Two countries became members of the Fund during 1956–57, Argentina on September 20, 1956, with a quota of US$150 million, and Viet-Nam on September 21, 1956, with a quota of US$12.5 million. Both members have paid 25 per cent of their quotas in gold.

Fund Membership and Quotas

Two countries became members of the Fund during 1956–57, Argentina on September 20, 1956, with a quota of US$150 million, and Viet-Nam on September 21, 1956, with a quota of US$12.5 million. Both members have paid 25 per cent of their quotas in gold.

Terms and conditions for membership were approved by the Board of Governors for the Republic of the Sudan at the Eleventh Annual Meeting, for Ghana (Gold Coast) on April 4, 1957, and for Saudi Arabia on May 24, 1957. At the request of its Government, the period for acceptance of membership by the Sudan was extended through September 30, 1957. Application for membership was submitted by Tunisia on November 27, 1956, by Libya on February 6, 1957, by Morocco on March 26, 1957, and by Ireland on April 23, 1957.

The quotas of four members were increased during the past fiscal year in the light of the understanding expressed by the Executive Directors at the conclusion of the quinquennial review of quotas in January 1956 that requests for adjustments of small quotas would be considered sympathetically. Ecuador’s quota was increased from US$5 million to US$10 million on August 8, 1956; the Dominican Republic’s quota from US$5 million to US$10 million on September 25, 1956; Nicaragua’s quota from US$2 million to US$7.5 million on October 17,1956; and Israel’s quota from US$4.5 million to US$7.5 million on March 6, 1957.1

There are now 60 members of the Fund and the aggregate of quotas at the end of the fiscal year was US$8,931.5 million. The members of the Fund, their quotas, voting power, Governors, and Alternate Governors as of April 30,1957 are shown in Appendix I. Changes in membership of the Board of Governors during the year are shown in Appendix II.

Board of Executive Directors

After the acceptance of membership by Argentina, the Board of Governors decided at the Eleventh Annual Meeting of the Fund to increase from 2 to 3 the number of Executive Directors who are elected by the Fund’s Latin American members. This was the fourth occasion on which the number of elected Executive Directors has been increased in response to the growing membership of the Fund, and the total number of Directors is now 17. The Executive Directors and Alternate Executive Directors of the Fund and their voting power are shown in Appendix III. Changes in membership of the Executive Board are shown in Appendix IV.

On October 3, 1956, Mr. Ivar Rooth completed the term as Managing Director and Chairman of the Executive Board to which he had been appointed in 1951, in succession to Mr. Camille Gutt, the first Managing Director of the Fund. During Mr. Rooth’s five years of service, the Fund’s policies and procedures underwent notable evolution so as to adapt them to the far-reaching changes which were occurring in the world economy. His leadership was especially directed toward modification and innovation in Fund policy governing use of its resources, culminating in its restatement in the Annual Report for 1955. The Executive Directors gratefully acknowledge the valuable contribution which Mr. Rooth made to the work of the Fund, and take this opportunity, on their own behalf and on behalf of the staff, of making public this recognition of his many fine qualities. Mr. Rooth was succeeded by Mr. Per Jacobsson, also of Sweden, and formerly a member of the management of the Bank for International Settlements, who assumed office on December 3, 1956.

Use of the Fund’s Resources

The year May 1, 1956 to April 30, 1957 was one of exceptional financial activity for the Fund. In that year the amount of currency sold by the Fund to its members—equivalent to more than US$1,114 million—considerably exceeded the volume of its sales of exchange in any previous year. The stand-by arrangements concluded or extended during the year authorized the sale to members of the equivalent of US$1,212,280,000, of which US$968,900,000 had not been utilized on April 30, 1957. This figure was much greater than the total amount covered by all the previous stand-by arrangements of the Fund. If account is taken both of the volume of currency actually sold by the Fund and of the amount committed in stand-by arrangements during the fiscal year 1956–57 but left unutilized at the end of the year, the Fund’s financial activity was greater in 1956–57 than in the whole of the preceding ten years of its history.

The Canadian dollar was added during the year to the list of currencies sold to its members by the Fund. Except in one transaction, however, the currency purchased by members was the U.S. dollar. Three members, the United Kingdom, France, and India, accounted for some 75 per cent of the Fund’s sales of currency to its members. The total number of members, 14, that purchased from the Fund was, however, also greater than the number recorded in any previous year, and the specific purposes for which drawings were requested were considerably more varied. The year-to-year variations in the use of the Fund’s resources are recorded in Table 25, which also shows that in 1956–57, in contrast to three of the preceding four years, the volume of purchases by far exceeded the volume of repurchases.

Table 25.

Summary of Fund Transactions, Fiscal Years Ended April 30, 1948-57

(In U. S. dollars)

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In assessing the significance of this record, it should be borne in mind that the nature of the Fund’s work is such that fluctuations in the volume of its financial business do not by themselves provide an adequate indication of the measure of its success in performing the functions which have been entrusted to it. Much of its work arises in connection with such important questions as par values and alterations in its members’ exchange systems. The yearly consultations with the countries which maintain exchange controls afford valuable opportunities for facilitating the general attainment of the objectives of the Fund; and there has been increasing activity in the provision of technical assistance both to its members and to other international organizations. There is no direct correlation between the effectiveness of the Fund’s work in these spheres and fluctuations in the scale of its financial transactions.

Calls for use of the Fund’s resources are naturally most urgent in relation to emergency needs; and emergency needs are by their nature certain to fluctuate violently. But requests for access to the Fund’s resources are also made in circumstances of various kinds where there is no direct or immediate emergency. It has been the Fund’s experience that, apart from emergency needs and arrangements made for the financial backing of stabilization programs, the frequency and extent of the requests for drawings have been closely related to the broad fluctuations that occur from time to time in the world’s financial and payments situation. In the financial year 1956–57 it may be said to have been increasingly a factor of importance that Fund members had come to understand better the significance of the Fund’s policies and practices. The members are thus more and more prepared to regard the possibility of use of the Fund’s resources as a significant element in the determination of their own policies, and, by drawing on the Fund, to gain the time required for putting into effective operation the measures contemplated or already initiated that are necessary to check any tendency to deterioration in their balances of payments.

