The Fund Agreement in the Courts-XIII
  • 1 0000000404811396 Monetary Fund




Par Values and Exchange Rates


This installment in the series of articles dealing with jurisprudence in which the Fund’s Articles of Agreement have been involved1 discusses some cases that deal with par values and exchange rates. Problems arise under legal instruments that refer to par values and parities established under the Articles. If these instruments are not modified, problems will continue to arise even after the Second Amendment of the Articles. Courts have shown a tendency to be flexible when dealing with references to par values, but they have also recognized certain limits. It is a paradox that solutions may be easier after the Second Amendment because present par values have been abrogated by that event. It is clear that the par value system for which the Second Amendment makes provision will not be initiated forthwith after the Second Amendment, and it may never be initiated. Unless courts feel themselves compelled by the facts to look back to some date when a par value was in existence, they will have no alternative but to find a realistic solution.

The cases discussed in this article are prefaced by a summary of some aspects of the law on par values before the Second Amendment, and are followed by a summary of similar aspects of the law governing the par value system that could be called into existence under the Second Amendment.

par values before Second Amendment

Under the Articles before the Second Amendment, a member that, within the meaning of the second sentence of Article IV, Section 4(b), was freely buying and selling gold for its currency in transactions with the monetary authorities of other members on the basis of the par value for its currency was deemed to be fulfilling its obligations with respect to rates for exchange transactions within its territories.2 A member that was not freely buying and selling gold and was not taking appropriate measures that succeeded in keeping exchange transactions in its territories between its own currency and the currency of another member within the margins around the parity between the two currencies, i.e., the ratio between them based on the par values for them under the Articles, was failing to fulfill its obligations under the Articles.3 The Fund was then able, but not required, to declare the member ineligible to use the resources of the Fund,4 and to compel it to withdraw from the organization.5 Moreover, the Fund had no authority to approve a unitary floating rate or a unitary fixed rate that was not proposed as a par value.

The par value last established under the Articles remained the par value as a legal concept under the Articles until a new one was established. The principle was settled by the Executive Board in its Annual Report of 1951:

A member of the Fund cannot, within the terms of the Articles of Agreement, abandon a par value that has been agreed with the Fund except by concurrently proposing to the Fund the establishment of a new par value.6

This aspect of the provisions on par values and exchange rates led in many instances to a huge discrepancy between the last par value and the actual rate of exchange for a currency. The explanation of what seemed to some observers the absurdity of insisting on the continued legal existence of a par value that was clearly unrelated to a current rate of exchange is twofold. The purpose of the legal principle was, first, to deny the Fund authority to give tacit recognition to a floating rate that might seem to result from acquiescence in the abandonment of a par value, and, second, to deny the Fund authority to give tacit recognition to a fixed rate that had not been concurred in by the Fund in accordance with the procedures prescribed for the establishment of par values. The legal position can be explained in other terms: the intent of the Articles was the establishment and maintenance of fixed rates of exchange based on par values arrived at by procedures providing for international scrutiny and concurrence, and if a member failed to maintain a par value established in accordance with these procedures, it was to be regarded as violating its obligations to maintain rates for exchange transactions within the prescribed margins around parity that continued to exist in the contemplation of the Articles.

Treatment of a member as a violator of its obligations, in order to promote the objective of international approval or concurrence in the exchange rate for a member’s currency and the rejection of unilateral determination of it by the member,7 was subject to a limited qualification in the case of an “unauthorized change” of par value. The Articles provided that if a member, after consultation with the Fund, changed the par value of its currency despite the objection of the Fund in circumstances in which the Fund was entitled to object, the member was not failing to fulfill its obligations within the meaning of the Articles because of its unilateral action.8 The consequence, however, was that the member became automatically ineligible to use the resources of the Fund unless the Fund decided to prevent this consequence. This treatment of the unauthorized change of par value was the reverse of the treatment of those actions that were violations of the Articles. Violations by a member did not give rise to ineligibility unless the Fund took a decision declaring the member ineligible. If, after a reasonable period following the adoption of an unauthorized change of par value, the difference between the member and the Fund on an appropriate par value continued to exist, the member could be compelled to withdraw from the Fund. The effect, therefore, was that although a member was able to change the par value of its currency despite the objection of the Fund without the stigma of acting in violation of the Articles, the consequences of that action were designed to deter a member from undertaking it.

The concept of an action that was not a violation, even though it was subject to consequences that resembled, and with respect to ineligibility was even more rigorous than, the consequences attendant on a violation, was a compromise between those negotiators of the Articles who wanted the Fund to have extensive authority over exchange rates and those negotiators who wanted members to have final authority over the external value of their currencies. The latter negotiators were willing, however, that the cost of supporting an unauthorized par value should not be borne by the Fund’s resources unless the Fund permitted the use of them. Notwithstanding the unusual compromise that was reached, the emphasis was still on a fixed rate of exchange. The compromise did not extend to the adoption of a floating rate. Moreover, it did not apply unless the contemplated change of par value had been submitted to the Fund for its concurrence. The withdrawal of support from a par value established under the Articles and the substitution of a fixed rate that was not submitted to the Fund for its concurrence as a new par value was inevitably a violation of the Articles. The reason for the distinction between this case and the unauthorized change in par value was the policy of the Articles in favor of scrutiny by the Fund over changes in exchange rates.

