ONE OF THE KEY ELEMENTS of the International Monetary Fund, agreed at Bretton Woods, was the multipurpose quota.1 The purpose of this paper is to describe the role and the operating significance of Fund quotas. This will be done by examining (1) the nature of and the relation between the functions ascribed to quotas, (2) the determination of quotas for original members at Bretton Woods and for the members admitted after the Fund commenced operations, (3) the adequacy of quotas, in the light of their functions and of economic developments since Bretton Woods, and (4) the adjustment and review of quotas.

Abstract

ONE OF THE KEY ELEMENTS of the International Monetary Fund, agreed at Bretton Woods, was the multipurpose quota.1 The purpose of this paper is to describe the role and the operating significance of Fund quotas. This will be done by examining (1) the nature of and the relation between the functions ascribed to quotas, (2) the determination of quotas for original members at Bretton Woods and for the members admitted after the Fund commenced operations, (3) the adequacy of quotas, in the light of their functions and of economic developments since Bretton Woods, and (4) the adjustment and review of quotas.

ONE OF THE KEY ELEMENTS of the International Monetary Fund, agreed at Bretton Woods, was the multipurpose quota.1 The purpose of this paper is to describe the role and the operating significance of Fund quotas. This will be done by examining (1) the nature of and the relation between the functions ascribed to quotas, (2) the determination of quotas for original members at Bretton Woods and for the members admitted after the Fund commenced operations, (3) the adequacy of quotas, in the light of their functions and of economic developments since Bretton Woods, and (4) the adjustment and review of quotas.

Functions of Fund Quotas

Each member of the Fund has a quota, the functions of which are threefold. These functions are interrelated, but the attempt to find a series of figures that would effectively perform all of these functions for each member necessitated a large amount of compromise in the determination of quotas. This in turn increased the difficulties of changing them later.

Quotas, member subscriptions, and fund resources

A quota determines the subscription or contribution of each member to the capital of the Fund; and the total of the quotas of all members determines the size of the Fund’s financial resources. Each member is required to pay to the Fund part (not exceeding 25 per cent) of its quota in gold, and the balance in its own currency. The required gold payment was defined as the smaller of 25 per cent of its quota or 10 per cent of its net official holdings of gold and dollars.2 The latter alternative was inserted in the Bretton Woods Agreement, at a late stage in the negotiations, to ensure that no member would be required to pay an excessive proportion of its gold reserves to the Fund. Under this alternative, a member might initially pay less than 25 per cent of its quota in gold, or even, if it had no net official holdings of gold and dollars, no gold at all. Several of the “original” members availed themselves of this alternative, and the conditions of membership for several “new” members admitted to the Fund after 1946 provided for initial gold payments of less than 25 per cent of quota.3 In addition, members have the option of substituting noninterest-bearing nonnegotiable notes, payable to the Fund at their par value on demand, for the part of the Fund’s holdings of their currency which exceeds 1 per cent of quota. Members have generally availed themselves of this option, and more than 85 per cent of the non-gold assets of the Fund are in the form of demand notes or obligations. Total assets are equal to the total quotas adjusted for the cumulative profit and loss from operations; on April 30, 1956, they amounted to about $8.7 billion, consisting of the following:4

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The percentage of the Fund’s assets in the form of nonconvertible currencies5 increased from 39 on April 30, 1947, the end of the Fund’s first fiscal year, to 46 on April 30, 1956. On the other hand, the percentage of gold also increased, from 17 to 20. With one exception, the members that have joined the Fund since its foundation have nonconvertible currencies, but in proportion they have paid a larger part of their quotas in gold than did the original members.6

Apart from any retained profits or accumulated losses, quotas directly determine the total assets of the Fund. Generally speaking, assets can be increased only by admitting new members or by increasing the quotas of existing members, though the Fund may under prescribed conditions increase the funds at its disposal by borrowing.7

Quotas did not determine either the exact amount of gold with which the Fund began operations, or the distribution of its holdings as between convertible and nonconvertible currencies. Nevertheless, the Fund’s repurchase provisions, in their relation to members’ quotas, were designed gradually to increase the amount of the Fund’s holdings of gold and convertible currencies as well as to assure that its assets were kept on a revolving basis.8 The proportion of the Fund’s assets that consists of convertible currencies would, of course, increase as more members made their currencies convertible. In addition, the repurchase provisions tend to increase the Fund’s holdings of convertible currencies (or, alternatively, of gold). These provisions require a member to use part of any increases in its reserves to repurchase the Fund’s holdings of its currency, until the point is reached where these are reduced to 75 per cent of its quota.9 As a rule, it is therefore difficult or even impossible for a member that purchases another member’s currency not to reverse the transaction over a period of time, though the period may be very long. Even if that member did not offer to repurchase its currency voluntarily, and even if it had not made a specific repurchase undertaking at the time of its transaction, it would nevertheless be obliged to buy back its currency as and if its reserves increased.10

Quotas and drawing rights

Quotas determine, or at least greatly affect, the amount and the rate of member drawings (borrowing) from the Fund. A member may draw from the Fund the currency it needs under prescribed terms and conditions, and it does this technically in the form of a purchase. A member buys a currency, e.g., U.S. dollars, and pays with its own currency, which may or may not be convertible. Such a transaction, technically called a drawing or a purchase, decreases the Fund’s holdings of U.S. dollars and increases its holdings of other currencies. (The reverse operation, a member buying back its own currency with gold or convertible currency, is, as already mentioned, a repurchase.)

The drawing rights of members are related to their quotas. A member may not draw in any 12-month period an amount greater than 25 per cent of its quota, unless this condition is waived by the Fund. It is also expected that, on a cumulative basis, a member’s drawings will not increase the Fund’s holdings of its currency to more than 200 per cent of its quota. In the case of a member that originally had paid 25 per cent of its quota in gold and 75 per cent in currency, the 200 per cent provision would limit its total drawings to 125 per cent of its quota. These limitations are designed to assure the liquidity of the Fund and the equal access of all members to its resources, but they may have unintended effects if members’ quotas are very small in relation to swings in their balances of payments.

At its discretion, the Fund may waive either or both of these conditions.11 In several cases, it has already waived the limitation of 25 per cent of quota per year, but has not yet waived the maximum of 200 per cent of quota.

Consider the case of two Fund members whose economic positions and needs today are the same, but whose quotas are different. These two members might appropriately seek to draw from the Fund the same amounts in the same period of time. In fact, it is doubtful that either the process of drawing or its results would be the same in the two cases. The primary difference is that a stronger justification would probably be needed for a drawing that required a waiver than for one that did not. Furthermore, drawings within the so-called gold tranche12 are practically automatic, in the sense that members “can count on receiving the overwhelming benefit of the doubt” with respect to them. The member with the larger quota will, of course, have the larger gold tranche, assuming that both paid the same proportion of their quotas in gold. Finally, the charges that a member must pay on a drawing outside the gold tranche increase progressively with the proportion of the quota drawn, as well as with the length of time the drawing is outstanding.13 A drawing of any given amount will therefore carry heavier charges for a member with a smaller quota than for a member with a larger quota.14 These considerations suggest why it is important that, as far as possible, quotas should have the same degree of adequacy for all members.

