brazil’s repurchase schedule. The Executive Board agreed to this request.
Turkey made repurchases of its currency from the Fund in December 1954 and in January 1955 equivalent to $3 million and $4 million, respectively, in compliance with the commitment undertaken when it purchased exchange from the Fund in August 1953. A repurchase obligation under the provisions of Article V, Section 7(b), was incurred by Turkey as of April 30, 1954, part of which was discharged by the payment made in January 1955. The payment of the remainder, amounting to $4,116,324.70, was postponed, with the approval of the Executive Board, until the end of November 1955, when, according to Turkey’s repurchase schedule, a payment of $5,000,000 will be due.
Between March 1, 1947, when the Fund commenced operations, and April 30, 1955, the Fund effected transactions equivalent to $1,197.7 million on behalf of 26 members. A summary of Fund transactions is shown in Table 21, and a detailed statement will be found in Appendix III.
Summary of Fund Transactions from the Beginning of Operations to April 30, 1955
(In millions of U. S. dollars)
Totals may not equal sum of items because of rounding.
Summary of Fund Transactions from the Beginning of Operations to April 30, 1955
(In millions of U. S. dollars)
| Member | Currencies Purchased by Fund | Currencies Sold by Fund | Repurchases by Members | |
|---|---|---|---|---|
| Australia | 50.0 | 42.0 | ||
| Austria | 7.5 | |||
| Belgium | 33.0 | 11.4 | 21.6 | |
| Bolivia | 2.5 | |||
| Brazil | 168.5 | 103.0 | ||
| Chile | 21.3 | 12.5 | ||
| Colombia | 25.0 | |||
| Costa Rica | 1.2 | 2.1 | ||
| Czechoslovakia | 6.0 | |||
| Denmark | 10.2 | 11.0 | ||
| Egypt | 3.0 | 8.5 | ||
| Ethiopia | 0.6 | 2.0 | ||
| Finland | 9.5 | 9.5 | ||
| France | 125.0 | 20.0 | ||
| Germany | 4.4 | 45.1 | ||
| India | 100.0 | 72.4 | ||
| Indonesia | 15.0 | |||
| Iran | 17.5 | 8.7 | ||
| Japan | 124.0 | 61.6 | ||
| Lebanon | 0.9 | |||
| Mexico | 45.0 | 22.5 | ||
| Netherlands | 75.4 | 75.4 | ||
| Nicaragua | 0.5 | 0.5 | ||
| Norway | 9.6 | 9.6 | ||
| Paraguay | 0.9 | 0.4 | ||
| Peru | 3.1 | |||
| Sweden | 8.0 | |||
| Syria | 1.4 | |||
| Turkey | 35.0 | 15.0 | ||
| Union of South Africa | 10.0 | 10.0 | ||
| United Kingdom | 300.0 | 191.7 | 112.0 | |
| United States | 990.2 | |||
| Yugoslavia | 9.0 | |||
| Total1 | 1,197.7 | 1,197.7 | 686.2 | |
Totals may not equal sum of items because of rounding.