The legal principle that the par value last established under the Articles continued to be the par value under the Articles in all circumstances in which a member was failing to maintain it, whether or not the member was in violation of its obligations, did not, in principle, impede the conduct of operations and transactions under the Articles. Whether a member was allowing its currency to float, or had adopted a fixed official rate that it had not submitted to the Fund as a change in par value, or had made an unauthorized change in par value, the Fund was able to conduct operations and transactions in the member’s currency. The Fund could do this by applying the exchange rate in the member’s market between its currency and the U.S. dollar.9 Because the United States was freely buying and selling gold within the meaning of the Articles, it was regarded as maintaining the value of its currency in terms of gold in accordance with its par value, and therefore the exchange rate between a member’s currency and the U.S. dollar enabled the Fund to ascertain the actual gold value of the member’s currency. The Articles authorized the Fund to apply that gold value, instead of the gold value represented by the par value last established under the Articles, as the basis for its operations and transactions involving the currency. The negotiators of the original Articles, however, did not think the unthinkable. The procedure as described became inappropriate once the central currency of the international monetary system, the U.S. dollar, became a floating currency. The assumption that the par value of the U.S. dollar was being maintained by means of the willingness of the U.S. authorities to support the par value with gold transactions was no longer tenable. It then became difficult for the Fund to continue to conduct its operations and transactions, and because it did not decide to suspend them,10 the Fund had to find new and sometimes complicated procedures to continue them.11

After the announcement of August 15, 1971 that foreign official holdings of U.S. dollars would no longer be converted into gold or other reserve assets by the U.S. monetary authorities, the Fund adopted two successive decisions under which it sought to preserve as much order as possible in circumstances in which no members were observing their obligations with respect to exchange arrangements under the Articles.12 The decisions invented the concept of the “central rate,” and, in order to permit greater flexibility in exchange arrangements, defined wider margins for exchange transactions. The effort was intended to establish a simulacrum of the par value system, although without some of the constraints to which it had been subject. The decisions did not, and could not, absolve members from the nonobservance of their obligations with respect to par values and exchange rates.13 They attempted to minimize disorder by invoking the obligation of members to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.14

Lively Ltd. v. city of Munich

In this English case, decided by the Queen’s Bench Division in June 1976,15 there was much discussion of the question whether par values as referred to in the Articles continued to be in force for sterling and the U.S. dollar when both currencies were floating. In 1928, the city of Munich raised a loan of £ 1,625,000 six per cent sterling bonds under an agreement with Lazard Brothers & Co., Ltd. of London acting on behalf of the bondholders. The principal and interest were expressed in sterling, but the bondholders were given the option of requiring payment and repayment either in sterling or in “United States Gold Dollars … at the fixed rate of exchange of $4.86 to the pound sterling,” which was the value of the dollar of the weight and fineness in effect on November 24, 1928 in terms of sterling. The latest date for redemption was December 1, 1953, but the loan went into default on the outbreak of war. On June 14, 1955 an agreement was entered into between Lazard Brothers and the City of Munich that modified the terms of the bonds in a number of respects, the most important of which was the elimination of the dollar option. The removal of this option was the result of a number of postwar developments. The Fund had come into existence, and both the United States and the United Kingdom were members. In September 1953 the intergovernmental agreement on German external debt had come into effect. It will be referred to below as the Debt Agreement. The par value of the pound had been devalued in March 1949 to $2.80 per pound or 2.48828 grams of fine gold per pound.

The modified terms of the reissued bonds provided for payments in sterling only, in amounts calculated “on the basis that the equivalent in U.S. Dollars of the nominal amounts due at the rate of $4.86 to the £ will be re-converted into sterling at the appropriate rate of exchange (determined in accordance with Article 13 of the said Agreement of 27th February 1953) applicable to the date when the respective amount is payable.” Article 13 of the Debt Agreement read as follows:

Rates of Exchange Wherever it is provided in the present Agreement and the Annexes thereto that an amount shall be calculated on the basis of a rate of exchange, such rate shall …be—(a) determined by the par values of the currencies concerned in force on the appropriate date as agreed with the International Monetary Fund under Article IV, Section 1, of the Articles of Agreement of the International Monetary Fund, or (b) if no such par values are or were in force on the appropriate date, the rate of exchange agreed for current payments in a bilateral payments agreement between the Governments concerned or their monetary authorities; or (c) if neither par values nor rates in bilateral payments agreements are or were in force on the appropriate date, the middle rate of exchange generally applicable for transactions ruling for cable transfers in the currency of the country in which payment is to be made in the principal exchange market of the other country on that date, or on the last date before that date on which such rate was ruling; or (d) if there is or was no rate of exchange as specified under (a), (b) or (c) at the appropriate date, the cross-rate of exchange resulting from the middle rates of exchange ruling for the currencies in question in the principal exchange market of a third country dealing in those currencies on that date or the last date before the said date upon which such rates were ruling.16

The court held that the issue was whether the applicable rate of exchange was the one prescribed by (a) or (c) of Article 13.