During and before the Bretton Woods Conference, countries often had conflicting views with respect to the size of quota they wanted. From the point of view of access to the Fund’s resources, each country wanted a large quota. From the point of view of paying its subscription, each country wanted a small quota. Furthermore, the larger the proportion of the subscription that was required to be paid in gold, the stronger was the inducement to request a small quota.15

Quotas and voting rights

The quotas that determine the members’ drawing rights and subscriptions also determine their relative voting strength, which is intended to reflect approximately their relative economic significance in the Fund. Each member has 250 votes plus one additional vote for each $100,000 of quota.16 Thus, a member with a quota of $5 million has 300 votes, a member with a quota of $50 million, 750 votes. This formula is designed to give slightly greater proportionate weight to small countries than to large, but the net effect in this direction is small. The total number of votes in the Fund is currently 102,005, of which 14,500 votes, or 14 per cent, represent the effect of the basic uniform voting component. The United States has 27 per cent of the total number of votes, and the United Kingdom, 13 per cent. These two countries, plus China, France, and India, constitute the “big five” of the Fund, and together cast 56 per cent of the total votes. This weighted voting formula is important and cannot be neglected; on the other hand, its importance should not be exaggerated. A one-member one-vote rule would not necessarily eliminate the fact that some members may be more important than others. In practice, the Fund operates on the basis of consensus,17 though this naturally is not uninfluenced by the relative importance of its members.18

The Board of Governors is the highest organ of the Fund. So far, however, it has met only once a year, and most of its powers are delegated to a Board of Executive Directors, with a membership of 16, which is in continuous session. There are 58 members of the Fund, so that some Executive Directors represent more than one member. Quotas constitute the basis for determining the number of votes required for the election of Executive Directors, and the country or countries which they represent. Each of the members with the five largest quotas has the right to appoint an Executive Director. Each of the remaining 11 Directors is elected by a group of members, the group sometimes containing only one member.19 Rules are set up from election to election stipulating the minimum number of votes that must be cast to elect a Director and the maximum number of votes that can be cast for any one Director. Country electoral combinations are arranged informally, before each election, to operate within these limits; and these combinations may change from one election to another. This procedure permits considerable flexibility in representational arrangements. The votes cast by the elected members of the Executive Board as constituted after the election of October 1954 ranged from 5.1 per cent of the total votes cast by one elected Director, representing ten Latin American countries, to 3.2 per cent cast by another Director representing Canada. Quotas thus determine which five members have their own appointed Directors, how members must combine in order to elect a Director, and whether any member other than the “big five” has sufficient votes to obtain its own elected Director. Taken individually, the voting strength of members with small quotas does not have much effect upon voting for Executive Directors. Here the question is the role of each member in an electoral combination. The size of the combination may have some importance but, for each member concerned, the relative size of a quota in its combination may be more significant than its relative size in the Fund.

Apart from voting and voting combinations, the quotas of members may be considered to constitute a structure or hierarchy that is not determined exclusively by economic considerations. For example, all international organizations have the problem of securing an “acceptable” international distribution of staff. No rigid personnel quotas are prescribed for the Fund, but the Managing Director is required to “pay due regard to the importance of recruiting personnel on as wide a geographical basis as possible.” It is not unreasonable that quotas are sometimes considered one of the more important criteria for judging whether the character of the Fund staff is sufficiently “international.”

Determination of Quotas at Bretton Woods

It was not necessary, of course, for quotas to have all the functions that in fact were ascribed to them; it was theoretically possible to determine subscriptions, drawing rights, and voting power on different bases. Nevertheless, it is questionable whether this would have simplified the process of determining quotas, since a number of different and sometimes conflicting purposes had in any event to be taken into account. This suggests that quotas could not have been determined rigidly by any one formula, or by exclusive attention to economic data.

The quotas of the original members were determined at Bretton Woods by a process of negotiation and compromise. These negotiations and compromises took place within the limitations imposed by a number of generally accepted principles.20 It was assumed that the Fund would ultimately have assets of about $10 billion, but that the quotas of the Bretton Woods participants would amount to about $8 billion, thus leaving $2 billion for new members. Account also had to be taken of the relationship of the U.S. quota to the U.K. quota, and of the relationship of the quotas of other large countries to these two. It was clear that the United States had to supply a major part of the Fund’s assets and that the major postwar demands would be for gold or dollars. Moreover, it was realized that countries that could pay the largest amounts of gold and convertible currencies to the Fund would not necessarily be those that would wish to make the largest use of its resources. Given this general framework, it would have been helpful to have a base line, more or less sharply defined, from which to start negotiation and discussion. This involved finding some method that was acceptable economically and politically of bridging the differences between the various objectives of quotas. This required a measure of agreement about the economic criteria that might be regarded as relevant and of the weight to be ascribed to them: the value of international trade; the composition and variability of this trade; the amount of international reserves; debtor and creditor positions; national income; relative importance of foreign trade; and the like. Draft proposals for the Articles of Agreement by Canadian21 and U.S. experts in 1943 in fact assumed that this could be done. The U.S. proposal, which was the more rigid, read as follows:

A quota for each member country shall be computed by an agreed upon formula which gives due weight to the important relevant factors, e.g., a country’s holdings of gold and free foreign exchange, the magnitude and the fluctuations of its balance of international payments, its national income, etc.

Before computing individual quotas on the basis of the agreed upon formula, there shall be reserved an amount equal to 10 per cent of aggregate quotas to be used as a special allotment for the equitable adjustment of quotas. Where the initial quota of a member country as computed by the formula is clearly inequitable, the quota may be increased from this special allotment.22

The provision for “an agreed upon formula” was later dropped. It does not appear either in the April 1944 Joint Statement by Experts on the Establishment of an International Monetary Fund23 or in the Articles of Agreement drawn up at Bretton Woods in July 1944.

The elimination of any reference to, or requirements for, an economic formula did not eliminate the problem. On the contrary, it emphasized its complexity. For there were many economic criteria which pointed in different directions. In any case, the economic results also had political significance. If quotas were to be related to foreign trade alone, the United Kingdom would have a quota comparable to that of the United States; if they were to be related to gold holdings and national income, the U.S. quota would be much larger. Evidently attention had to be paid to a number of economic criteria in order to arrive at the desired political and economic result, namely, that the quota of the United States should be roughly twice that of the United Kingdom (or as it turned out, $2,750 million compared with $1,300 million), and that the total quotas of the Fund should be of the desired size.