The general background of the balance of payments strains to which many countries have been subjected during the last year is to be found in the pressures associated with the continuance of the widespread boom conditions described elsewhere in this Report. The balance of payments effects of the difficulties that have arisen have, of course, varied widely. In addition, several countries were affected during the course of the year by the balance of payments disturbances connected with the Suez conflict—disturbances which at one time seemed more threatening than in the end they actually turned out to be.

In a number of countries the public, more and more tired of inflation, has been increasingly prepared to support the government in taking the steps required to re-establish monetary order. This has been a factor in extending the range of Fund transactions, as several countries have sought the financial backing of the Fund for their stabilization efforts.

The stronger economic positions which many countries had already achieved, together with the improvements in their international reserves, made it easier for them to deal with the difficulties that had to be faced in 1956–57. But the financial assistance given by the Fund and the knowledge that its resources were available in case of need helped in restoring the equilibrium that was endangered. There was inevitably considerable overlapping between the various influences which induced the Fund’s members to come to it during the year for drawings or stand-by arrangements. The emergency caused by the Suez Canal conflict was the immediate reason for some of the requests to the Fund. As in previous years, the use of the Fund’s resources by certain other members was related essentially to the execution of their stabilization programs. The need to meet seasonal balance of payments deficits led to requests for drawings on the Fund by some members which are largely dependent on one major export crop and for which the often inadequate level of their foreign exchange reserves creates a problem in the part of the year before the export crop is sold. At the time when these drawings were approved or arranged, some of the members in this last category undertook to reverse their positions by means of a repurchase as soon as the inflow of export proceeds had strengthened their exchange reserves, that is, within a period of six to twelve months. The amounts involved in most of these transactions, though small absolutely, have been substantial in relation to the quotas of the members concerned, and the transactions illustrate the capacity of the Fund to adapt its procedures to meet the widely varying requirements of its members.

It should be added that the series of earlier decisions on use of the Fund’s resources which have been reported in the Annual Reports of the last five years have effectively prepared the way for coping with the demands made upon the Fund by its members during 1956–57. These decisions were intended to assist members to understand the circumstances in which assistance from the Fund would be appropriate, and also to be aware of the obligations which use of the Fund’s resources would impose upon them, including the rule that the normal period during which currency purchased from the Fund might remain outstanding should not exceed three to five years. In the Executive Board’s decision of February 13, 1952 on the Use of the Fund’s Resources and Repurchases, it was indicated that such general principles as were enunciated, both at that time and later, would be applied in the light of the circumstances of particular cases, so that in the course of time a body of practical criteria for Fund action would gradually be built up. Although the number of transactions in the years preceding the financial year 1956–57 was rather small, these transactions were helpful in providing a basis for the accumulation of useful experience. Both the Fund and its members became familiar with the working of the machinery created for stand-by arrangements, which makes it possible in suitable circumstances to give members firm assurances that they will be able, as the need arises for the currency or currencies covered by the arrangement, to draw upon the Fund within a specified period of time. It was shown that members would be given the overwhelming benefit of the doubt in the case of drawings within the “gold tranche,” i.e., the portion of quota which can be regarded as equivalent to the member’s gold subscription. In recent years the Fund has used its right to grant the waiver required to permit a member to draw more than 25 per cent of its quota during a twelve-month period sufficiently often to make it clear that this is not to be regarded as an extraordinary procedure. In fact, only two of the requests for purchases of currency from the Fund during 1956–57 did not require such a waiver; and the granting of a waiver was necessary in connection with all the stand-by arrangements made during the year. The Fund’s attitude to drawings within the first credit tranche has been demonstrated to be a liberal one, provided that a member that wishes to make such a drawing is also itself making reasonable efforts to solve its problems; and there were several transactions which showed, as was stated in the Annual Report for 1955, that should the need arise, and should the justification be substantial, members need not doubt that drawings on subsequent tranches would be permitted. In general, the work undertaken in earlier years in formulating the procedures and principles of the Fund was an important factor in facilitating the prompt decisions which were taken in 1956–57 in relation to a wide variety of Fund transactions.

Convertibility has always been, and still is, one of the main objectives of the Fund’s activities. In seeking to define the methods to be applied in using its resources, one of the main purposes has been to work out the best ways and means for making Fund assistance available for the establishment or the maintenance of convertibility. It may be thought regrettable that so far the opportunities for linking Fund transactions with programs for the establishment or maintenance of convertibility have been very limited. It is, however, noteworthy that during 1956–57, in circumstances which at earlier times might have been interpreted by many governments as requiring the imposition of more stringent trade restrictions, several Fund members that found themselves confronted with temporary exchange stringency still maintained the measures of liberalization already adopted by them. Moreover, some members have utilized the Fund’s financial facilities, especially in stand-by arrangements, in support of stabilization programs intended to bring their exchange systems closer to the unification of exchange rates at realistic levels. In the conditions of today, the general principles set forth in recent Annual Reports as governing the use of Fund resources beyond the first credit tranche mean that members’ requests for such drawings or stand-by arrangements are likely to be favorably received where they are intended to support well-balanced and adequate programs which are aimed at establishing or maintaining the enduring stability of the currencies concerned at realistic rates of exchange, and may therefore reasonably be regarded as establishing the conditions for substantial progress toward convertibility.

The total assets of the Fund in gold and convertible currencies had a value of nearly US$3 billion on April 30, 1957. On the other hand, unutilized drawing rights under stand-by arrangements amounted at that time to US$968.9 million. While it may be hoped that there will be no need to utilize to the full all the outstanding drawing rights, these rights represent potential calls upon the liquid assets of the Fund which have to be taken into account in connection with new drawings and commitments. The revolving character of the Fund’s resources is an important fact in maintaining its liquidity. The Fund’s holdings of gold and convertible currencies will in due course be replenished and thus be available for further transactions, not only as a consequence of the mandatory repurchase obligations resulting from improvements in members’ monetary reserves, or repurchases made pursuant to terms attached to waivers or included in stand-by arrangements, but also through voluntary repurchases by members, and particularly those made under the decision of the Executive Board of February 13, 1952.

