The Committee of Twenty: The origins, evolution, and procedures of the Committee on monetary reform
Author: John V. Surr

Contributor Notes

The author describes the establishment and development of the Board of Governors’ Committee that was created in 1972 to develop plans for the reform of the international monetary system.

This paper describes the technical improvement in developing countries. It highlights that developing countries have relied heavily for their industrial development upon foreign enterprises as sources of technology and management systems. The paper underscores that through direct investment or under licensing arrangements, foreign corporations have supplied a vast array of industrial products and equipment and have exercised a major role in the design and construction of processing and manufacturing facilities in newly industrializing countries.

Abstract

This paper describes the technical improvement in developing countries. It highlights that developing countries have relied heavily for their industrial development upon foreign enterprises as sources of technology and management systems. The paper underscores that through direct investment or under licensing arrangements, foreign corporations have supplied a vast array of industrial products and equipment and have exercised a major role in the design and construction of processing and manufacturing facilities in newly industrializing countries.

John V. Surr

At its 1972 Annual Meeting the Fund’s Board of Governors constituted a committee to help it resolve the issues of international monetary reform. Formally known as “an ad hoc Committee of the Board of Governors on Reform of the International Monetary System and Related Issues,” the Committee’s name was abbreviated in normal usage to “The Committee of Twenty,” a title which describes the number of constituencies from which the members of the Committee were selected.

Structure and procedures

The 20 constituencies from which the Committee is selected are those of the Executive Directors of the Fund. Of the 20 executive directors presently serving the Fund, 5 are appointed by the member countries with the 5 largest quotas, 3 are elected from groups of countries in “the American Republics,” and 12 are elected by groups of countries elsewhere in the world.

The reference to “twenty” in the Committee’s informal title is reflected in the number of principal members of the Committee and in the number of constituencies selecting them. In practice, many more individuals are involved in the Committee’s work. Under the Resolution creating the Committee, the constituency of each of the 20 Executive Directors of the Fund is entitled to appoint the following: 1 member and 2 associates to serve on the Committee itself, and 2 deputies.

The Deputies of the Committee of Twenty themselves constitute a subcommittee that meets at different times and places than the Committee itself. The Deputies meet to make proposals or clarify issues within the Committee’s terms of reference for consideration by the Committee. The members of the Committee are expected to be “governors of the Fund, ministers or others of comparable rank,” and their deputies are expected to have a rank equivalent to ministers’ deputies.

The Managing Director of the Fund is entitled to participate in meetings of the Committee, and he appoints two persons to represent him and participate in the meetings of the Deputies. In addition, the Committee and the Deputies invite other persons to attend meetings, and they have also authorized each constituency to add several advisors to the delegation. Executive Directors of the Fund are entitled to participate in meetings of the Deputies. A member of the Committee, associate, deputy, or executive director may designate an alternate to take his place in his absence from a meeting. The Chairman of the Committee was selected from its membership, but the Chairman and four Vice-Chairmen of the Deputies were not themselves deputies.

More than 180 people may attend meetings of the Deputies and more than 200 may attend meetings of the Committee itself. With this number of people in attendance, the meetings of the Committee and the Deputies are attended by fewer persons than the joint meetings of the Boards of Governors of the Fund and the World Bank Group. At those joint meetings the number of Governors is only about 240, but their Alternates and advisors, together with staff members of the institutions, press representatives, and special guests have brought attendance to several thousand in recent years. To date the Committee has had five meetings, and it is expected that its sixth meeting scheduled for June 1974 will be its last. The Deputies have met more often: twice in 1972, six times in 1973, and twice to date in 1974.

In September 1973 the Deputies created four technical groups in order to expedite work on balance of payments adjustment, global liquidity and consolidation, intervention and settlement, and transfer of real resources. These technical groups reported to the Deputies late in March 1974.