Tentative quota calculations based on economic data, according to the so-called Bretton Woods formula, were made at Bretton Woods for many, but not for all, of the countries that took part in the Conference. This formula was generally, though informally, known at Bretton Woods. At no time has it had any official status and, as already noted, it is not mentioned in the Bretton Woods Agreement. The calculations that were made, and the data that were used, are nowhere officially recorded. It is known that, in the nature of the case, many of the formula calculations were made hurriedly, that they may have contained errors, and that of necessity some of the data were fragmentary or inaccurate. Nevertheless, calculations of greater or less authority and accuracy were made for many countries, and these were often used as a starting point for discussion. The practical difficulties of making formula calculations in some cases, e.g., the U.S.S.R., could hardly be overlooked, and a quota of $1.2 billion was agreed for the U.S.S.R. “almost entirely in recognition of its political and potential economic importance.”24

The Bretton Woods formula has been published on at least four occasions. Professor Wilhelm Keilhau, Chairman of the Norwegian Delegation to the Bretton Woods Conference, included it in his official parliamentary report, and afterward in a book. In both places, four elements in the formula were reproduced, but the fifth was not shown. Professor Carlos Lleros Restrepo, Chairman of the Colombian Delegation to the Conference, discussed the formula in a series of lectures published in 1945. He also reproduced four elements in the formula. Restrepo did not include one of the elements mentioned by Keilhau, but gave the one which Keilhau omitted. Theodore A. Sumberg also reproduced the formula in 1946, in the same form as had been used by Keilhau, in an article in Social Research.25 The complete formula was:

  • Determine the sum of

  • (1) 2 per cent of national income for 1940 (if this year was available and appropriate);

  • (2) 5 per cent of holdings of gold and U.S. dollars as of July 1, 1943 (if this date was available and appropriate);

  • (3) 10 per cent of average annual imports, 1934–38;

  • (4) 10 per cent of maximum variation of annual exports, 1934–38.

  • Increase this sum by

  • (5) the percentage ratio of average annual exports, 1934–38, to national income.

In any hypothetical quota calculated according to this formula, the greatest weight would certainly be given to national income. On the whole, it is likely that national income alone could account for some 40 to 50 per cent of quotas as they might be calculated for all members according to the formula. Furthermore, since the relationship of the other four formula elements to national income varies from country to country, the relationship of quotas to imports, which is of the greatest importance when quotas are considered as determining how much members may draw from the Fund, would also vary from country to country.

The economic significance for quota determination of each of the components of the formula taken by itself is not in every case self-evident. National income may be a good rough measure of wealth and productive capacity, but it presents great difficulties for comparative international measurement. It is much more difficult to determine the dollar value of national income for different countries, and the significance of these different levels, than it is to determine the dollar value of reserves or of international trade. Furthermore, national income by itself may not be a good measure of the ability of a country to contribute gold and foreign exchange resources to the Fund, since this ability is limited by the size of its gold and other international reserves in relation to its needs. Neither is national income an adequate indication of the extent to which a member may find it necessary to draw on the Fund in order to meet fluctuations in its exports and to correct temporary disequilibria in its balance of payments. For this latter purpose, international trade, in one or more of its aspects, would be a more reliable indicator.

It may be argued that, since the Fund was designed to help its members cope with balance of payments fluctuations, the variability of exports should have been given greater weight. It may also be argued that exports should have been expanded to take account of earnings from shipping, tourism, and other invisibles, and that trade in general should have been given greater weight. The importance assigned to holdings of gold and dollars tended to assign the largest quotas to the members least likely to draw upon the resources of the Fund.

It does not follow from these observations either that the Bretton Woods formula was a bad formula or that it would be easy to devise a better one. Given the threefold function of quotas and the relationship of the quota of the United States to that of the United Kingdom, the combination of the formula components has considerable economico-political significance. The complex and to some extent conflicting functions of quotas made it inevitable that any formula that might have been used should be complex. In any event, the formula calculations were intended to serve only as a starting point for further discussion, and quotas themselves were set by a process of negotiation and compromise.26

Quotas of New Members

Quotas for 44 countries were agreed at Bretton Woods, and are set forth in Schedule A of the Articles of Agreement; however, not all of the nations participating in the Conference are now members of the Fund. (Denmark was in attendance at the Conference, but its quota was left for later determination by the Fund.) The U.S.S.R., New Zealand, and Liberia have not joined the Fund; Poland and Czechoslovakia, which did join, are no longer members. On the other hand, as of April 30, 1956,18 additional countries had joined the Fund. In each case, the Fund and the member have agreed upon a quota and upon the percentage of the quota that was to be paid in gold.

There is no published information on the method of determining the quotas of new members. It is clear, nevertheless, that each new quota must meet one primary consideration, i.e., it must fit into the existing structure of quotas. This may involve comparison with such other quotas as are considered “comparable.” For example, a quota for a new member from Southeast Asia, or the Middle East, or Central America, would first of all have to fit comfortably into the structure of quotas of other members in the same area. This suggests that the criteria used for new members, and the methods of using these criteria, are likely to be generally similar to those used for original members. As far as economic criteria are concerned, this necessarily involves using data that, as time goes on, are further and further removed in the past, disregarding later developments. In some cases, this involves calculations for countries that-had no independent national status in 1944 (e.g., Republic of Korea, Indonesia), or for countries whose pertinent statistics are incomplete or unsatisfactory. These difficulties may create serious methodological and/or statistical problems. All of these questions, however, are subordinate to the principle of comparability or “fit.” It follows that, if the important quotas in any area are low, the quotas of new members from that area will also tend to be low.

The territory of some new members was in 1946 part of the territory of an original Fund member. Thus, the quota of $400 million agreed for India at Bretton Woods covered what is now India and Pakistan. When Pakistan became a member, a quota of $100 million was agreed, but the original Indian quota of $400 million was not reduced. Similarly, a quota of $275 million was originally allotted to the Netherlands, including Indonesia, but the Netherlands quota remained unchanged when Indonesia joined with a quota of $110 million. It may be noted that Article III, Section 2, of the Articles of Agreement provides that “no quota shall be changed without the consent of the member concerned”; in fact, no quota is now less than the figure originally agreed.27

“Adequacy” of Quotas

The “adequacy” of the Fund’s quotas cannot be judged except in relation to the functions that they are intended to perform. And as legitimate differences of opinion are possible about the relative importance of these functions, differences of opinion are equally possible about the adequacy either of the existing quotas, or of any others that might be substituted for them. To a member that looks foward to drawings from the Fund, the determination of adequacy is likely to be mainly a matter of estimating how far the possibility of drawing upon the Fund will ensure effective protection against balance of payments pressures. A quota that is “adequate” for this purpose will, of course, also entail the obligation to make certain contributions to the Fund, and the member will not be indifferent to the size of these payments. But this will, on the whole, be subordinate to the member’s interest in the amount that the Fund will permit to be drawn. On the other hand, for a member that is unlikely to draw upon the Fund, adequacy in the sense related to drawing rights is a rather academic concept. Such a member is, in effect, asked to make a contribution to the common pool of exchange to be administered by the Fund. The question whether its contribution is adequate is likely to be answered, on the whole, by such a member by reference to considerations different from those that are most interesting to the authorities of a potential drawing country.