Fund Transactions

The Fund’s transactions with its members in 1956–57, amounting in all to the equivalent of US$1,114,047,648.76, are summarized in Table 26. With the exception of a purchase by Egypt of Canadian dollars equivalent to US$15,000,000, all these transactions involved purchases of U.S. dollars.

Table 26.

Purchases of Currency from the Fund, Fiscal Year Ended April 30, 1957

(In U. S. dollars)

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These transactions involved 22 individual drawings, of which 11, for a total of US$245,577,648.76, were made under stand-by arrangements previously approved by the Fund. During the year under review the Fund entered into, or extended, 10 stand-by arrangements with members, involving a total amount equivalent to US$1,212,280,000. Seven of these arrangements were for a period of twelve months. The amounts covered by the stand-by arrangements and the balances still available as of April 30, 1957 are shown in Table 27.

Table 27.

Fund Stand-By Arrangements with Members, Fiscal Year Ended April 30, 1957

(In millions of U. S. dollars)

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The expansion of the Fund’s financial activities in 1956–57 affected all the important regions of the world. Of the 16 members that either drew on the Fund’s resources or made use of its stand-by facilities during the year, 3 are in Europe, 9 in Latin America, 2 in the Middle East, and 2 in the Far East.

In the year under review, repurchases from the Fund by 9 members of amounts of their currency for gold and dollars were equivalent to US$75,038,810.14 (Table 28).

Table 28.

Repurchases of Currency from the Fund, Fiscal Year Ended April 30, 1957

(In U. S. dollars)

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Total transactions between March 1, 1947, when the Fund commenced operations, and April 30, 1957 are equivalent to US$2,350.5 million. In all, 32 members have drawn on the Fund, some of them more than once. A summary of these transactions is given in Table 29, and details are given in Appendix V. Of the total sales of currency by the Fund up to April 30, 1957, $2,128 million, or about 90 per cent, has been in U.S. dollars. There have also been sales of sterling, Belgian francs, deutsche mark, and Canadian dollars.

Table 29.

Summary of Fund Transactions from the Beginning of Operations to April 30, 1957

(In millions of U. S. dollars)

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On the basis of the settlement with Czechoslovakia, an amount of US$3.03 million has been offset against the drawing of US$6 million, the remainder to be paid in installments not later than July 2,1961.

Totals may not equal sums of items because of rounding.

Of the 47 drawings since the decision of February 1952, which stated that “each member can count on receiving the overwhelming benefit of any doubt respecting drawings which would raise the Fund’s holdings of its currency to not more than its quota,” 31 have been partly or wholly within this gold tranche portion of members’ quotas. Of the total outstanding drawings which had not been repurchased or otherwise offset by April 30, 1957, amounting to US$1,245.2 million, US$634.4 million was within the gold tranches of the members concerned.

Since August 1953, the date of the first purchase from the Fund which required a waiver of the limitation of drawings, laid down in Article V, Section 3, to such an amount as will not increase the Fund’s holdings of a member’s currency by more than 25 per cent of its quota in any period of twelve months, 38 purchases have been made by members. Of these purchases, 27 have involved the exercise of the Fund’s discretion to grant a waiver. Several of these waivers have been granted to members whose quotas are very small in relation to the present volume of their trade. The amounts of individual waiver transactions have ranged up to 100 per cent of quota; in 4 cases, the Fund’s holdings of a member’s currency were raised to 175 per cent of quota. In 4 cases, the total amount of drawings and stand-by arrangements approved at the same time by the Fund was equal to 100 per cent of the member’s quota.

By April 30, 1957, repurchases of their currencies by 31 members amounted to US$1,032.9 million. Nearly all of the purchases of U.S. dollars that were made in the years 1947 to 1952 have since been reversed. There has been a considerable volume of voluntary repurchases; by April 30, 1957, these amounted to US$615.1 million, including both repurchases offered by members on their own initiative and repurchases in fulfillment of commitments made on the occasion of drawings in accordance with the Executive Board decision of February 13, 1952. Of the total of US$2,350.5 million drawn from the Fund, US$1,105.3 million, or 47 per cent, has been repaid through repurchases by members that had drawn upon the Fund, through drawings by other members of the currencies of members that had purchased from the Fund, and by the settlement with Czechoslovakia. Seventeen members which on joining the Fund paid less than 25 per cent of their quotas in gold have incurred repurchase obligations in excess of any previous transactions which they had had with the Fund. The total of their repurchases in excess of previous transactions has amounted to US$133.7 million.

Since the Fund started operations, 21 members have had to pay charges because transactions raised the Fund’s holdings of their currencies above their quotas. On April 30, 1957, 9 members were paying such charges. The Fund Agreement provides that, if a member’s monetary reserves are less than one half of its quota, part of the Fund’s charges may be paid in the member’s own currency. Two members are currently availing themselves of this provision.

Approximately US$2.6 million was received in charges on balances in excess of quota in the year under review. In the preceding year, the total was US$1.1 million. Service charges on drawings effected during the year amounted to the equivalent of $5.6 million.

In view of the heavy demands made on the Fund’s holdings of U.S. dollars by actual drawings during the year, and of the substantial amount of outstanding commitments on unused stand-by arrangements, the Fund decided in January 1957 to sell US$300 million of its gold holdings in order to replenish its holdings of U.S. dollars.

Fund Charges

The revised schedule of charges which has been in effect from January 1, 1954 and which expired on December 31, 1956 was extended by the Executive Board for one year until December 31, 1957. The schedule of charges is being kept under review by the Fund.

Computation of Monetary Reserves

Monetary reserves data as of April 30, 1956 have been received from 55 members. The 3 members that have not yet submitted the required reports cannot have repurchase obligations.

The Fund and Its Members’ Exchange Practices

The exchange practices of its members are a primary interest of the Fund and constitute the focus of much of its activity. In accordance with its Articles of Agreement, the Fund is consulted by its members in regard to the establishment of, or changes in, par values, to progress made toward the establishment of unitary exchange rates, and to the restrictions imposed, or maintained, by them on current payments. The main events in this field of the Fund’s work during the past year, including certain Executive Board decisions on multiple currency practices and exchange controls for the regulation of capital movements, are recorded below.