The court set out most of Article IV of the Fund’s Articles,17 and explained these provisions, but not always correctly. Par value and parity were confused in describing the margins for exchange transactions, which were regarded as being of fundamental importance for the resolution of the problem posed in the case. The second sentence of Article IV, Section 4(b) on the free purchase and sale of gold was thought to refer to “a free market” in gold, whereas it referred only to transactions between monetary authorities.18 The court noted that if a currency floated,19 the issuer could be required to adjust the Fund’s holdings of the currency. “The ultimate issue in this case,” the court said, “is whether, when this happens, the member’s par value is nevertheless still in force’” for the purposes of Article 13(a) of the Debt Agreement.

The court traced the history of international monetary arrangements, with particular reference to sterling and the U.S. dollar, for several years preceding December 1, 1973. It concluded that on that date, exchange rates for the two currencies were not maintained by the two countries, and were not being maintained for the currencies by other countries, in relation to parities, central rates, the “snake,” or any other arrangements, and were floating against each other and all other major currencies. The only difference was a formal one, in that the United Kingdom had informed the Fund that it was allowing the pound to float, while the United States had made no such statement to the Fund.

The plaintiffs, the registered holders of some of the bonds, claimed that Article 13(a) of the Debt Agreement did not apply, and that Article 13(c) did, under which the market rate of exchange between the U.S. dollar and the pound on December 1, 1973 was $2.34 to the pound. The defendants, the City of Munich, relied on Article 13(a). The court noted the paradox that because the appropriate rate had to be divided into the rate of $4.86 to the pound, the higher the appropriate rate the less sterling the plaintiffs would receive. The reason was clear: the modified bonds were designed to compensate bondholders by giving them a correspondingly greater number of pounds if sterling depreciated against the fixed rate of $4.86 to the pound.

The defendants claimed that under Article 13(a) of the Debt Agreement the rate to be applied was $2.89 per pound. This rate was arrived at on the basis of the last par value of the pound, established under the Fund’s Articles in November 1967 at 2.13281 grams of fine gold or $2.40 per pound, and the last par value of the U.S. dollar, established under the Articles on October 18, 1973 at 0.7366 gram of fine gold.

The court remarked that the resulting exchange rate of $2.89 per pound was one that had no relation to any market or commercial rate of exchange. Under another provision of the Debt Agreement, which need not be examined here, the defendants felt constrained to reduce the rate of $2.89 to $2.80 per pound, so that the difference between the parties can be stated as $2.34 versus $2.80 per pound.

The defendants advanced two contentions. The first was that the words “in force” in Article 13(a) added nothing, because the concept was “par values … in force … as agreed,” and not par values that were (i) in force and (ii) agreed with the Fund. Under this contention, a par value once agreed with the Fund remained in force until a new par value was agreed with the Fund. The second contention was that, if the first contention was wrong, the par values of the two currencies were in fact still in force for various purposes.

The court could not agree with the first contention. The words “in force” were intended to have some effect additional to “as agreed.” Even under the scheme of the Fund’s Articles, there was one case in which the words “in force” would have an additional effect. This case was the one in which a member made an unauthorized change in the par value of its currency within the meaning of Article IV, Section 6. The unauthorized change would result in a par value that was “in force” but not “agreed.”

Under the second contention, the following purposes were advanced as those for which par values remained in force even when currencies were floating:

(1) Under Article III, the amount of a member’s currency subscription, both originally and when a quota is changed, continues to be determined by the par value of a member’s currency. (The argument is incorrect because a subscription already paid is, in effect, adjusted if an adjustment in the value of the Fund’s holdings of the currency is made under Article IV, Section 8 because the currency is floating, and any additional subscription as the result of a change of the member’s quota is paid on the basis of the adjusted value. To avoid any misunderstanding, it should be clear that the contentions and the comments on them are based on the Articles before the Second Amendment.)

(2) The amount that a member may have to pay to the Fund under Article IV, Section 8 when its currency depreciates is measured by reference to the last agreed par value. (The measurement of any adjustment is in fact made in relation to the value at which the Fund is holding a currency and this value need not correspond to the par value if there has been an earlier adjustment, but the argument can be accepted that the cumulative effect of all adjustments measures the departure of the market value of the currency from the par value.)

(3) On the withdrawal of a member from the Fund, settlement with it under Schedule D, and, on the liquidation of the Fund, the administration of liquidation under Schedule E, would be carried out on the basis of par values. (This argument is incorrect because both settlement and administration would be made on the basis of the values at which the Fund was holding currencies. Article IV, Section 1(b), which declares that all computations relating to the currencies of members for the purpose of applying the provisions of the Articles shall be on the basis of par values, is subject to an implied qualification in favor of the value at which the Fund is holding a currency. This qualification applies in calculations related to the normal operations and transactions and would apply in any settlement on withdrawal or in liquidation of the Fund. The fact that Article IV, Section 1(b) cannot be considered exhaustive is illustrated further by the necessity to make computations involving the currency of a member held by the Fund before an initial par value is established for the currency.)

(4) The par value determines the amount of the contribution of the United Kingdom to the EEC budget.

(5) The par value is used as a statistical measure by the United Kingdom for computing its monetary reserves.

The court held that it was unable to accept these considerations as evidence that the par value for the pound was still “in force” within the meaning of Article 13(a) of the Debt Agreement when these words were construed in accordance with the commercial object of the bonds in their original and modified form and of the Debt Agreement. The object was to protect bondholders against a possible depreciation of sterling against the U.S. dollar. If margins for a currency were not being maintained in accordance with the Fund’s Articles, commercially the par value was not “in force.” The par value was as meaningless commercially in such circumstances as the rate of $2.89 per pound, on which the defendants relied (subject to reduction to $2.80 per pound), as compared with the real rate of exchange of $2.34 per pound.