The adequacy of the Fund quotas, judged from the standpoint of their effectiveness in assuring to members an “opportunity to correct maladjustments in their balance of payments” by drawing upon the Fund’s resources, has been questioned at various times and on various grounds. The initial asset size of the Fund, $8–10 billion, and the quotas implied by this size, were considered by some at the time of the foundation of the Fund to be too small to make a worthwhile job possible, particularly in contrast to the International Clearing Union, proposed by Lord Keynes, for which a credit-granting ability of $25 billion or more had been contemplated. Some, perhaps most, of this criticism was the result of divergent conceptions of what the Fund’s role should be, and of the amount of resources that the United States could, or should, provide. Nevertheless, the view was also held by some critics that even for the purposes that were in fact embodied in the Articles of Agreement quotas were inadequate.28 And subsequently, irrespective of the position that might have been taken in 1944, it was strongly represented that the large increase in prices during the war, and the postwar increases in prices and the volume of international trade, could have no other effect than to make Fund quotas increasingly less adequate.29 The total resources of the Fund, it was argued, and especially its gold and U.S. dollar resources, were too small, and the policies governing members’ access to these resources, related as they are to quotas, were also unduly restrictive. These questions will be considered only briefly here, since an exhaustive treatment is far beyond the scope of this paper, and the concept of adequacy of monetary reserves itself raises a number of serious problems.30

The value of international trade in 1951 was three times, and in 1955 three and one-half times, its value in 1939. The volume of international trade also has increased, and the prices of goods traded have increased even more. These do not appear to be transient developments. On the contrary, it appears prudent to regard them as the basis for further expansion of trade. As a result of these changes, quotas constitute a much smaller percentage of current trade31 than they did of prewar trade. While, as shown by Table 1, only 7 members have quotas less than 15 per cent of their 1937–38 trade, 49 members have quotas less than 15 per cent of their 1951–53 trade.

Table 1.

Fund Members Grouped by Percentages of Quotas to Trade, 1937–38 and 1951–53

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The Fund now has 58 members. Not all of these are included in this total, or in Table 2, either because they did not exist as independent nations before the war, or because the data were not easily available or presented other difficulties.

Table 2.

Quotas of Fund Members Compared with Their Average 1951–53 Trade

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See Table 1, footnote.

Moreover, generally speaking, the smaller quotas are less in proportion to the 1951–53 value of trade than are the larger ones. Fourteen quotas are less than 5 per cent of the member’s 1951–53 trade, i.e., less than the value of two and one-half weeks’ trade. None of these quotas is greater than $25 million, and 9 are less than $10 million (Table 2).

The possibility of a change in the variability of trade must also be taken into account in estimating the effects of the expanding value of world trade upon the adequacy of quotas. It is, of course, impossible to know whether, in the future, international trade will be more or less variable than it was before the war. To a large extent, this depends upon the degree of success attained by the United States and the other important industrial countries in ensuring that economic activity expands fairly steadily and without large fluctuations. (Variations in trade will also depend to some extent on the supply of U.S. dollars made available through aid, military programs, and the like.) The variability of trade since the war has been relatively small, and recessions have been shortlived. The trade of many countries since 1946 has shown a sharp upward trend year by year, and this of itself has tended to damp down or mask variability. There is some reason to believe that the coefficient of variability (value of fluctuations related to the value of trade) has been lower since 1946 than before the war. Nevertheless, at present levels of trade or (considering the next few years) even higher levels, the resources of the Fund and the members’ quotas might be insufficient to deal with a recession of the order of 1937–38, and the position would be still worse in the event of a depression approaching the magnitude of 1929–32. On the other hand, it may well be that the increased emphasis—for which, indeed, there is a political necessity—in all countries, and particularly in the major industrial ones, on the maintenance of high levels of employment and income will significantly reduce trade fluctuations. Trade in the future may well be more stable than it was before the war, though this would not rule out the possibility that there may still be wide variations in the trade of some individual countries.

Practically speaking, the asset size of the Fund should also be measured in terms of the currencies which member countries may wish to draw. Up to the end of 1955, members have very largely drawn dollars in preference to other currencies, and the Fund holds about $3.7 billion of gold and dollars. In the future, when sterling and other major European currencies have become convertible, a larger part of the Fund’s assets should be in demand. As more currencies become convertible, there should be an increase in the proportion of drawings in non-dollar currencies. The Fund holds more than $2 billion of sterling, francs, deutsche mark, and other major European currencies. Convertibility of these major currencies would substantially increase the assets upon which Fund members might wish to draw. The book value of the Fund’s assets would be unchanged, but there would be a more adequate supply of the currencies that members were likely to wish to purchase.

The adequacy of the Fund’s assets may also be considered from the point of view of the use already made of them. The maximum drawings in a twelve-month period have been $606 million in the fiscal year ended April 30,1948; of this, $600 million was drawn in dollars. Drawings in 1954 totaled $62.5 million, and in 1955, $27.5 million. Total drawings up to April 30, 1956 amounted to $1,236 million. The maintenance of annual drawings in dollars at the maximum rate so far achieved ($600 million) would, if each drawing was repaid at the end of three years, require less than one half of the Fund’s holdings of gold and dollars.

In 1952, the U.S. National Advisory Council reported that “it believes that the Fund’s dollar resources are adequate for present needs, or requirements in the near future, so that it does not recommend a change in the United States subscription at this time.”32 Two years later the Council reported that “From time to time there have been discussions of the adequacy of the Fund’s resources to fulfill the purposes for which the Fund was created. The question has been raised in various ways in reports to and discussions of the Economic and Social Council of the United Nations. The principal issues have been the availability of the Fund’s resources to deal with the international impact of possible recessions in major countries, and the adequacy of the Fund’s holdings to deal with the effect of programs of restored currency convertibility. The Fund has stated on many occasions that one of its functions would be to deal with the balance of payments problems of its members arising from cyclical fluctuations, and this position is in accord with the interpretation of the Articles requested by the United States Governor in 1946 in accordance with the requirements of the Bretton Woods Agreements Act. It is recognized that it is difficult in advance to determine the likely effect of a recession on the balance of payments of the Fund’s members. While it is the view of the Council that anticyclical action must consist primarily of internal measures, it believes that the Fund would have an important supplementary function in reducing the international impact of economic fluctuations. The Council, however, does not believe that it is feasible or desirable to make any advance commitment of special action by the United States Government with relation to the Fund’s countercyclical functions. . . . It is also recognized that the adoption of convertibility programs by various countries might require the additional support of Fund drawings to supplement their monetary reserves. . . . The Council believes that the Fund’s resources could be used effectively in assisting convertibility programs, but it does not believe that it is necessary to increase the Fund’s dollar resources by an increased United States subscription.”33