The Committee and the Deputies receive studies and recommendations from many sources. All participants in the meetings are entitled to circulate their views. The Chairman of the Deputies and the four Vice-Chairmen are called the Bureau of the Deputies. The Managing. Director of the Fund and the Chairman of the Deputies establish arrangements for the allocation of preparatory work on monetary reform between the Deputies and the Executive Directors, and the Fund’s staff acts as the administrative secretariat for the Committee and the Deputies. Any recommendations of the Committee or the Deputies reflect consensus, and there is no voting, either by the weighted voting power of constituencies or by any other system of voting.

Origins

The origins of the Committee of Twenty may be traced to the roots of postwar international monetary cooperation developed during World War II. The U. S. Government’s proposal for a United Nations Stabilization Fund, in its April 1942 version developed primarily by Harry Dexter White, proposed that the Fund be governed by a Board of Directors, consisting of one member and one alternate from each of the members. The proposal provided that this Board of Directors would meet infrequently and would delegate most of its authority to a small operating committee, selected for a relatively brief tenure of office. In contrast, the Keynes proposals for an International Currency (or Clearing) Union, in its April 1943 version, provided for a Governing Board, not to exceed 12 or 15, composed of some individuals appointed by the members with relatively large quotas, and other individuals appointed by convenient political or geographical groups of members. No subsidiary or superior organs were contemplated. Both Keynes and White contemplated organizations eventually open to membership by all states, but following the Bretton Woods Conference only 45 countries were eligible for original membership in the Fund.

The Articles of Agreement, which entered into force on December 27, 1945, provided for a supervisory Board of Governors, consisting of a Governor and an alternate from each member; and for the Executive Directors to conduct the general operations of the Fund. Initially, there were 12 Executive Directors, 5 of whom were appointed by the members with the 5 largest quotas, and 7 of whom were elected by the remaining members. It does not appear that serious consideration was given at Bretton Woods to the establishment of any committee of Governors or other intermediate organ between the Board of Governors and the Executive Directors.

At the Inaugural Meeting of the Board of Governors in March 1946, however, White and Keynes disagreed over the level of the persons who would serve as Executive Directors. Keynes advanced the view that an executive director should be permitted to maintain a responsible position with his own government, while attending meetings of the Executive Directors only occasionally. White, on the other hand, prevailed with his view that Executive Directors should be resident at the headquarters of the Fund and be compensated by the Fund. The form of the decision that emerged, now incorporated in the Fund’s By-Laws, reads as follows:

It shall be the duty of an Executive Director and his Alternate to devote all the time and attention to the business of the Fund that its interests require, and, between them, to be continuously available at the principal office of the Fund….

Since the Inaugural Meeting the concept of a nonresident Executive Director as advocated by Keynes has remained a technical possibility, but there have been only a few instances of such an arrangement.

Groupings of members

In 1961 the Group of Ten (Belguim, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States) was created. The ten industrial countries that were its participants felt a need for protection against possible financial difficulties resulting from the liberalization at that time of controls over capital movements. The Fund established the General Arrangements to Borrow (GAB) to provide itself with a line of credit for the very substantial amounts it might need to give assistance to those ten countries. In addition, Switzerland, not a member of the Fund, agreed to consider making loans to those listed above under conditions comparable to the GAB whenever the Fund borrowed under the GAB. The Group of Ten was established to consult on the implementation of calls for resources by the Fund under the GAB. In the mid-1960s the Group of Ten began to study the broader issues relating to the liquidity needs of the world as a whole in conditions of increasing trade and convertibility, and the Group made significant contributions to these studies and facilities of the Fund that grew out of them.

The meetings of the Group of Ten were held by the Finance Ministers and Central Bank Governors of the participants in the GAB, with their counterparts from Switzerland, the Managing Director of the Fund, the General Manager of the Bank for International Settlements (BIS), and the Secretary-General of the Organization for Economic Cooperation and Development (OECD) as nonvoting participants. The deputies of all these officials met as the Deputies of the Group of Ten to prepare proposals and crystallize unresolved issues for decision by the Ministers and Governors of the Group.

Together the members in the Group of Ten commanded votes well in excess of a majority of the total voting power of the Fund, which, of course, meant that their agreed positions were very likely to be followed by the Fund. This influence was recognized in 1966 and 1967 when the Executive Directors held informal joint meetings with the Deputies of the Group of Ten to discuss the substance of what later became the special drawing rights amendment.

