Current Position with Respect to Exchange Restrictions and Discrimination

There have been some further relaxations in exchange restrictions and discrimination since the date of the Fund’s last Annual Report, when it was said that “foreign exchange restrictions impose a less serious obstacle to international commerce today than at any time since the outbreak of World War II.” Progress during the past year was widespread, although not universal; with some limited setbacks, it continued in spite of the economic difficulties created in some countries by the intensification of the boom and the international tension that developed during the year. Partly as a result of these difficulties, the progress made was not as great as that in preceding years.

The current position may be summarized as follows: Most countries still maintain exchange restrictions, and during the last year no member of the Fund ceased to avail itself of its postwar transitional arrangements applied under Article XIV of the Articles of Agreement. Many countries which have reduced their restrictions to a minimum, with almost complete freedom for transfers, maintain the machinery of exchange control with the intention of having it available in the event of a general deterioration of payments conditions. Restrictions against dollar transactions continue to be the most common form of exchange restriction, but further progress in reducing their restrictions on dollar payments was reported by several countries. Discriminatory restrictions against non-dollar countries were also reduced, by new moves to give wider transferability to inconvertible currencies and by related steps to reduce the discriminatory practices of bilateral payments arrangements. Except in Bolivia, the experience of which is reported elsewhere in this Report, there has been no fundamental change in respect of the use of multiple currency practices.

During the past year, the most important steps in the direction of reducing dollar discrimination were taken by a number of OEEC countries, which continued their joint endeavor to liberalize the importation of dollar goods and to free payments to dollar countries for invisibles. Outside Europe, Ceylon was also able virtually to end its discrimination against imports of dollar goods.

In addition to the areas of transferability introduced in earlier years for the deutsche mark and sterling, such areas were established during the past year for the Belgian franc, the Italian lira, the Netherlands guilder, and the Swedish krona. The facilities thus provided, which left unchanged the relations between the European currencies concerned and fully convertible currencies, especially the U.S. and Canadian dollars, have been associated with a continued movement to ease the requirements for means of payments in bilateral arrangements, both in arrangements where one partner country has made its currency transferable and in those in which the two partners agree to conduct transactions in the transferable currency of a third country.

Although the 49 members of the Fund which consult under Article XIV continued in January 1957 to maintain a total of more than 300 restrictive bilateral payments arrangements, of which over half were agreements concluded with the U.S.S.R., other Eastern European countries, or Mainland China, a significant reduction had been made in the number and restrictiveness of such arrangements in the two preceding years. This reduction had been achieved either by terminating the payments arrangements or by reducing their bilateral effect by permitting the transferability of current accruals of the partner’s currency. In the two years 1955 and 1956, such liberalization measures resulted in a decline of about 25 per cent in the number of restrictive bilateral payments arrangements between countries that are members of the Fund. The major participants in this movement include the OEEC countries, Argentina, Brazil, and Japan, countries which together account for an important part of world trade. While no similar decrease can be recorded with respect to bilateral payments arrangements between members and nonmember countries—in fact, the number of these arrangements increased by some 18 per cent in the two years ended January 1957—the restrictive effect of all these arrangements certainly diminished substantially in the two-year period.

The Hague Club and the Paris Club

In July 1956 a new regime of trade and payments, the so-called “Paris Club,” was established between Argentina and a number of European countries, which by April 1957 had increased to 11—Austria, Belgium, Denmark, France, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. Under this regime Argentina can freely transfer the currencies of European participants from one member of the Club to another. The similar arrangement, the “Hague Club,” which had been established in the previous year to govern payments between Brazil and Belgium, the Federal Republic of Germany, Luxembourg, the Netherlands, and the United Kingdom, was extended to include Austria, France, and Italy.

European Regional Organizations

In June 1956 the European Payments Union (EPU) was renewed for another year without change either in the 75:25 gold/credit settlement ratio which had been in force since August 1, 1955 or in the provision for replacing the Union by a European Monetary Agreement if the Union should be terminated.

In March 1957 the Managing Board of the EPU recommended to the Council of the Organization for European Economic Cooperation (OEEC) that the EPU be prolonged for a further period of one year until June 30, 1958, without change in either the operating rules or the termination provisions.¹ The Managing Board considered that the establishment of a wider and freer system of payments should remain the long-term aim, but that in the present economic situation in Europe it would be inopportune to make fundamental changes in the EPU system or its operating rules. It also considered that the establishment in Europe of a Common Market and a Free Trade Area (see below) would call for examination of the need for modification in the payments arrangements provided by the EPU.

During the period covered by this Report, the total of monthly clearings through the Union was appreciably larger than in the preceding year. This was due primarily to a steep rise in the surplus of Germany and to the emergence of a large deficit for France. Germany and Belgium-Luxembourg remained the largest creditors, and France, the United Kingdom, and Italy the largest debtors. In the early months of 1957, however, the United Kingdom, which had previously recorded deficits with the EPU, registered a net surplus, and Belgium-Luxembourg, which had previously recorded surpluses, had a net deficit. At the time of the renewal of the EPU in June 1954, bilateral arrangements had been made for the regular repayment or funding of a large part of the outstanding debts of its members. Of a total indebtedness of $1.1 billion, a further $170 million was repaid in the year ended April 30, 1957. Despite these repayments, the total of debtor and creditor positions in the EPU increased during the year.

The scope of the system of multilateral arbitrage for European currencies has been further enlarged by the accession of Austria and the extension from three to six months of the limit for multilateral forward transactions in all currencies except for transactions in French francs or with French banks.

During the past year, the OEEC continued its efforts for greater freedom in intra-European trade and payments as well as in trade and payments with the dollar area. Some countries were able to increase their liberalization percentages, but it became more and more clear that the possibility of further substantial liberalization of intra-European trade from quota restrictions had come largely to depend on a further simultaneous reduction of other impediments to trade, such as tariff and protective devices of various types. It was therefore decided in July 1956 to postpone from July 1956 to December 1957 the date at which the liberalization targets of 90 per cent over-all and 75 per cent for each of the three categories (raw materials, foodstuffs, and manufactured products) would have to be consolidated, and meanwhile to explore the possibility of further relaxation or removal of other restrictions.

Negotiations looking to the creation of a Common Market were opened in the latter part of 1955 between the six OEEC countries which are also members of the European Community for Coal and Steel (Belgium, France, the Federal Republic of Germany, Italy, Luxembourg, and the Netherlands). These negotiations led on March 25, 1957 to the signature by the six countries of a treaty instituting a European Economic Community. This treaty, which is subject to ratification by the legislatures of the signatory countries, provides for the gradual realization over a period of 12 to 15 years of a Common Market, in which the flow of goods, services, persons, and capital among the member countries and their associated overseas territories will, with certain possible exceptions, no longer be obstructed by tariffs, quantitative restrictions, and other impediments, and a common tariff will be imposed on imports from other countries. It also provides for the coordination of the other economic and social policies of these countries and establishes an institutional framework for the Community.

While negotiations for the European Economic Community were in progress, the OEEC also studied the possibility of instituting a European Free Trade Area which would comprise both the Common Market countries and other OEEC countries. In such an area, tariffs and other restrictions on trade between member countries would be abolished during a transitional period, but, in contrast to the Common Market arrangement, there would be no common tariff on imports from other countries; on the contrary, the other members of the Free Trade Area would maintain their individual tariffs on such imports. On February 13, 1957 the OEEC decided to enter into negotiations on this project. Attention was specifically directed at the same time to the necessity of finding ways to ensure an expansion of nondiscriminatory trade in agricultural products and of dealing with the special problems created for member countries engaged in economic development by the obligation to liberalize commercial policy.