In 1952, at a meeting of the Economic and Social Council, the representatives of the United Kingdom, of Canada, and of France also stated that their Governments did not favor an increase in the Fund’s resources at that time. The U.K. representative stated that in times of recession the Fund should certainly exercise its power to raise the percentage restriction on annual borrowing and even, in certain cases, waive the rule that its holdings of a country’s currency should not exceed 200 per cent of the country’s quota. “Yet, on balance,” he concluded, “it would be premature to arrange for an increase in the Fund’s resources when there were still $3,000 million in gold and dollars available for use.… The Fund should rather be encouraged to continue its policy of more generous lending in return for firmer assurances of repayment, and should throw in its resources for what they are worth when they are most useful, namely at the outset of the recession, and trust in the common sense of governments to replenish these resources if they should become exhausted in a good cause.”34

A discussion of the adequacy of Fund quotas, and of the desirability of increasing them, raises, indeed, a number of conflicting considerations: (1) For many members, drawings limited to 25 per cent of quota per year are not large enough to be regarded by them as, in any effective sense, a secondary reserve; on the other hand, the Fund has used an increasingly flexible policy in the past few years and made significant use of the waiver procedure.35 (2) Members have made small use of the Fund’s resources up to the present time. (3) The largest members of the Fund, the United States and the United Kingdom, have stated that they do not believe that substantial additional amounts of gold, dollars, and sterling should at the present time be paid to the Fund to help meet a deep depression which may never occur. (4) The liquidity of the Fund might be affected adversely if the larger quotas were not changed, but most other quotas were increased substantially. (5) The assets of the Fund may prove inadequate in the event of a substantial world-wide depression.36

Procedure for Changing Quotas

It would be interesting to speculate how quota adjustment might have worked if a proposal37 made in 1943 had been adopted; it contemplated that the Articles of Agreement should require quotas to “be computed by an agreed upon formula” and to “be adjusted on the basis of the most recent data three years after the establishment of the Fund and at intervals of five years thereafter, in accordance with the agreed upon formula.” This proposal was not, in fact, pressed. Instead the Articles of Agreement provided that

The Fund shall at intervals of five years review, and if it deems it appropriate propose an adjustment of, the quotas of the members. It may also, if it thinks fit, consider at any other time the adjustment of any particular quota at the request of the member concerned. A four-fifths majority of the total voting power shall be required for any change in quotas and no quota shall be changed without the consent of the member concerned.38

No criteria were provided for the adjustment of quotas. This is consistent with the fact that there is also no explanation in the Articles of Agreement of either how quotas were established at Bretton Woods, or how quotas are to be established for new members.

In all, there have been six changes of members’ quotas since 1946. Two of these involved Honduras: the first change reduced its quota from that set forth in Schedule A of the Bretton Woods Agreement; the second restored it to its original value. Egypt, Iran, Paraguay, and France had protested at Bretton Woods that the quotas they accepted there were too low. After the Fund began operations, these members requested increases in their quotas, and these requests were granted.

The Fund has made two quinquennial reviews of quotas under Article III, Section 2. The first was completed in 1951, at the time of the hostilities in Korea, and the second, in 1956. Both reviews involved extended consideration, but neither resulted in adjustment of “the quotas of the members.” The decision in 1951 was reported as follows: “After consideration of the matter, the Executive Directors decided that, under the current international circumstances, it was difficult to reach a conclusion on the question at that time and therefore looked forward to discussing the question further at as early a date as might be practicable.”39 The question was not formally reopened, and no quotas were increased or adjusted during, or after the close of, this first review.

In 1955, a number of members expressed the view that quotas were inadequate, and during the Tenth (1955) Annual Meeting of the Board of Governors of the Fund, several Governors made statements to that effect, the Governor for Pakistan, for example, suggesting that some members with temporary balance of payments difficulties might have refrained from approaching the Fund because their quotas were “so small in relation to ‘swings’ in their trade as to render even the maximum facilities from the Fund to appear inadequate.”40 After the completion in January 1956 of the second quinquennial review, the Fund did not propose any general revision of quotas.

*

Mr. Altman, Advisor in the Research and Statistics Department, is a graduate of Cornell University and the University of Chicago. He taught economics at Ohio State University and was on the staff of the National Resources Planning Board and the French Supply Council. He was Director of Administration of the Fund until 1954. He is the author of Savings, Investment and National Income and of a number of papers published in technical journals.

1

There is an extensive literature on the Bretton Woods Agreements and on the Fund in general, but no extended treatment of quotas. The literature is covered in four bibliographies: Board of Governors of the Federal Reserve System (Library), Bretton Woods Agreements: A Bibliography, April 1943-December 1945; Martin L. Loftus, “The International Monetary Fund: A Selected Bibliography,” Staff Papers, Vol. I, No. 3 (April 1951), Vol. III, No. 1 (April 1953), and Vol. IV, No. 3 (August 1955). The official record of the Bretton Woods Conference is given in Proceedings and Documents of United Nations Monetary and Financial Conference, Bretton Woods, published by the U. S. Department of State in 1948 in two volumes. (This is hereafter cited as Proc. Bretton Woods.) Vol. II contains the drafts of the various proposals that preceded the Fund’s Articles of Agreement.

2

Article III, Section 3(b).

3

As of January 31, 1956, 54 out of 58 members had completed their gold payment requirements. Of these, 24 had paid at the rate of less than 25 per cent of quota: 14 original members—Australia, Chile, Costa Rica, Denmark, Egypt, France, India, Iraq (which was not required to pay any gold), Lebanon, Luxembourg, Peru, Syria, United Kingdom, and Yugoslavia; and 10 new members—Austria, Burma, Ceylon, Ethiopia, Finland, Federal Republic of Germany, Indonesia, Jordan, Pakistán, and Sweden. Thirty members paid 25 per cent of their quotas in gold, and 4 had not completed their gold payments: China, Greece, Italy, and Uruguay. (International Financial Statistics, December 1955, p. 4.)

4

The cumulative deficit to date is about $12 million.