In an issue concerning the applicable rate of exchange between a debtor and creditor under a bond which incorporates art 13 it is in my judgment essential to construe this article in a commercially realistic sense. The present issue is concerned with a rate of exchange applicable to a commercial transaction; it is not concerned with treaty obligations by governments to the IMF or inter se. It does not follow from the fact that par values continued to be used for certain purposes in the latter field that they were ‘in force’ for the purpose of construing these words when art 13(a) is incorporated into a bond. In that context, par values are in my view no longer in force when margins are no longer being maintained in relation to the currencies in question. The fact that par values continue to exist does not necessarily mean that they remain in force.20

The court supported this conclusion by referring to the words “in force” in relation to a bilateral payments agreement under Article 13(b) of the Debt Agreement. Suppose that on the date as of which a rate of exchange had to be applied there was a bilateral payments agreement that prescribed a fixed rate of exchange, but that the agreement was not being observed on the relevant date by the parties, although they had not formally abrogated it. If the actual rates of exchange differed from the agreed rate, the latter could no longer be said to be “in force” under Article 13(b) of the Debt Agreement.

The fact that, from the point of view of the treaty creating the bilateral payments agreement, both governments would still be bound by its terms does not appear to me to affect the true construction of para (b) when incorporated into a commercial contract.21

The court held that Article 13(c) of the Debt Agreement was the relevant provision and that, in accordance with it, the middle market rate on December 1, 1973 had to be applied.

Court of Justice of the European Communities

The Fund’s conclusion that under the Articles the par value of a currency continued to exist notwithstanding the floating of the currency was not arrived at on the basis of any demonstration that the par value continued to have any operational effects under the Articles. There was no need to go through the strenuous efforts employed by the defendants in the Lively case to show that the par value still produced practical consequences. For the Fund, the conclusion that the par value continued to exist under the law of the Fund was an integral part of the conclusion that the member was not observing its obligations under Article IV, Sections 3 and 4(b). The obligations were to observe certain margins around parities based on par values, and therefore these par values must continue to have a legal life, or else there would be no basis for holding that the obligations were not being observed. The proposition can be stated in another form: a member adopting a floating rate was failing to observe its obligations because it was not enforcing the margins around parity and not because it was failing to have a par value. It had a par value even during the period of floating. It should be noted that apart from the obligation to establish an initial par value a member had no further discrete obligation to establish a par value. It had only the privilege of changing the existing par value.

The decision in the Lively case is admirable in its realism. It is consistent with the jurisprudence of courts in other countries that have sought ways in which to give effect to the actual values of currencies instead of relying on formalistic solutions.22 In these cases, the courts have been called on to determine the equivalent in the domestic currency of a unit of account expressed in terms of gold. The courts have resisted a solution based on a par value or central rate that existed under domestic law or practice. Although they have not been embarrassed by a direct reference to a par value or central rate under the domestic legal provision they had to apply, the difficulties of arriving at a realistic decision were considerable. In the Lively case the problem might have been even more difficult, because of the reference to par values,23 had it not been for the opportunity offered by the modest phrase “in force.”

In Fabrizio Gillet v. Commission of the European Communities, decided by the Court of Justice of the European Communities on March 19, 1975, the Commission applied literally its Staff Regulation that required calculation of the remuneration payable to an official “on the basis of the parities accepted by the International Monetary Fund which were in force on 1 January 1965.”24 Both of the currencies involved, the Belgian franc and the Italian lira, had effective par values on the appropriate date. The court applied these par values even though it recognized that “in a period of monetary instability it is possible that the objective sought by these provisions may not be entirely achieved.”25 It should be noted that adjustments were made in the amounts calculated in this way to take account of living conditions in the place of residence or employment.

The judgment of the Court of Justice of the European Communities of March 9, 1977 in Société anonyme générate Sucriére ν. Commission of the European Communities26 again illustrates the tendency of courts to find realistic solutions in current conditions when the opportunity exists, notwithstanding a reference to par values in this case. In a decision of January 2, 1973, the Commission of the European Communities imposed fines on certain commercial undertakings that were found to have infringed Articles 85 and 86 of the Treaty of Rome, which proscribe agreements that may affect trade among member states and that have as their object or effect the prevention, restriction, or distortion of competition within the Common Market or any abuse of a dominant trading position within the Common Market. The fines were expressed as a certain number of units of account27 (u.a.), followed by the clause “that is” and then a certain amount in the currency of the country in which the undertaking had its principal place of business. The unit of account was equivalent to 0.88867088 gram of fine gold; the equivalent in currency was based on the par value for it established in accordance with the Fund’s Articles. For example, for the French franc the last par value was established on August 10, 1969 as 0.160000 gram of fine gold per franc, which was equivalent to 5.554 francs for the unit of account on the basis of the definitions of them in terms of gold. Some of the undertakings succeeded in gettting the fines reduced by a judgment of December 16, 1975 in which the fines were expressed as a certain number of units of account followed by an amount in currency in parentheses calculated on the basis of the par value.28

Some of the undertakings paid the Commission, in purported discharge of fines expressed in units of account and French francs, an amount of Italian lire calculated on the basis of the par value for the lira established in accordance with the Fund’s Articles on March 30, 1960 (0.00142 gram of fine gold per lira, which was equivalent to 625 lire for the unit of account on the basis of the definitions of them in terms of gold). The Commission did not object to payment in lire, but did not accept the amounts paid as a discharge, on the ground that the debt under the judgment was the amount expressed in national currency in the judgment, and if the undertakings wished to pay in the currency of another member state, the amount had to be calculated on the basis of the rate of exchange on the date of payment.