On several occasions when the Deputies or Ministers and Governors of the Group of Ten took an agreed position on matters other than the GAB, some officials from the members of the Fund that had not participated expressed dissatisfaction at having been excluded from participation at a crucial stage of the decision-making process. Some of this dissatisfaction built up during the drafting of the amendment to provide for special drawing rights. Dissatisfaction was also evident among other members of the Fund following the Smithsonian Agreement of December 18, 1971, at which the Group of Ten agreed upon a realignment of the exchange rates of their currencies, in view of the consequential effect on the exchange rates for other currencies. Even among the Group of Ten there was some dissatisfaction when yet smaller groups of members took decisions that affected all, such as the March 1968 agreement of the seven countries of the London gold pool to cease intervening in the gold markets.

In November 1971 a group of less developed countries known as the “Group of 77,” meeting in Lima, Peru, decided to establish a group of Finance Ministers and Central Bank governors who would meet in order to coordinate the policies of the less developed countries on financial questions important to them. This group, whose membership of 24 gave it the name the “Group of 24,” holds meetings at the ministerial level and meetings of deputies. Other developing countries are permitted to send delegations to attend these meetings.

Committees of the Board of Governors

As early as the Inaugural Meeting of the Fund in 1946 there was recognition by the Board of Governors that it had too many members to convene and dispose of matters of procedure with the speed and relative informality those decisions require. The Governor for the United States proposed the establishment of an “Executive Committee,” which he described as a “steering committee … particularly in the way of procedure.” The proposed committee was established, with its name changed to “Procedures Committee” in order to avoid confusion with the Executive Directors. The designated function of the Procedures Committee was “to be available after the termination of this meeting and until the next Annual Meeting of the Board for consultation at the discretion of the Chairman….” This Committee was appointed jointly by the Boards of Governors of both the Fund and the World Bank Group, and successors to it have been appointed every year since 1946. With over 240 governors at these Annual Meetings, the need for a relatively small committee to review the issues before the Boards of Governors and make recommendations on them has become increasingly evident. The members with the 5 largest quotas have been included automatically in the Joint Procedures Committee, and the 15 other members have been selected from the balance of the membership. (The present Joint Procedures Committee consists of the governors for Argentina, Australia, Belgium, France, Germany, Greece, Guyana, Ivory Coast, Japan, Jordan, Kuwait, Lebanon, Peru, the Philippines, Somalia, Sri Lanka, Sweden, Tanzania, the United Kingdom, and the United States.) The Committee makes recommendations to the Boards of Governors on draft resolutions brought before them, and on occasion it has been instrumental in resolving issues of concern to both the Fund and the Bank brought to the Annual Meeting. In 1967, for instance, the Committee was presented a draft resolution proposing that the Fund and the Bank take more direct action to help producers of primary commodities. Largely because of the discussions in the Joint Procedures Committee the draft resolution was reworded in such a way that it was accepted without opposition by the Boards of Governors.

When the discussions on what was to become the special drawing rights amendment accelerated in 1966 the United States proposed the establishment of a 19-member Board of Governors Advisory Committee on Reserve Creation, to consist of the Group of Ten plus 2 from Africa, 3 from Asia, 1 from Europe, 2 from Latin America, and 1 from Oceania/South Africa. Neither the Executive Directors nor the Deputies of the Group of Ten accepted this proposal, but instead they met informally four times with each other.

In 1969 the Fund’s Executive Directors considered a proposal that an Advisory Committee of the Board of Governors be created, based on a memorandum prepared by the Fund’s staff. Although no action was taken immediately on that proposal, it provided a foundation for the discussions that led to the creation of the Committee of Twenty.

1972: Final negotiations

A number of influences may be said to have converged in early 1972 to make possible the establishment of a committee of the Board of Governors to negotiate monetary reform:

  • It had become clear that the issues of monetary reform included substantial political questions as well as complex technical questions.

  • There was a widely shared will to reform the international monetary system.

  • There was broad agreement that some decisions about monetary reform should be taken following negotiations at the highest political level, and that the Board of Governors was too large a forum to reach those decisions.