5

The terms “convertible” and “nonconvertible” have specific meanings under the Articles of Agreement: “convertible currencies, within the meaning of the Fund Agreement, are currencies of those members that are not availing themselves of the transitional arrangements that permit the maintenance and adaptation to changing circumstances of restrictions on payments and transfers for current international transactions. A currency becomes convertible when the member has removed all restrictions on current payments and transfers and is subject to the obligations of Article VIII, Sections 2, 3, and 4 dealing with these restrictions, multiple currency practices, discriminatory currency arrangements, and the conversion of certain balances of its currency into gold or the currency of another member that holds the balance.” (International Financial Statistics, June 1956, p. 7, fn. a.)

6

The gold holdings of the Fund have also increased because service charges are paid in gold and because some members have used gold to make repurchases.

7

Article VII, Sections 1 and 2. If the Fund finds that the currency of any member has become scarce, it may propose to that member to lend its currency to the Fund or, with the approval of the member, borrow such currency from some other source. Such action would make it possible for the Fund temporarily to increase its assets. The Fund has never done this, and is unlikely to do so except in connection with a deep and prolonged depression or, perhaps, major moves toward convertibility. Under the same Article, the Fund may require a member whose currency is scarce to sell its currency to the Fund for gold. This would not, however, increase the Fund’s assets.

8

According to John H. Williams, “these repurchase provisions are obviously among the most important in the new Agreement. Along with the scarce currency provisions … they represent the most significant work done on the Monetary Fund at Bretton Woods. Their purpose is to keep the Fund, so far as possible, on an even keel, assuring an effective balance between the supply of key currencies and the access of the member countries to this supply through their quotas.” (Postwar Monetary Plans and Other Essays, New York, 1947, p. Ixxi.)

9

Thus, if a member, on joining the Fund, paid the whole of its quota in its own currency and nothing in gold (and subsequently had no transactions with the Fund), it would over a period of time, if its reserves increased, be obliged to buy back 25 per cent of its original currency contribution with gold or convertible currencies.

10

The Articles of Agreement contain (Article V, Section 7(c)) a number of safeguards, related to the size of quotas, limiting repurchase obligations. Repurchases are not to be carried to the point at which (a) the member’s monetary reserves are below its quota; (b) the Fund’s holdings of its currency are below 75 per cent of its quota, or (c) the Fund’s holdings of any currency required to be used in the repurchase are above 75 per cent of the quota of the member concerned.

11

Article V, Section 4.

12

The gold tranche is generally the difference between a member’s quota and the Fund’s holdings of its currency. For a member that has had no transactions with the Fund and that originally paid 25 per cent of its quota in gold and 75 per cent in its own currency, the gold tranche is 25 per cent of its quota. In February 1952, in a general decision on use of its resources, the Fund 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” (Annual Report, 1952, Appendix I, par. 3, p. 89). This policy was reaffirmed in Annual Report, 1955, pp. 84–85.

13

The initial schedule of Fund charges has been changed twice, the first time as of December 1,1951, and the second as of January 1,1954. In addition to other modifications, the changes successively reduced the element of progression based upon the ratio of drawings to quotas. The changes in the charges for the period 2–2½ years will illustrate this. Initially, changes for this period ranged from 1.5 per cent to 3 per cent. In the 1951 revision, the range was 2.5 per cent to 4 per cent; and in the current schedule, it is 3 per cent to 4 per cent. Thus, the maximum charge for this time period is currently one third greater than the minimum; prior to 1951, it was 100 per cent greater.

14

With a quota of 200 and a gold tranche of 50, a drawing of 50 would involve a one-time cost of ½ per cent of the drawing. The same drawing against a quota of 100 would involve the same one-time cost of ½ per cent plus charges, increasing with time, on the part of the drawing in excess of quota, i.e., 25. For a one-year drawing, the rate paid in the first case would be ½ per cent; in the second, 2 per cent.

15

The question of the proportion of quotas to be paid in gold was controversial. The International Clearing Union conception visualized no gold payment. The original White scheme required uniform gold payments of 25 per cent (Preliminary Draft Outline for a Stabilization Fund, April 7, 1943, Section II, 4, Proc. Bretton Woods, Vol. II, p. 1537). A Federal Reserve variant of the Stabilization Fund proposal provided for a 50 per cent gold subscription (Roy F. Harrod, The Life of John Maynard Keynes, London and New York, 1951, p. 554). The U. S. revised draft of July 10, 1943, prepared after discussions of the April draft with some 30 countries, proposed gold payments ranging from 30 per cent to 50 per cent, depending upon how much gold a member had in relation to its quota; for countries that had been enemy-occupied, these requirements were to be reduced by one quarter (Proc. Bretton Woods, Vol. II, p. 1602). The Russians proposed a gold payment of 15 per cent, to be reduced by one half if a country had been occupied by the enemy (R. F. Mikesell, “Negotiating at Bretton Woods, 1944” in Negotiating with the Russians, Raymond F. Dennett, Editor, Boston, 1951, pp. 107–9).

16

For voting on certain questions this arrangement is modified (Article XII, Section 5(b)). According to Article III, Section 2, a four-fifths majority is required for any change of quotas.

17

The Fund’s Rules and Regulations (C-10 and C-11) state that, “The Chairman will ordinarily ascertain the sense of the meeting in lieu of a formal vote. Any Executive Director may require a formal vote to be taken with votes cast as prescribed in Article XII, Section 3(i);” and that, “There shall be no formal voting in committees and subcommittees. The Chairman of the committee or subcommittee shall determine the sense of the meeting (including alternative points of view) which shall be reported.”

18

The voting process and methods of voting in international organizations are examined in Wellington Koo, Jr., Voting Procedures in International Political Organizations (New York, 1947); the Fund’s procedures are described on pp. 62–73. For a discussion of the general decision-making problem in international organizations, see Gunnar Myrdal, Realities and Illusions in Regard to Inter-Governmental Organizations (London, 1955).

19

All the votes which an Executive Director is entitled to cast must be cast as a unit (Articles of Agreement, Article XII, Section 3(i)).

20

The evolution of these principles is sketched in Roy F. Harrod, op. cit., Ch. XIII, “Bretton Woods,” and in E. M. Bernstein, “Monetary Stabilization: The United Nations Program,” Ch. XIX in Economic Reconstruction (Seymour E. Harris, Editor, New York and London, 1946). It can be traced in the various proposals made by the United Kingdom, Canada, and the United States, which appear in Proc. Bretton Woods, Vol. II, pp. 1536–1636. There are interesting discussions in Johan W. Beyen, Money in a Maelstrom (New York, 1949), pp. 147–80; Henry Simons, Economic Policy for a Free Society (Chicago, 1948), esp. Ch. XII; R. F. Mikesell, United States Economic Policy and International Relations (New York, 1952), Ch. 9; J. H. Riddle, British and American Plans for International Currency Stabilization (National Bureau of Economic Research, Occasional Paper 16, December 1943); Louis Rasminsky, “International Credit and Currency Plans,” Foreign Affairs, July 1944, pp. 589–603; and Ernest Francis Penrose, Economic Planning for the Peace (Princeton, 1953), Ch. 3.