Payment on the basis of the par value of the lira instead of the rate claimed by the Commission represented savings of 33 per cent for the French, 35 per cent for the Belgian, 40 per cent for the Dutch, and 43 per cent for the German undertakings. The undertakings challenged the view of the Commission and sought an interpretative decision of the Court.

Articles 15 and 17 of Regulation No. 17 of the Council of Ministers of February 6, 196229 authorizes the Commission to impose fines of one thousand to one million u.a., or a higher amount determined by a formula, for infractions of Article 85 or 86 of the Treaty. Article 18 of the Regulation, which is headed “Unit of Account,” provides that for the purposes of Articles 15 and 17, the unit of account shall be the one used in drawing up the budget of the Community. Article 10 of the Financial Regulation of April 25, 1973,30 which derives from a Regulation of 1962, provides that the value of the unit of account in which the budget shall be established shall be 0.88867088 gram of fine gold. Article 27 provides as follows:

The financial contributions from Member States fixed by the budget shall be expressed in units of account as defined in Article 10. They shall be converted into the respective national currencies on the basis of the relationship existing on the day of their payment between the weight of fine gold contained in a unit of account as referred to above and the weight of fine gold corresponding to parity in respect of each of those currencies as declared to the International Monetary Fund. Should the currency of one or more of the Member States cease to have any declared parity with the International Monetary Fund, the Commission shall propose appropriate measures to the Council.

The undertakings argued that their debts were fixed by the Court solely in units of account, that this was the only power of the Court, that the figures in French francs were “merely intended to be an indication of the amount,”31 and that under the Financial Regulations the debts could be discharged by amounts of Italian lire equivalent to the units of account on the basis of the par value for the lira. The reference to French francs was only for the purpose of facilitating execution in another currency if it should become necessary, but it had not been necessary in this case. The undertakings also argued, inter alia, that the Commission’s view placed undertakings established in a country with a hard currency at a disadvantage and therefore contravened natural justice, and that the Commission’s view abandoned the unit of account as a common denominator and required payment “on the basis of the actual value of the currencies.”32 The fact that the unit of account did not reflect the value of currencies in the market could not be taken into account, because the Commission’s proposal to adopt a unit of account based on a basket of currencies and daily exchange rates had not yet gone into effect.33

The Commission explained that originally it had fixed fines only in units of account, but a case had occurred in which it had been impossible to enforce the fine in one jurisdiction because execution of a judgment expressed in units of account was not possible under the domestic law. Since 1972, therefore, the Commission has referred in addition to the amount of the fine expressed in the currency of the principal place of business of the undertaking on the basis of the par value of the currency, or, in certain circumstances, in a currency determined by other criteria. The Commission argued that a unit of account was meangingless unless it was accompanied by a technique for calculating the equivalent in a currency, so that the Court had authority to express the equivalent of the amount of units in a currency. Its practice in selecting a currency was uniform and nondiscriminatory among undertakings. The debt was determined by this technique. An undertaking was not entitled to redefine the debt by expressing it in units of account and a different currency. The privilege of discharging the debt in a different currency did not give a right to redefine it. According to the Commission, this practice had been endorsed by the Court and its judgment was to be interpreted in accordance with the practice.

The Advocate-General, in his opinion, advised that there was no jurisdiction in the Community in which a judgment expressed only in units of account could be enforced, which led him to believe that the authority of the Commission and the Court was not confined to expressing fines in units of account. Statement of the fine in a currency was essential for enforcement, and it was not logical that the effective amount of the fine should depend on whether it was paid voluntarily or as the result of a levy of execution. If the fine is paid in some currency other than the one in which it is expressed, the Court is not thrown back into a position in which it must think only in terms of units of account, but can find the true value of the currency in which it expressed the fine together with units of account.

The Court held that nothing in the Regulations required the Commission or a court to express fines either in units of account or a currency. Under Articles 187 and 192 of the Treaty of Rome, the decisions of the Commission and the Court imposing a pecuniary obligation on persons other than states shall be enforceable, and any necessary enforcement shall be governed by the rules of civil procedure in force in the state in which it is effected. Therefore, because the unit of account is not a currency in which payment can be made, it is necessary to establish the amount of a fine in a currency. Any difficulties in selecting the currency because undertakings may conduct business in several states or outside the Community do not invalidate this conclusion. In such circumstances, the amount of the debt is the amount expressed in the selected currency, and the sums expressed in units of account serve only to determine whether the prescribed limits on the amounts of fines have been observed. Nevertheless, no legal provision prevents the Commission from accepting payments, if it wishes, in the currency of another member state.

As far as concerns the rate to be applied in this case for the purpose of converting one of these currencies into another the applicants cannot rely on the fact that Article 18 of Regulation No. 17 refers to the provisions applicable to the budget of the Community.

