ON JUNE 30, 1952, the Economic and Social Council of the United Nations (hereinafter referred to as ECOSOC) began consideration of a report, Measures for International Economic Stability, prepared by a group of experts1 appointed by the Secretary-General pursuant to a resolution adopted by ECOSOC on August 15, 1950. Chapter IV of the report, entitled “International Monetary Reserves”, states “Our examination of existing reserves has convinced us that they are not in general adequate.” The chapter gives reasons for this conclusion and discusses means of increasing reserve adequacy—including increasing the size of the resources of the International Monetary Fund and making its resources more readily available to members. While the chapter considers the adequacy of monetary reserves generally, its primary emphasis (in accordance with the experts’ terms of reference) is on their adequacy to protect countries from deflationary shocks of external origin and to check the international spread of depression.
After consideration of the report, ECOSOC adopted a resolution on July 10, 1952, the operative paragraphs of which referring to the International Monetary Fund are as follows:
“5. Urges the International Monetary Fund, in supporting the efforts of its members to meet balance of payments difficulties arising from recession:
(a) To apply its rules flexibly and, in this connexion, to give careful consideration to the suggestions contained in chapter IV of the report entitled Measures for International Economic Stability; and
(b) To be prepared to use its resources as promptly and as fully as is consistent with its Articles of Agreement;
6. Requests the International Monetary Fund:
(a) To keep under continuing review the adequacy of monetary reserves for the purpose of helping countries to meet temporary disequilibria in their balances of international payments, having in mind the desirability of:
(i) Avoiding, to the extent practicable, recourse to restrictions on trade and payments imposed for balance of payments reasons, and of promoting general convertibility of currencies and liberalization of trade;
(ii) Creating conditions favourable to a steady expansion of international trade, and to high levels of production and consumption, employment and real income; and
(b) To furnish an analysis of this question to the Council in 1953.”
Two aspects of reserve adequacy are stressed in the resolution. Paragraph 6(a)(1) stresses adequacy of reserves to permit removal of trade and exchange restrictions imposed for balance of payments purposes and the attainment of general convertibility of currencies. Paragraph 6(a)(ii) stresses adequacy of reserves to expand world trade and to maintain high levels of employment and real income—and so, inferentially, to check the spread of depression. This paper will be concerned with both aspects, which may be characterized as the multilateral trade and high level employment aspects, respectively.
The paper as a whole has been prepared on a technical level.2 It is an analysis of the factors affecting reserve adequacy. It is not to be construed as a statement of Fund policy, and its general conclusions are not to be taken as indicating Fund attitude on specific country situations or day-to-day operating problems.