Multiple currency practices of varying degrees of complexity and importance are used by 38 of the 60 Fund members, though in a number of countries the multiplicity of rates is almost entirely domestic in its impact or affects only a small proportion of the country’s international receipts and payments. In about half of these 38 member countries, however, multiple rate systems continue to be important, and in about a quarter of them they may be described as “complex.” Some of these systems have both major internal and external effects.

In the recent past the Fund has reviewed its policies in respect of bilateralism and discrimination. It was considered that a similar review should be undertaken with regard to multiple currency practices.

The experience of the Fund has been that complex multiple rate systems damage the economies of the countries maintaining them and harm other countries. Recently, the problem of multiple rates has taken on added importance. With keener competition in international markets, countries with unitary rates have been increasingly concerned that competitors who use multiple export rates may derive unfair advantages in export markets. Similarly, they fear arbitrary penalization of their goods through multiple import rates. Moreover, with the continuation of multiple rate systems for long periods, internal price and production disparities and other adverse effects on the economies of the countries employing multiple rates become more difficult to correct.

For these reasons it was thought to be desirable that the Fund should intensify its efforts to work with members to simplify and, wherever feasible, to unify their exchange systems, and with this purpose in view the Executive Board took the decision reproduced in Appendix VI.

In dealing with these cases, the Fund will assist the countries concerned to find ways and means of making more rapid progress. It is prepared to provide technical assistance covering both the exchange system and related matters, and to remain in contact with the country during the process of introducing and consolidating the exchange reform. If the proposed exchange simplification and related economic programs or measures are considered adequate and appropriate by the Fund, it will give sympathetic consideration to a request for use of its resources.

The Fund will continue, as opportunity arises, to press for simplification wherever there is clear evidence that a multiple currency system is damaging to other countries. It will, in addition, be reluctant to approve changes in multiple rate systems which make them more complex.

The Fund considers that early and substantial steps should be taken to simplify complex multiple rate systems and has indicated that it would not continue to approve them, unless the countries maintaining them are making reasonable progress toward simplification and ultimate elimination of such systems, or are taking measures or adopting programs which seem likely to result in such progress.

The provisions of the Fund Agreement do not preclude a member from exercising such exchange controls as are necessary to regulate international capital movements, provided that these controls are not exercised in a manner which restricts payments for current transactions or unduly delays the transfer of funds in settlement of commitments. Last year the Board undertook a discussion of certain problems connected with capital controls, and in this connection considered the interpretation of Article VI, Section 3, of the Fund’s Articles of Agreement. While no policy decision was formulated, it was concluded that under the Articles of Agreement members are free to regulate capital movements for any reason, due regard being paid to other related provisions of the Fund Agreement, and members may exercise such controls as are necessary for this purpose, including the making of arrangements with other members, without prior Fund approval. The conclusions adopted are contained in Appendix VII.

Initial Par Values

During the fiscal year 1956–57, initial par values were agreed with two countries which had become members of the Fund within the last three years. For Argentina, which had become a member of the Fund in September 1956, an initial par value of M$N 18 per U.S. dollar was agreed on January 9, 1957. This par value is the same as the official rate established by Argentina in its exchange reform of October 1955. The exchange system established in that reform has since remained fundamentally unchanged. However, there have been some shifts of commodities, both exports and imports, from the official to the free exchange market; and certain capital goods which previously could not be imported have been admitted to the free market. In order to counteract further the deterioration in the Argentine balance of payments, exchange surcharges on imports of automobiles were substantially increased during the year, and advance peso deposits were established for certain groups of imports. Exchange taxes on exports are being gradually reduced. In the free market, the exchange rate has undergone rather substantial fluctuations. The rate at first appreciated from the level of about M$N 39 per U.S. dollar reported in April 1956, but subsequently declined again. By the end of April 1957 it was about MSN 38.40 per U.S. dollar.

On March 13, 1957, an initial par value for the currency of Israel, which had become a member of the Fund in July 1954, was established at I£1.800 per U.S. dollar. This rate had, since September 1954, been the effective rate for practically all Israeli exchange transactions. Some transactions, however, take place at rates outside the prescribed margins of the par value; one such rate, I£1.500 per U.S. dollar, is applied to the foreign exchange receipts from certain charitable organizations.

Members Without Initial Par Value

Initial par values have been agreed between the Fund and all but nine of its members—Afghanistan, China, Greece, Indonesia, Italy, Korea, Thailand, Uruguay, and Viet-Nam. Three of these members—Afghanistan, Korea, and Viet-Nam—have only recently joined the Fund. Although Greece and Italy have no par value, they have maintained unitary fixed rates—Italy since 1949 at approximately 625 lire per U.S. dollar, and Greece since 1954 at 30 drachmas per U.S. dollar. Thailand’s free market rate for the U.S. dollar has been stable since the unification of its exchange system was completed at the beginning of 1956; during the last year, it fluctuated between 20.66 baht and 20.88 baht, while the sterling rate moved between 56.83 baht and 58.19 baht.

Developments in Par Values, Exchange Rates, and Multiple Currency Practices

There were no changes during the fiscal year 1956–57 in any par value previously agreed by the Fund with a member.

In discussions with the Fund in connection with the introduction of a new exchange system, Bolivia informed the Fund in December 1956 that exchange rates would not be maintained within the prescribed margins of the par value agreed on May 14, 1953. The new exchange system was part of a comprehensive program of economic stabilization, mentioned earlier in this Report. The complex multiple exchange rate structure, which in part had served the purpose of subsidization and control of prices, was eliminated, and trade and exchange restrictions were abolished. A unified fluctuating exchange rate was established to replace the system of multiple export rates and the basic import rate which had operated with varying c.i.f. import surcharges. The boliviano was to be allowed to find its appropriate level in the free market, the Central Bank of Bolivia intervening only when necessary to avoid excessive fluctuations arising from temporary factors. The boliviano had depreciated in the free market from approximately Bs 5,800 per U.S. dollar in April 1956 to over Bs 12,000 shortly before the exchange reform. The Central Bank began operations under the new system at a rate of Bs 7,750 per U.S. dollar on December 19, 1956. Subsequently, the rate tended to appreciate and at the end of April 1957 was about Bs 7,650 per U.S. dollar.