Since it is a fact that the parities of the various national currencies adopted by these provisions no longer in most cases reflect the actual position in the market, it cannot be assumed that they apply by analogy to circumstances which, as in this case, are not explicitly covered by any legal provision.

Although the Commission is entitled to accept payments in a national currency of the Community other than that in which the debt has been determined, the fact remains that it must see to it that the actual value of the payments made in another currency corresponds to that of the sum fixed in national currency in the Court’s judgment.

Therefore the conversion of the two national currencies in question must be effected at the exchange rate on the free foreign exchange market applicable on the day of payment.34

The judgment relies on a rigidly textual application of the Regulations. The fine is expressed in the selected currency on the basis of the par value (constantly referred to as the “parity”) of the currency as established under the Articles, notwithstanding the realization that the Regulations were written during the life of the par value system and that exchange rates were no longer consistent with par values. The Regulations did not deal with the way to calculate the equivalent of the selected currency in a currency of payment, and the Court refused to extend the Regulations to this operation. The result was realistic in its treatment of conversion but not in its treatment of the selected currency.

The Court did not deal with the second sentence of Article 27 of the Financial Regulation of April 25, 1973:

Should the currency of one or more of the Member States cease to have any declared parity with the International Monetary Fund, the Commission shall propose appropriate measures to the Council.

On the principle of the original Articles “once a par value, always a par value until changed,” this sentence would have no meaning under the law of the Fund. Yet the drafters of the Regulation must have attributed some meaning to the sentence. Was it a meaning equivalent to the words “in force” in the Lively case? Three provisions of the Regulation do indeed use the expression “in force.”35 Did the drafters have in mind circumstances in which a member declared to the Fund that it would not maintain the par value of its currency? The words “declared parity” appear in the sentence. If the drafters had some such intention in mind, what would be the effect of the declaration of central rates to the Fund? The issuers of some of the selected currencies had declared central rates under the Fund’s decisons.

The questions raised here are relevant to the problem whether the use of par values for selected currencies was inescapable. If this problem were to be considered, it would probably be examined in relation to the more fundamental topic of contributions to the Community’s budget. Problems such as these arise at the intergovernmental level, and in the Lively case a distinction was drawn between intergovernmental relations and the expectations of commercial entities. In both the Lively case and the Sucrière case, however, the legal provisions that were interpreted were adopted at the intergovernmental and not the private level, but the provisions affected private entities.

Although the sentence in Article 27 quoted above was probably not drafted in contemplation of the abandonment of a par value system, because in April 1973 the Committee of Twenty was still negotiating on the basis of stable but adjustable par values with floating in particular situations,36 the sentence could provide a solution because the Second Amendment has taken effect before the Community has moved to a “basket” unit of account for the purposes that were relevant in the case. Par values have been abrogated for the purposes of the Articles by the Second Amendment, and therefore the Commission could propose “appropriate measures” to the Council.

existence and nonexistence of par values under Second Amendment

Par values in existence under the Articles at the time when the Second Amendment became effective were abrogated for the purposes of the Articles because the provisions of the Articles under which the par values were established have ceased to exist.37 At one stage during the drafting of the Second Amendment, before the final compromise was reached on the provisions relating to exchange arrangements, the Executive Board discussed the proposal that the par values of currencies should be abrogated for the purposes of the Articles because, even if a par value system were restored at some date, there would be an interim period in which all currencies would be floating. An associated proposal was that it should be possible to abrogate the par value of a currency, for the purposes of the Articles, if the currency floated after the restoration of a par value system. The thesis in favor of abrogation was that parties to treaties or contracts could be misled if the Fund were to tell them that a currency had a par value even though it was not being maintained when they had probably entered into their commitments on the assumption that a par value was being maintained, or, in the language of the subsequent Lively case, that a par value had been agreed with the Fund and was in force. Parties to legal arrangements might assume from a statement by the Fund that there was a par value under the Articles, that it was effective, and that a member’s actual exchange arrangements had the endorsement of the Fund. In past practice, to guard against these possible mistaken impressions, the Fund, when asked whether a par value existed for a floating currency, or what the par value was, usually coupled its reply with the statement that the par value was not effective.

There was some opposition to the proposals on the ground that if par values were abrogated, the position of members under other legal instruments that involved par values as a basis for commitments would be undermined. Some of the opposition was probably based on the commitments of member states under the law of the European Community. It will be seen that the objections did not prevail, but some of the safeguards finally incorporated in Schedule C of the Second Amendment can be traced back to the discussion of these proposals.

The abrogation of par values when the Second Amendment took effect was accompanied by the abrogation of the Fund’s decision on central rates and wider margins.38 The decision was based on Article IV, Section 4(a) of the Articles before the Second Amendment, which does not appear in the Second Amendment, and on Resolution No. 26-9 of the Board of Governors,39 which called on all members to collaborate with the Fund and with each other in order to maintain a satisfactory structure of exchange rates within appropriate margins. The abrogation of par values for the purposes of the Articles does not prevent a member from adopting a value for its currency, even in terms of gold, for some domestic purposes under its domestic law. For example, Public Law 94-564 of October 19, 1976 passed by the United States Congress to provide for amendment of the Bretton Woods Agreements Act and for other purposes repeals Section 2 of the Par Value Modification Act40 as of the date of the Second Amendment. Section 2 defines the last par value of the U.S. dollar. The provision repealing Section 2 preserves the gold value, although not as a par value, for the following purpose:

Section 14(c) of the Gold Reserve Act of 1934 (31 U.S.C. 405b) is amended to read as follows: “The Secretary of the Treasury is authorized to issue gold certificates in such form and in such denominations as he may determine, against any gold held by the United States Treasury. The amount of gold certificates issued and outstanding shall at no time exceed the value, at the legal standard provided in section 2 of the Par Value Modification Act (31 U.S.C. 449) on the date of enactment of this amendment, of the gold so held against gold certificates.”41

The value that is maintained under this provision for the specified purpose is SDR 0.828948 or 0.736662 gram of fine gold per U.S. dollar.