  • Members of the Fund outside the Group of Ten wished to offer a substitute forum with broader representation of members’ interests regarding decisions on monetary reform.

  • It was thought that monetary reform would require significant concessions to be made on all sides, and that the institutionalization of factional interests in regional or other groups would harden positions and impede progress on reform.

  • A committee of the Board of Governors to reform the international monetary system would have sufficient major issues to resolve to justify the time and attention ministers and governors would have to give to it.

The period of negotiations leading up to the establishment of the Committee of Twenty was also a period during which intensive discussions were under way as to specific possibilities for reform of the international monetary system. The subject of a committee to consider reform of the system first arose in informal discussions during the Rome conference of the Ministers and Governors of the Group of Ten in November 1971. Informal discussions regarding the establishment of a committee were held by the Executive Directors toward the end of 1971 and in early 1972.

A draft resolution to establish the Committee was submitted by the Executive Directors to the Board of Governors late in June 1972. The resolution was adopted by the Board of Governors on July 26, 1972, following a vote by mail. At the 1972 Annual Meetings of the Fund and the World Bank Group, following the election of Executive Directors for the Fund on September 26, the Secretary of the Fund was notified of the Choices of the Executive Directors’ constituencies for the positions of 20 principals, 40 associates, and 40 deputies to attend the Committee’s meetings. The Committee convened in a brief organizational meeting on September 28, 1972, at which Mr. Ali Wardhana, the then Chairman of the Board of Governors of the Fund, was appointed Chairman of the Committee. The following day the Deputies had their organizational meeting. Mr. Jeremy Morse, until then an executive director of the Bank of England, was appointed at that meeting as Chairman of the Deputies.

Evolution

The Committee submitted its first report to the Board of Governors of the Fund at the Annual Meeting on September 24, 1973, in Nairobi, Kenya. Appended to the report was a First Outline on the Reform of the International Monetary System, prepared by the Chairman and Vice-Chairmen of the Deputies on the basis of the work of the Committee and the Deputies to that date. The report and the outline neither purported to resolve all the great issues of monetary reform nor represented an agreed position of the Committee or the Deputies. However, the report and outline provided a basis for the subsequent work of the Committee and the Deputies. In January 1974 the Committee decided that it would aim to complete its work on the reform at a meeting in June 1974. The January 1974 meeting of the Committee of Twenty also was the occasion for the issuance of the following statement about the Fund’s future organization.

The Committee discussed certain aspects of the future structure of the International Monetary Fund. They agreed that in the reformed system it would be desirable to establish, between the full Board of Governors and the Executive Directors, a permanent and representative Council of Governors with 20 members. They agreed that the Council should meet regularly, three or four times a year as required, and should have the necessary decision-making powers to manage and adapt the monetary system, to oversee the continuing operation of the adjustment process and to deal with sudden disturbances which might threaten the system, while maintaining the role of the Executive Board. As an interim step, pending the establishment of the Council, it was agreed that a Committee of the Board of Governors should be created, with an advisory role in the same areas as the Council and with the same composition and procedures. This Committee would come into being when the Committee of 20 has completed its work. The Executive Board was invited to prepare for the Board of Governors a draft resolution to create such a Committee, giving due consideration to the need for adequate consultative machinery and the protection of the interests of all Fund members.

At present, technical work is under way toward the establishment of a Committee of the Board of Governors as the forerunner of the Council. A description of the composition and scope of the work of the Committee will have to await the adoption of a Resolution by the Board of Governors establishing it. Nonetheless, it should be observed that the agreement, in principle to establish an interim committee and a permanent council, indicates that the continuing need for collaboration on international monetary problems would best be served by the creation of a body at the highest policymaking level to serve between the full Board of Governors and the Executive Directors. Furthermore, broad representation of members’ interests is accepted as the preferred approach to reaching conclusions regarding monetary questions that affect the whole community of nations. Finally, by establishing these committees, the Fund is springing into a central role in the progressive development of the fundamental global policies of international finance.

Finance & Development, June 1974
Author: International Monetary Fund. External Relations Dept.