In November 1949, Peru had also informed the Fund that its exchange rates would not be maintained within the prescribed margins of the agreed par value, and in April 1956, Chile had introduced an exchange system under which there are no transactions at rates within the prescribed margins. In each of these countries, there are now two fluctuating free exchange rates. In Peru, the certificate market rate, which applies to most trade transactions, was maintained unchanged throughout the year at 19 soles per U.S. dollar, while in the free or draft market, in which capital transactions and most payments for invisibles take place, the sol tended to appreciate, the U.S. dollar rate moving from about 19.30 soles in April 1956 to 19.03 soles at the end of April 1957. In Chile, exchange purchases in the Banking Free Market were subjected to a specific tax of 15 pesos per U.S. dollar and an additional exchange tax, first set at 1 per cent and subsequently increased to 5 per cent. The effect of these measures was to narrow the spread between the effective selling rates in the Banking Free Market (which covers all permitted imports and exports and associated invisibles, certain registered capital items, and government and semigovernment transactions) and the Brokers’ Free Market (for capital and invisible transactions not permitted in the Banking Free Market). The rate in the Banking Free Market was maintained within rather narrow limits, ranging up to 506 pesos per U.S. dollar, during the first six months following the exchange reform carried out in April 1956 as part of a general stabilization program. Subsequently, it depreciated in successive stages, reaching 543 pesos in December 1956, 570 pesos in February 1957, and 582 pesos at the end of April. The rate in the Brokers’ Free Market declined more sharply, moving from about 500 pesos per U.S. dollar when the new system was inaugurated to 652 pesos at the end of April 1957.

Since September 1950, when Canada decided that temporarily its exchange rate could not be maintained within the specified margins of the par value agreed with the Fund in September 1949, a unitary, though fluctuating, exchange rate has been maintained. The influences which produced fluctuations in the Canadian exchange rate in 1956 are analyzed elsewhere in this Report. The rate, expressed in U.S. currency, appreciated during the year from US$1.0013 in January to US$1.0411 in December, a rate slightly above the previous postwar high point attained in October 1952, and to US$1.0439 on April 30, 1957.

In France, which altered the par value of its currency in 1948 and has not agreed with the Fund on a new par value, an exchange rate of approximately 350 francs per U.S. dollar has been maintained since 1950. In February 1957, France introduced a tax of approximately 3 per cent on sales of foreign exchange to French residents for travel.

Since March 1956, Iran has had a single buying rate of 75 rials per U.S. dollar and a single selling rate of 76.50 rials, which is 2 per cent above the buying rate, both rates differing widely from the par value agreed in 1946.2 In Lebanon and Syria, all exchange transactions take place at rates not related to the par values of 2.19 pounds per U.S. dollar agreed with the Fund by both countries. In Lebanon, stability in the free market has continued during the last year, with the rate for U.S. dollars varying between about 3.20 pounds and 3.24 pounds; official purchases in the market were small in comparison with those in recent years. The Syrian authorities continue to intervene in the market and have quoted selling rates for U.S. dollars of about 3.58 pounds throughout 1956 and early 1957; there were minor fluctuations in the rates for other currencies.

The Fund’s attitude toward exchange systems which contain multiple currency practices has been outlined above. The number of members which make important use of these practices is not great, and their currencies are not used extensively in international trade. The majority of the members of the Fund maintain exchange systems in which transactions take place generally within the prescribed margins of their respective par values agreed with the Fund, and the currencies of these members include those most used as means of payment for international trade.

The exchange systems of Fund members which maintain multiple currency practices are summarized in the Eighth Annual Report on Exchange Restrictions. The more important developments in them during the past year are outlined below.

Brazil has made only minor modifications in the basic structure of its exchange system. In May 1956, some exports were reclassified, and an additional export category was created, with a higher bonus, applicable primarily to exports of manufactured products. This measure was taken in an effort to overcome difficulties encountered by minor exports owing to increasing costs and was equivalent to a selective devaluation of varying proportions for all “minor” exports, which account for some 15 to 20 per cent of total exports. The effective export rates for convertible currencies and ACL (i.e., area of limited convertibility) dollars continued to be quoted at premiums of about 4 per cent above the export rates for other currencies. There have also been some shifts between the various auction import categories. In February 1957, adjustments in the minimum auction premiums had the result of reducing the differentials between the effective rates for soft currencies, on the one hand, and for U.S. dollars and ACL dollars, on the other hand.

The premiums in the auction market for certificates pertaining to the five import categories fluctuated considerably over the period. They reached a peak in May 1956 and declined markedly in subsequent months, partly because more exchange was made available to the market, and probably also as a result of increased restraints on bank credit. The average quotations for U.S. dollar certificates in Rio de Janeiro at the end of April 1957 were as follows, with comparative figures for April 1956 in parentheses: Category I, Cr$45 (Cr$93); Category II, Cr$70 (Cr$127); Category III, Cr$86 (Cr$203); Category IV, Cr$127 (Cr$243); Category V, Cr$321 (Cr$300).

In the free market, which is used for certain invisible transactions, the cruzeiro similarly strengthened, from a low of about Cr$84 per U.S. dollar at the end of May 1956 to Cr$68.30 at the end of April 1957.

Faced with continued inflationary pressures and further deterioration in its external payments and reserve position, Colombia took a number of exchange measures during the year. These included further shifts of import commodities from the official to the free exchange market, in which the rate depreciated sharply, and the establishment of an exchange certificate market designed to channel certain export proceeds toward eligible imports and some other authorized payments and to curb capital flight. The exchange rate in the certificate market was approximately 7 pesos per U.S. dollar in the latter part of April 1957. Other measures taken to restrict imports included the expansion of import prohibitions, the virtual suspension of import registrations for a time, and monthly quantitative limits on import permits. These measures, however, failed to provide an adequate remedy for Colombia’s payments difficulties.3

During the period under review, Ecuador took further measures to restrain excessive import demand. These measures again included the shifting of imports from the official to the controlled free market and the inclusion of some imports in the uncontrolled (brokers’) free market. Thus, there was some further selective devaluation of import rates. The list of prohibited imports was extended, though subsequently there was some relaxation, and there were some changes in the surrender requirements for the proceeds from banana exports.