The abrogation of par values does not prevent members from establishing values for their currencies in terms of a denominator they select as part of their exchange arrangements. These values will not be par values in the sense of the original Articles, because there is no prescription of a common denominator and no fixed relationships among all currencies on the basis of a common denominator. Moreover, in accordance with the objective of a gradual reduction in the role of gold under the Second Amendment, any denominator that is chosen may not be gold. The preservation of a value for the U.S. dollar in terms of gold by the provision quoted above is not for the purpose of the exchange arrangements of the United States.

The Second Amendment permits a member to establish a value for its currency in various ways notwithstanding the abrogation of par values. The first is the one already mentioned: “the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member.”42 Second, exchange arrangements may include “cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members.”43 Third, to accord with a changing international monetary system, the Fund may decide by a majority of 85 per cent of the total voting power to recommend general exchange arrangements to members, without limiting their right to apply these or other exchange arrangements of their choice. The general arrangements could include denominators or a common denominator, other than gold, and could approach a par value system without being the par value system of Schedule C.

The provisions of the Second Amendment governing exchange arrangements, including those that have been mentioned already, are not designed explicitly for an interim period that will terminate with an inevitable introduction of the par value system set forth in Schedule C. The provisions could apply permanently and Schedule C never come into operation. If, however, the Fund determines, by an 85 per cent majority of the total voting power, that certain conditions exist permitting “the introduction of a widespread system of exchange arrangements based on stable but adjustable par values,” it must inform members that the provisions of Schedule C are in operation.44 The Articles prescribe in detail the circumstances that the Fund must take into account in arriving at a determination.

The provisions of Schedule C have a strong resemblance to the provisions that governed the original par value system, but there are some striking differences, most of which are regarded as improvements that were shown to be desirable by experience under the reign of the original system. The common denominator of the system is not determined by the Articles, although gold and currencies are excluded.45 The implication is that the SDR will probably be the common denominator, but one reason why the choice is not made is the uncertainty about the method of valuing the SDR that may be in force in the future. No member will be required to establish a par value, so that there will be freedom to choose exchange arrangements even after the par value system of Schedule C is in operation.46

The provisions dealing with changes in par values are similar to those of the original Articles, although a change may be proposed not only to correct a fundamental disequilibrium but also to prevent its emergence.47 A proposed change in par value is not to take effect for the purposes of the Articles if the Fund objects to it. The words “for the purposes of this Agreement” make explicit the distinction between these and other purposes that a member may have in mind in adopting a change in par value.48 If a member changes the par value of its currency notwithstanding the objection of the Fund, the member may be declared ineligible to use the resources of the Fund and may be compelled to withdraw from the Fund in accordance with Article XXVI, Section 2.

The special concept of the unauthorized change of par value under the original Articles has been eliminated. Under the original Articles a member that adopted an unauthorized change of par value was not in violation of any obligation, although it was treated as severely as, and in one respect even more severely than, a violator. This result was achieved by such subtle means that the casual reader of the Articles may not have been aware of it. Article IV, Section 6, which dealt with the unauthorized change, provided separately for ineligibility and did not bring ineligibility about by reference to the more general provision of Article XV, Section 2(a) of the original Articles. The latter provision dealt with ineligibility “if a member fails to fulfill any of its obligations under this Agreement.” In contrast to the absence of a reference to Article XV, Section 2(a), Article IV, Section 6 provided for compulsory withdrawal by a reference to Article XV, Section 2(b). This latter provision made it clear that notwithstanding the reference to it in Article IV, Section 6, the consequence was not that withdrawal was based on a violation. Article XV, Section 2(b) covered two distinct situations: “the member persists in its failure to fulfill any of its obligations under this Agreement, or a difference between a member and the Fund under Article IV, Section 6, continues.”

The distinction between these two situations has been abandoned by Schedule C, paragraph 7 because the consequence of an unauthorized change of par value is that “the member shall be subject to Article XXVI, Section 2” of the Second Amendment. That provision incorporates both subsections (a) and (b) of Article XV, Section 2 of the former Articles. The effect is that the member making an unauthorized change of par value may be declared ineligible and compelled to withdraw on the only basis on which these actions can be taken, namely, a failure to fulfill obligations. Article XXVI, Section 2(b) has been modified to refer only to these failures and no longer mentions the unauthorized change of par value as a separate category.