21

Tentative Draft Proposals of Canadian Experts for an International Exchange Union (June 9, 1943), Section II(a) (Proc. Bretton Woods, Vol. II, p. 1583).

22

Preliminary Draft Outline of a Proposal for an International Stabilization Fund of the United and Associated Nations (Revised July 10, 1943), Section II, 4 (Proc. Bretton Woods, Vol. II, pp. 1602–3). According to Section II, 2, aggregate quotas were to be “at least $5 billion.”

23

Ibid., pp. 1629 ff.

24

Mikesell states that, in order to meet Russian objections to the requirement for paying 25 per cent of the quota in gold, it was proposed at Bretton Woods “that its quota should be increased from the $900 million originally suggested to $1,200 million” (Negotiating with the Russians, op. cit., pp. 107–9).

25

The formula was given in the report of the Norwegian Bretton Woods Delegation to the Norwegian Parliament:

“The Joint Statement did not say anything about the method of determining the quotas. Article II, 1, specified briefly that the member countries must subscribe quotas to be agreed in gold and local funds. On the other hand, the size of the Fund was established at $8 billion, if all the United and Associated Nations subscribed; it was added that this was an amount corresponding to $10 billion ‘for the world as a whole.’

“The tentative quota amounts which were mentioned during the preliminary negotiations in Washington in 1943 rested, however, on a definite formula: ‘In order to take account of the above factors it is suggested that the quota of country be determined by the following formula:

(a) 2 per cent of the national income of 1939;

(b) 5 per cent of the holdings of gold and gold-convertible exchange as of January 1, 1944;

(c) 10 per cent of average annual imports during the five-year period, January 1, 1934-December 31, 1938;

(d) 10 per cent of maximum variation in annual exports in the same five years.’

“At one of the meetings in the British Treasury at the beginning of June 1944 an American proposal for quotas for each individual country was read and later (June 4) sent to the delegates. Upon comparison with the formula which was later published, it has become evident that these figures were computed on the basis of the formula. Presumably the figures in the formula were established according to an approximate estimate which must have given a final total of about $8 billion, but according to the calculation no attempt was made to adjust the sum of the quotas determined by the formula to the total figure set for the whole Fund. The total of the proposed quotas amounted, specifically, to $8,490 million, or $490 million more than the fixed maximum.” (Norway, Stortinget, Om samtykke til at Norge tiltrer avtalene om det internasjonale valutafond m.v. [Concerning Approval of Norway’s Acceptance of the International Monetary Fund Agreements, etc.], Supplement 3, pp. 120–23.)

The same formula is given in Keilhau’s book, Den Nye Internasjonale Pengeordning (Bretton Woods) (Oslo, 1946), pp. 69–70. The reference dates for the first two items each differed from those shown in the text.

The formula was described by Restrepo as follows:

“What is the formula for determining quotas? This determination was the subject of comprehensive discussion during the conference because it is impossible to work out a fixed formula, which by its mere application would automatically establish a figure for each country. The booklet Questions and Answers on the International Monetary Fund, quoted previously, has indicated that the following factors should be taken into account in determining quotas: the ability of a country to subscribe resources to the Fund, the need of this country for use of the Fund’s resources, and the economic significance of the country concerned. In view of these considerations it has been recommended to apply, in a flexible way, the following formula: (1) 2% of the national income of 1939; (2) 5% of the holdings of gold and gold-convertible exchange as of January 1, 1944; (3) 10% of maximum variation in annual exports 1934–1938, inclusive. It has been further suggested that this total be increased by the percentage of the ratio between average annual exports from 1934 to 1938 and the national income. This method was taken into account, in a relative way, in determining the quota. It may be affirmed in the case of Colombia that its quota is fairly in conformity with the above formula, if we accept the figure of 700 million dollars as that of our national income, which, as is well known, has not yet been calculated scientifically.” (Carlos Lleros Restrepo, Fondo Monetario Internacional, Banco de la República, Bogotá. 1945, p. 15.)

Sumberg’s summary was as follows:

“Eschewing any single factor, the technical experts of the United States Treasury fixed the following quota basis in the Fund:’(a) 2 per cent of the national income of 1939; (b) 5 per cent of the holdings of gold and gold-convertible exchange as of January 1,1944; (c) 10 per cent of average annual imports, 1934–1938, inclusive; and (d) 10 per cent of maximum variation in annual exports, 1934–1938, inclusive.’ An adjustment of 10 per cent in each country’s quota, so computed, was permitted so as to take into account political and other special factors.” (“Financing International Institutions,” Social Research, September 1946, p. 289.)

26

Several published accounts show the character and the difficulties of the negotiations. In a discussion of the size of quotas, Harrod says:

“The Russians, in particular, insisted on their right to a large one. The Chinese quota was somewhat inflated by American ideology, and the Indians complained bitterly that their own was derisory by comparison with it. The British exerted their influence on behalf of the Indians, whose quota was raised in consequence. Mr. F. M. Vinson—Vice-Chairman of the United States Delegation—was mobilized to deal with this question of quotas, which was indeed the thorniest of the Conference, and his handling of it, which was forceful, but at the same time tactful, helped to bring matters to a peaceful issue.” (Life of Keynes, op. cit., p. 579.)

Keilhau describes two meetings at Bretton Woods as follows:

“When the committee meeting ended at lunch time on Saturday, July 15, most of those present certainly had the impression that a distribution of quotas had been made which would not create too much opposition when being discussed in the first commission. The course the meeting took in the same commission the same afternoon came therefore as a complete surprise. One delegate after another stood up and, on behalf of his country, expressed unconditional dissatisfaction with the quota assigned. It appeared that the delegates who presented their views had all come to the conclusion that the largest possible quota would be the best possible one for their country. . . . In addition, it appeared that some countries felt that not enough attention had been paid to their prestige. China was dissatisfied with $550 million, France with $450 million, and India with $400 million. Each delegation quoted statistical figures which pointed most strongly toward increasing their country’s quota, and they carefully withheld figures in the opposite direction. Some of the speakers even used completely absurd figures in their zeal. The head of the French delegation, Mr. Mendes-France, went farthest in his criticism. He said flatly that it was an insult to his country not to assign it a larger quota. . . . In all, fourteen delegations expressed their decided dissatisfaction in this way.” (Report of the Norwegian Bretton Woods Delegation to the Norwegian Parliament, op. cit., pp. 121–22.)

According to Professor R. Mossé, a member of the French delegation at Bretton Woods,

“… most of the countries tried to obtain as large a quota as possible. The question of quotas dominated the Bretton Woods Conference, even though it was never taken up at committee meetings, but rather was discussed in private talks between ministers of finance and chiefs of delegations.