There was a more fundamental alteration in the exchange system in the middle of March 1957, when the Central Bank suspended transactions at the controlled free market rates of 17.30 sucres buying and 17.40 sucres selling per U.S. dollar, which had been maintained since July 1952. This measure unified the two segments of the free market, and it was intended that the exchange rate in the unified market would be allowed to find its own level with some intervention by the Central Bank. This step also involved a depreciation of the exchange rate applicable to transactions that had previously taken place at the Central Bank’s controlled rate and, though only a small percentage of trade transactions is affected, it is likely to strengthen the balance of payments position. In addition to these exchange measures, Ecuador imposed in December 1956 a temporary ad valorem tax of 5 per cent on imports in Category I and of 10 per cent on imports in Category II. This measure was taken for the purpose of raising additional revenue which would help in balancing the 1957 budget and meeting past obligations, but it was also expected to place some additional restraint on import demand. On the other hand, advance deposits on imports were relaxed in early 1957.

With a view to arresting the declining trend in foreign exchange reserves which has been evident during the past three years, Uruguay introduced a significant modification in its exchange system in August 1956. In addition to the fixed buying and selling rates of exchange and the free financial exchange market which had previously existed, an exchange certificate market was established. Exchange proceeds from exports are sold at effective rates determined by mixing the official buying rate of 1.519 pesos per U.S. dollar and the certificate market rate, which since the inauguration of the certificate market has been 4.10 pesos per U.S. dollar. The proportion used in mixing the two rates varies according to the commodity involved, so that there is a large number of effective export rates, ranging from 1.906 pesos per dollar for greasy wool, the principal export commodity, to 4.10 pesos. Three exchange rates are applied to imports—2.10 pesos per U.S. dollar, 3.00 pesos per U.S. dollar, and the certificate rate. As the average import rate has been depreciated by about 30 per cent compared with 1954, the effect of the new system upon imports is intended to be restrictive, while exports have been stimulated through a depreciation of about 15 per cent in the average export rate. The increased spread between buying and selling rates also provides some revenue. These changes in exchange practice are still under discussion with the Fund.

In the free financial market, the exchange rate, which at the end of April 1956 had been 3.95 pesos per U.S. dollar, at first depreciated markedly. By the time of the exchange reform of August it was 4.21 pesos per U.S. dollar; after the reform it appreciated sharply for some time, the peak quotation of 3.65 pesos being reached in mid-December. By the end of April 1957, however, the rate was nearly the same as it had been twelve months before, 4.01 pesos per U.S. dollar.

In Denmark, the effective premium allowed on dollar exports was reduced on January 1, 1957 from 8 per cent to 6 per cent of the exchange earned by exporters.

The import certificate system which had been established in Iceland in 1951 was abolished in December 1956, when a tax of 16 per cent was imposed, with some exemptions, on sales of foreign exchange for commodities and invisibles, and the fees payable on licenses for foreign exchange and business travel were increased from 25 per cent to 40 per cent. Most of the proceeds from the tax and the increased fees, together with the proceeds from certain sales taxes and other fees, accrue to an Export Fund from which payments, based upon fixed percentages of their f.o.b. value, are made to the producers of most export commodities.

Until April 1, 1957, Finland maintained an automatic import licensing system which gave importers freedom with respect to quantity and source of supply in relation to non-dollar countries for a substantial proportion of imports, and for a limited number of commodities from all sources. On April 1, 1957, this system was replaced by a global quota system which covers a larger share of imports, both from non-dollar countries and from the dollar area, and is designed to achieve a substantial reduction in over-all licensing.

In Turkey, the multiple currency practices already in operation were further expanded by changes introduced into the exchange system during the year under review. On October 8, 1956, a new buying rate of 5.25 liras per U.S. dollar was applied to certain current receipts, e.g., tourism, and to capital repatriation. The exchange from such transactions could be sold at 5.75 liras for the repatriation of nonresident blocked balances or for certain other transactions, such as tourism. Other exchange measures included the introduction in October 1956 of a subsidy of 35 per cent on cotton exports in 1956–57 paid for in convertible or EPU currencies; an arrangement, first introduced in June 1956 and revised in November 1956, under which exporters of low-grade chromium and manganese may retain 100 per cent of their exchange proceeds for the importation of materials and equipment; and the introduction, as of March 1, 1957, of a new 40 per cent tax on exchange allocated for a wide range of imports.

The percentage of exchange proceeds which exporters in Japan are permitted to use for specified purposes under the retention quota system was reduced from 5 per cent to 3 per cent beginning January 1, 1957.

As from August 6, 1956, Indonesia replaced the system of direct export premiums, in force since October 24, 1955, by a system of Export Incentive Certificates (Bukti Pendorang Ekspor, or BPE) linked to certain payments for imports and invisibles. Under this new BPE system, as modified on September 3, 1956, exporters of some 30 commodities—including principal exports such as rubber, tea, coffee, and copra, but not tin ore, crude oil and its products, and cane sugar—receive certificates (denominated in rupiah) for specified percentages of their export proceeds, ranging from 2 per cent for relatively inferior grades of rubber and 5 per cent for other rubber to 20 per cent for rope fibers and tapioca. Foreign exchange for the importation of certain semiluxury and luxury articles or for making payments for certain invisibles, such as most travel and advertising expenses abroad, can be obtained from the banks only by surrendering an equivalent amount of these certificates bought on the free market. However, no further payment is required of the persons surrendering these certificates to obtain foreign exchange, since the rupiah cost of that exchange is borne by the Government. The market price of the certificates ranged between 150 per cent and 245 per cent of their nominal value in September 1956; at the end of April 1957 it was 210 per cent. The BPE system added considerably to the number of effective buying and selling exchange rates and introduced an element of fluctuation in respect of part of the rate structure.

On September 3, 1956, Indonesian imports were also reclassified for the purpose of fixing exchange surcharges in two broad categories, one of which was subdivided into nine, and the other into seven, groups. Imports in the first category were made subject to additional import levies at rates ranging up to 400 per cent of the cost plus freight value. Imports in the second category are subject not only to additional levies ranging up to 300 per cent, but also to the requirement that an equivalent amount of export incentive certificates be surrendered.