Summary of Fund Transactions from the Beginning of Operations to April 30, 1955
(In millions of U. S. dollars)
| Member | Currencies Purchased by Fund | Currencies Sold by Fund | Repurchases by Members | |
|---|---|---|---|---|
| Australia | 50.0 | 42.0 | ||
| Austria | 7.5 | |||
| Belgium | 33.0 | 11.4 | 21.6 | |
| Bolivia | 2.5 | |||
| Brazil | 168.5 | 103.0 | ||
| Chile | 21.3 | 12.5 | ||
| Colombia | 25.0 | |||
| Costa Rica | 1.2 | 2.1 | ||
| Czechoslovakia | 6.0 | |||
| Denmark | 10.2 | 11.0 | ||
| Egypt | 3.0 | 8.5 | ||
| Ethiopia | 0.6 | 2.0 | ||
| Finland | 9.5 | 9.5 | ||
| France | 125.0 | 20.0 | ||
| Germany | 4.4 | 45.1 | ||
| India | 100.0 | 72.4 | ||
| Indonesia | 15.0 | |||
| Iran | 17.5 | 8.7 | ||
| Japan | 124.0 | 61.6 | ||
| Lebanon | 0.9 | |||
| Mexico | 45.0 | 22.5 | ||
| Netherlands | 75.4 | 75.4 | ||
| Nicaragua | 0.5 | 0.5 | ||
| Norway | 9.6 | 9.6 | ||
| Paraguay | 0.9 | 0.4 | ||
| Peru | 3.1 | |||
| Sweden | 8.0 | |||
| Syria | 1.4 | |||
| Turkey | 35.0 | 15.0 | ||
| Union of South Africa | 10.0 | 10.0 | ||
| United Kingdom | 300.0 | 191.7 | 112.0 | |
| United States | 990.2 | |||
| Yugoslavia | 9.0 | |||
| Total1 | 1,197.7 | 1,197.7 | 686.2 | |
Totals may not equal sum of items because of rounding.
Of the total of $686.2 million repurchased by members, $308.2 million were mandatory repurchase obligations in accordance with Article V, Section 7(b), of the Fund Agreement, while $378.0 million represent voluntary repurchases. In the latter, no distinction is made between repurchases offered by members on their own initiative, and repurchases in fulfillment of commitments undertaken on the occasion of drawings in accordance with the Executive Board decision of February 13, 1952, on the use of the Fund’s resources. Of the total of $1,197.7 million drawn from the Fund, $807.4 million has been repaid to the Fund either through repurchases by members that had drawn upon the Fund or through drawings by other members of currencies of members that had purchased from the Fund. Of the remaining $390.3 million, $335.4 million falls within the gold tranches of the members concerned. Eleven members, whose currency subscriptions to the Fund exceeded 75 per cent of their quotas, have incurred repurchase obligations which exceeded any previous transactions they had had with the Fund. The total of their repurchases in excess of any previous transactions has amounted to $78.3 million.
The Fund’s holdings of gold increased during the fiscal year from $1,718.5 million to $1,744.4 million, as a result of payment by Israel of that part of its subscription payable in gold, of settlement of repurchases by six members, and of payments by other members of various Fund charges.
On April 30, 1955, the Fund’s holdings of currencies (including non-negotiable, non-interest bearing notes) amounted to the equivalent of $6,299.7 million, of which $1,608.8 million was in U. S. dollars. Of the other Fund holdings of convertible currencies totaling US$365.5 million, the largest was in Canadian dollars equivalent to US$225 million. The Fund’s total holdings of gold and convertible currencies amounted to $3,718.7 million.
At various points of time since the Fund started operations, exchange transactions have raised the Fund’s holdings of the currencies of 15 members (including Czechoslovakia which ceased to be a member of the Fund on December 31, 1954) above their quotas. These members therefore became subject to the appropriate charges on balances in excess of quota. On April 30, 1955, 4 members and Czechoslovakia were currently paying such charges to the Fund. During the past year, one member with monetary reserves less than one half of its quota, as well as Czechoslovakia, availed itself of the opportunity provided in the Fund Agreement to pay in its own currency part of the Fund charges that are otherwise payable in gold.
Total charges on balances in excess of quota amounted to the equivalent of $3.8 million in the fiscal year ended April 30, 1954. In the year ended April 30, 1955, the total was $2.0 million.
Computation of Monetary Reserves
Monetary reserves data as of April 30, 1954 have been received from 53 members. Of the three members which have not yet submitted the required reports, one cannot have a repurchase obligation. For the remaining two members, Bolivia and Brazil, the submission of monetary reserves data is necessary to determine whether there is a repurchase obligation as of April 30, 1954, and efforts to obtain the data are being continued.