“The ground had previously been prepared by statistical studies and informal conversations. An attempt had been made to develop a pseudo-scientific formula which would take account of foreign trade, national income, monetary reserves, population, etc., and permit a mathematical determination of the quota of each country. However, if it was difficult to obtain comparable figures or even reasonable estimates, it was even more difficult to agree on a formula. Each country proposed a formula a posteriori devised to yield the result which the country wanted. The Chinese and the Indians would have liked a large weight for population. For the British, the figures on foreign trade were the only truly important ones. The Americans were more interested in national income. The French recommended a formula giving strong weight to population, including the population of overseas territories, and to gold holdings. With respect to the Soviets, it was generally admitted that any advantageous formula had to give weight to a coefficient K, representing their sacrifices and heroism. In the end, quotas were established more or less arbitrarily by the United States in a series of deals. Certain quotas (China and the U.S.S.R., for example) simply corresponded with the current military and political situation. In any event, while it must be admitted that the scale of quotas does not correspond in any precise way with the resources and the needs of the different countries, it nevertheless reflects in a general way the hierarchy of economic importance of the nations concerned.”(Le Système Monétaire de Bretton Woods et les Grands Problèmes de L’Après-Guerre, Paris, 1948, pp. 47–48.)

“It seems safe to believe,” according to Sumberg, “that a sense of reasonableness, tempered by the pressure of negotiations, was more important in finally determining relative quota sizes than devotion to mathematical formulae.” (“Financing International Institutions,” Social Research, (September 1946, p. 290).)

27

The quota for Honduras was reduced at its request in 1948, but restored to the original amount in 1951. This is the only instance of the reduction of a quota, and this reduction turned out to be temporary.

28

Most of the comments on the adequacy of the Fund’s resources are related to conceptions of what the Fund was expected to do, partly in contrast to the International Credit Union. Among a number of specific comments on the relation of the Fund’s resources to the functions actually assigned to it, R. F. Mikesell quotes the view that “the Fund promises too much, since its resources are too small for the realization of its objectives.” (”The International Monetary Fund,” Journal of Political Economy, Vol. 57, 1949, p. 395, fn. 2.) It was also argued by some that the Fund was too large for its purposes. On this question Viner in 1944 stated that: “The maximum lending power of the Fund in U. S. dollars and gold will not much exceed $3 billion, and $5 billion would appear to be the theoretical maximum figure, altogether unlikely to be reached, for aggregate net indebtedness of all countries debtor to the Fund. The burden of proof is on those who, professing sympathy with the objectives of the Fund, nevertheless hold that these are excessive figures.” He also noted, however, that after the postwar transition period, it might well turn out that the Fund would be larger than it needed to be. (Jacob Viner, International Economics, Glencoe, Illinois, 1951, p. 240.)

29

Two groups of UN experts have expressed the view that the resources of the Fund are inadequate; see National and International Measures for Full Employment (Lake Success, 1949) and Measures for International Economic Stability (New York, 1951). The former report states that “It is very doubtful that, even if the present fundamental disequilibrium in international transactions were removed, it [the Fund] would be capable of dealing with the problems that are likely to arise in the event of any sizeable fluctuations in the currency disbursements of the leading industrial countries” (p. 61). The latter report argued that the Fund “provides a comparatively trivial supplement to national reserves, assuming no waiver of the rule limiting members’ annual purchases of foreign currencies to 25 per cent of their quota”; and it considered that effective action by the Fund required an increase in its resources (pars. 114–16). It expressed the opinion that the Fund “will be unable to cope with more than minor fluctuations unless its resources are substantially enlarged” (par. 140). “At the time of the Bretton Woods Conference in 1944, there was some doubt about the adequacy of the Fund’s resources. But even if they were just adequate then, they cannot be adequate now” (par. 142).

30

“The Adequacy of Monetary Reserves,” Staff Papers, Vol. III, No. 2 (October 1953), pp. 181–227.

31

In the analysis which follows, trade is measured as the average of exports and imports.

32

Third Special Report, June 1952, p. 18.

33

Fourth Special Report and Semiannual Report, March 31, 1954, p. 23.

34

Economic and Social Council, Fourteenth Session, 627th Meeting, July 1, 1952, p. 450.

35

The Fund approved its first waivers in the fiscal year 1954 and commented on them as follows: “The use of the waiver indicates the increased flexibility with which the Fund now feels that it can carry on its operations, and shows that the Fund is an instrument that may be used effectively for helping its members to deal with their extraordinary problems, whether individual or general” (Annual Report, 1954, p. 105). The next year the Fund stated that it “would continue to consider the further appropriate development of its practices so that, without neglecting the importance of maintaining proper standards, its operations may be made more helpful to members. In its practices, the Fund has recognized that it is appropriate, where necessary to carry out any of the policies outlined above, to grant a waiver under Article V, Section 4, to permit countries to draw more than the 25 per cent of quota normally permitted during a 12-month period” (Annual Report, 1955, pp. 85–86).

36

The UN report on Measures for International Economic Stability noted in 1951 that “It may seem strange to advocate an increase in the resources of an institution which has used only a fraction of its resources in its first four and one-half years of operation. But these years have been exceptional … if our analysis is correct, there may well arise in the future urgent, general and perfectly proper demands for access to the Fund. If it is to perform its functions fully in these circumstances, the Fund may well need substantially larger resources than it now possesses” (par. 143).

In 1952 the Fund commented on the general question of members’ quotas and total resources as follows: “A UN group of experts has recommended an enlargement of the Fund’s resources so as to increase the effectiveness of its activities in such circumstances. The Fund has for some time had under consideration the question of increasing its members’ quotas, having in mind such factors as the magnitude of possible balance of payments deficits in a depression and the fall in the purchasing power of money since 1946. It has, however, concluded that an increase in its resources is not a question for action at the present time. Its existing resources are by no means small as a source to finance cyclical balance of payments deficits. The Fund’s resources, moreover, are secondary reserves and the ability of countries to maintain import demand in a depression will depend also on the size of their reserves. It is important, therefore, that countries follow financial policies that will enable them to build up reserves in periods of prosperity which would provide a first cushion to absorb the shock of a recession.” (Annual Report, 1952, p. 46.)

37

Draft Outline of a Proposal for an International Stabilization Fund, circulated by the United States (Revised July 10, 1943), Section II, 5 and 7. Proc. Bretton Woods, Vol. II, pp. 1597 ff., Section II, 6, provided that the formula itself could be changed only by a four-fifths vote. While guaranteeing that a member’s quota would not be increased without its consent, the proposal made no provision for denying an increase to a member prepared to accept the increase calculated in accordance with the formula.

38

Article III, Section 2.

39

Annual Report, 1951, p. 88.

40

Summary Proceedings of Tenth Annual Meeting, 1955, pp. 46 and 66.