In December 1956, Indonesia reintroduced a limited list of prohibited imports, for the most part goods produced domestically in adequate quantities. With a continued decline in reserves, the issue of import licenses for most commodities was suspended indefinitely at the end of April 1957. In February 1957, the Monetary Board broadened the purposes for which the net profits of foreign companies working in Indonesia (40 per cent of which had since June 1955 been blocked in special accounts with the Bank Indonesia) might be released. Prior to February 1957 the release of these profits was authorized only for reinvestment in these foreign-owned companies; now they may be released also for investment in certain Indonesian-owned companies.4

During 1956, China (Taiwan) made further progress toward simplifying its multiple rate system. Export exchange rates, which had previously varied both according to the commodity exported and to whether the exporter was a public or a private agency, were replaced by rates based on the commodity only. There are therefore now only two export rates, NT$20.35 per U.S. dollar for exports of sugar, rice, and salt, and NT$26.35 for all other exports. Some minor changes were also made in the buying rates for invisibles, of which there are, however, still three, ranging from NTS24.68 to NT$35.00 per U.S. dollar.

In Viet-Nam, the official exchange rate is 35 piastres per U.S. dollar, or 1 piastre for 10 French francs. A limited-access free market began operations on July 2, 1956; in this market, the daily selling rate fluctuated during the remainder of the year between 71.01 piastres and 75.75 piastres per U.S. dollar.

Consultations with Members Concerning Exchange Practices

As in the past, many members consulted with the Fund during the year concerning their exchange practices, including in some instances changes in exchange rates. Such consultations have been undertaken mainly in three different contexts. There were, first, the annual consultations required by Article XIV, Section 4, of the Fund’s Articles of Agreement, which stipulates that members availing themselves of the postwar transitional arrangements shall consult annually on their further retention. The Fund has also discussed present and prospective exchange practices with members in connection with intended or actual use of the Fund’s resources. Finally, several member countries have discussed with the Fund the problems arising in connection with changes which they wish to make in their multiple currency practices.

The sixth annual series of consultations under Article XIV was conducted during the period under review, and the seventh series has begun. During the period from April 1, 1956 to March 31, 1957, 35 consultations were concluded. In connection with 27 of these, Fund missions visited member countries; discussions with representatives of the other countries were held in Washington. As in the past, these consultations have provided the occasion for a general review of the economic and financial conditions of the country concerned and have, at the same time, permitted a confidential discussion of the main problems arising in connection with its exchange policy.

The experience gradually built up in its annual comprehensive consultations with members has often been of value to the Fund in its consideration of specific requests by members, such as, for example, requests for technical assistance, for access to the Fund’s resources, or for approval of changes in multiple currency practices. The requirement for annual consultations has given special impetus to the efforts of the Fund to expand its knowledge of the problems of its member countries. The visits of staff teams to member countries, and of officials from these countries to the Fund headquarters, have gradually built up a constructive personal relationship based on mutual understanding. These continuing studies and contacts have, over a period of years, equipped the Fund with a knowledge and comprehension which greatly facilitate the prompt consideration of any special requests that members may bring before it.

The insight into the economic prospects and exchange policies of members that regular consultations can give helps in making possible the prompt attention that is desirable to requests for drawings from the Fund. For example, the request by the U.K. authorities for a drawing and a stand-by arrangement in December 1956, described elsewhere in this Report, was made at a time when a staff mission had just completed its preliminary discussions with the United Kingdom in connection with the Article XIV consultation with that country. This assisted the Fund in being adequately informed on the current economic situation and policies of the United Kingdom, and thus facilitated its prompt consideration of this important request.

Some countries with problems of unusual complexity have from time to time had special consultative relations with the Fund extending over a long period and touching upon many aspects of the member’s exchange policy and practices. The Fund’s relations with Bolivia provide an illustration of the far-reaching reform programs that consultations of this kind sometimes help to make possible. The Bolivian program included a stand-by arrangement with the Fund which, together with related financial assistance from other sources, permitted the introduction of a thoroughgoing reform of Bolivia’s foreign exchange practices. The services of a member of the Fund staff were subsequently made available to the Bolivian authorities for technical advice and assistance in relation to this program.

Gold Transaction Service

On November 21, 1956 the Fund extended the scope of its gold transaction service (described in the Fund’s Annual Report for 1952), by adding the International Finance Corporation to the list of specified parties which may use the service. The list now includes three specified international organizations—the Bank for International Settlements, the International Bank for Reconstruction and Development, and the International Finance Corporation—and four specified nonmembers—New Zealand, Portugal, Spain, and Switzerland (plus Ireland and Saudi Arabia, which have applied for membership). It was also decided that the service might be used for gold transactions between a specified international organization and any other party covered by the service. This means that the Fund is authorized to seek to match an international organization with another specified international organization or with a specified nonmember, and not only with a member of the Fund, as has been the practice in the past.

Since the inauguration of the gold transaction service in March 1952, the central banks of 22 member countries and 3 international organizations have effected purchases or sales of gold through the facilities of the Fund. During this five-year period, there were occasions when the supply of gold offered through the Fund exceeded the demand, and at other times the reverse was true. The former was particularly true during most of the year under review. The Fund was successful, however, in facilitating the completion of 16 transactions amounting to a total of about $114.7 million, bringing the total for the five-year period to 71 transactions amounting to about $562.4 million.

Other Fund Services to Members

In addition to the consultations referred to above, the Fund has maintained active and close relations with many of its members in the provision of technical assistance. Member countries increasingly call upon the Fund for advice and technical assistance in relation to problems that fall within its sphere of competence, and with all members there is a continuous exchange of views and information. It is regarded as one of the most important functions of the Fund to provide as promptly as possible impartial and expert advice to those members that desire it. For special assignments at the request of certain members, two members of the staff were granted leave without pay during the last year; and advice was also given by members of the Fund’s staff to two nonmember countries, at their request, on monetary and banking problems.

Training Program

The Fund’s training program is intended to provide qualified nationals of member countries with technical training related to activities with which the Fund is concerned; at the same time, by providing such training it assists the Fund in its relations with members. The continued interest of Fund members is indicated by the submission of applications from their civil service and central bank staffs for appointment to the training program. Some indication of the success already attained in achieving the objectives of the program is given by the number of former trainees who now occupy responsible positions in their own countries. While preference is normally given to candidates from countries where the need for individuals with specialized technical training is most acute, it has been found advantageous, from the standpoint of the educational value of the training program itself, to bring together men and women with widely divergent backgrounds of training and experience, and appointments have therefore not been confined to the nationals of any one category of member country.

The total number of participants in the Fund’s training program since its inception in 1951 has risen to 117 from 54 member countries. As the membership of the Fund has increased, the facilities provided for the training program have been expanded, and the 1956–57 program, started in September 1956, includes 20 participants.

Investment of Fund Assets

The Fund’s program of investing a specified portion of its gold in U.S. Treasury bills, which was referred to in last year’s Annual Report, was fully implemented during the past year. An amount of gold equivalent to $199,991,548.82 was sold, and as of April 30, 1957 the Fund’s investment in U.S. Treasury bills totaled $199,982,511.25. The income from this investment during the year amounted to $4,904,173.67.


During the year, the Fund published the Annual Report of the Executive Directors for the Fiscal Year Ended April 30,1956 (Eleventh Annual Report), the Seventh Annual Report on Exchange Restrictions, Volume 7 of the Balance of Payments Yearbook, Volume V, Numbers 2 and 3, of Staff Papers, the monthly International Financial Statistics, and the weekly International Financial News Survey. The monthly Direction of International Trade continues to be published jointly with the International Bank for Reconstruction and Development and the Statistical Office of the United Nations. The Fund’s tenth anniversary in 1956 was the occasion for the issue of a brochure, The First Ten Years of the International Monetary Fund, which briefly reviews the activities of the Fund during the first decade of its history and its role in the development of international monetary cooperation.

Relations with Other International Organizations

In addition to its special relationship with the International Bank for Reconstruction and Development, the Fund has maintained close contacts with the Contracting Parties to the General Agreement on Tariffs and Trade (GATT), the Organization for European Economic Cooperation (OEEC), and the Bank for International Settlements. Arrangements were agreed for an increase in the interchange of information of mutual interest between the Fund and the Contracting Parties, and liaison has been maintained between the Secretariats of the two organizations. As in the past, Fund missions attended meetings of the Contracting Parties in Geneva, and the Contracting Parties were represented at the Annual Meeting of the Governors of the Fund in Washington.

The Fund was consulted in 1956 by the Contracting Parties in connection with their consultations with 5 governments on the discriminatory application of import restrictions being imposed in order to safeguard balances of payments and monetary reserves. In addition, similar consultations with the Fund are being held through 1957 in connection with the Contracting Parties’ consultations with some 20 governments on import restrictions maintained for balance of payments reasons. The Fund transmits to the Contracting Parties the results of its own Article XIV consultations with the various governments concerned, together with background material relating to such countries, and Fund missions cooperate with the GATT working parties conducting the consultations.

Arrangements have also been made to extend the exchange of information between the Fund and the OEEC and to increase cooperation with the OEEC Secretariat.

Close liaison has been maintained with the United Nations and its various regional and technical bodies. These contacts include direct working relationships with the staffs of these agencies, the preparation of studies and reports on subjects within the Fund’s field of competence, and official participation in their meetings. The Fund has also lent staff members to the United Nations for participation in two missions in the field of payments, fiscal, and related matters. Fund representatives have attended meetings of the General Assembly of the United Nations; of the Economic Commission for Asia and the Far East, for Europe, and for Latin America, including the Fourth Meeting of the Central American Economic Cooperation Committee; of the UN Administrative Committee on Coordination; and of the Technical Assistance Board. The Managing Director of the Fund presented a report on the Fund’s activities and on general monetary developments at the 23rd Session of the UN Economic and Social Council in April 1957.


At the end of the fiscal year, the Fund staff numbered 427, including 9 temporary employees and 5 on extended leave. Thus, during the year there was a net increase of 8. In line with its policy of recruiting staff on as wide a geographical basis as possible, the Fund appointed during the year 53 new staff members from 23 member countries. The total number of nationalities on the staff was thus increased to 47, from 43 last year.

As reported at last year’s meeting of the Board of Governors, the Fund’s new headquarters building is now under construction. Completion is expected early in 1958. The new building of thirteen stories will be adjacent to 1818 H Street, the present headquarters of the Fund and the International Bank.

For the past fiscal year, the Fund’s income of US$13,289,373.48 exceeded its total expenditure by US$7,905,772.13. As of April 30, 1957 the cumulative deficit has been reduced from US$14,211,843.57 a year earlier to US$6,295,738.61. The administrative budget approved by the Executive Directors for the period May 1, 1957 to April 30, 1958 is presented in Appendix VIII. A tabulation comparing the budget with actual expenditures for the fiscal years 1956 and 1957 and a comparative statement of income are also presented there.

The Executive Board requested the Governments of China, Colombia, and Denmark to nominate members of the Audit Committee. The following nominations were made and confirmed: Mr. Felix S. Y. Chang, Manager, Foreign Department, Bank of Taiwan, Taipei, Taiwan; Mr. Alfonso Llano, Sub-Secretary and Assistant to the General Manager of the Banco de la República, Bogota, Colombia; Mr. Bent Harhorn, Assistant Auditor, Danmarks Nationalbank, Copenhagen, Denmark. The report of the Committee is submitted separately. Appendix IX gives the Auditors’ Certificate, together with the audited Balance Sheet as of April 30, 1957, the audited Statement of Income and Expenditure, with supporting schedules, and audited financial statements of the Staff Retirement Fund.


Haiti’s quota was increased from US$2 million to US$7.5 million on May 2, 1957.


On May 8, 1957, the Fund concurred in a proposal by Iran to change the initial par value of the rial from 32.25 rials per U.S. dollar, the rate established on December 18, 1946, to 75.75 rials per U.S. dollar, effective May 22, 1957.


In June 1957 Colombia introduced a new exchange system within the framework of a general stabilization program.


In June 1957, Indonesia introduced a new exchange system within the framework of a general stabilization program.