The abandonment of the special concept of the unauthorized change came about because the prospect of a return to a par value system was at best remote, and there was less reason to insist on the principle for which the United Kingdom fought before and at Bretton Woods. The principle was that ultimate authority over the par value of a member’s currency must rest with the member itself. Furthermore, the new provisions of the Second Amendment were part of a complex that recognizes the freedom of members to choose their exchange arrangements. If a member contemplated a change of par value to which the Fund objected, the member might be willing to terminate the par value as such and adopt the new value under its freedom to apply exchange arrangements of its choice. It is true that, as will be seen, the Fund could take a decision to prevent the termination of a par value, but a high majority is necessary for this decision. It is also true that if the decision were not taken and the par value was terminated, the member would not receive the international endorsement of the exchange rate for its currency that it would enjoy by having a par value.

A member has the right to inform the Fund at any time that it is terminating the par value of its currency for the purposes of the Articles. The termination will be effective unless the Fund objects to termination by a decision taken by an 85 per cent majority of the total voting power.49 This high majority was adopted not so much in order to assure members that they had ultimate authority over their exchange arrangements as to enable the United States to assure the public that it would have a veto over any decision to prevent the United States from terminating a par value for the dollar. The same majority is required for certain other decisions and gives the United States a controlling voice in the introduction of a par value system and in the recommendation of general exchange arrangements by the Fund.50

Notice of the termination of a par value is not the only way in which a par value can cease to exist for the purposes of the Articles after Schedule C is in operation. If a member terminates the par value of its currency notwithstanding the objection of the Fund to termination, Schedule C is realistic in providing that the par value no longer exists.51 The par value of a member’s currency ceases to exist if the Fund finds that the member does not maintain rates for a substantial volume of exchange transactions in accordance with the provision on the margins around parities.52 This language covers two situations. In one situation the member allows its currency to float but does not inform the Fund that it is terminating the par value for the currency. In the other situation, the member adopts multiple currency arrangements, with or without the necessary approval of the Fund,53 under which a substantial proportion of exchange transactions within its territories take place at rates outside the prescribed margins. Under the original Articles, a par value would not cease to exist even if all exchange transactions took place outside the legal margins.

As a result of the discussion by the Executive Board of the abrogation of par values that has been referred to already, certain safeguards are adopted for members. The Fund cannot decide that a par value has ceased to exist for the purposes of the Articles unless it has consulted the member and given it 60 days notice of the Fund’s intention to consider whether to make a finding that a substantial volume of exchange transactions are taking place outside the legal margins. These safeguards give the member an opportunity to express its wishes, and the Fund cannot rush to judgment when a currency begins to float. There is opportunity, therefore, to see whether the floating is temporary because of transitory influences. There is no definition, however, of “a substantial volume of exchange transactions,” and the finding can be made by a decision taken with a majority of the votes cast.54 At any time after a par value has ceased to exist, the member may propose a new par value for its currency. “New” for this purpose would include a former par value.

The Fund’s power to find that a par value has ceased to exist is new. So too is its power to discourage maintenance of an unrealistic par value.55 In fact, it is the duty of the Fund to take this action. It is not made clear what forms discouragement may take. The power does not include authority for the Fund to terminate or change a par value because it is unrealistic. The principle of the original Articles that only a member can propose a change in the par value of its currency is preserved by Schedule C.56 The provision reflects opinion that one of the shortcomings of the former par value system was the retention of unsuitable par values for too long and that the limited powers of the Fund to press for a change because the member’s exclusive right to propose a change was often understood to preclude the Fund from suggesting that a proposal should be made. Schedule C makes it clear that there is no logical contradiction in affirming the member’s exclusive right and giving the Fund authority to suggest that the right should be exercised.

One of the most radical differences between the provisions on par values in the original Articles and the Second Amendment is that a par value, once established, will not necessarily persist until it is replaced by a new par value. A par value can be terminated by a member, cease to exist automatically, or cease to exist as the result of a finding by the Fund without the concurrent adoption of a new par value. The balance of opinion was strongly in favor of abandoning the legal fiction that a par value was in existence when it was ineffective and there was no reasonable likelihood that it would ever be made effective.

In addition, it became unnecessary to retain the principle that a par value continued to exist under the Articles when it was ineffective because it served the purpose of ensuring that the member failing to make it effective would be treated as failing to perform its obligations. It is no longer necessary to insist on the existence of a par value for this purpose. A member that is not applying a par value may not be in violation of its obligations, for example, because it has terminated a par value in accordance with the Articles. If the member ceases to make its par value effective inconsistently with the Articles, it will be in violation of obligations without any necessity to rely on the par value in order to reach this conclusion. For example, the member may be in violation because it has terminated its par value notwithstanding the objection of the Fund. The termination is then the violation, and not the neglect of the margins around parity.

One conclusion to be drawn from Schedule C is that even if a par value system is restored, the drafters of legal instruments are likely to be wary about references to par values such as those that were in issue in the cases discussed in this article. The current tendency to employ a unit of account, such as the SDR, may persist even when Schedule C is in operation.


The Asian Currency Market: Singapore as a Regional Financial Center—ZORAN HODJERA (pages 221-53)

This paper surveys the development of the Asian currency market in Singapore since its creation in 1968. The market developed as a result of fiscal stimuli by the Singapore Government, and it filled an important gap in international financial transactions in the Asian region. In the late 1960s, a period of tight credit conditions in the United States, Asian currency market operations involved mainly the gathering of deposits in the region and their placement in Tokyo and the Eurodollar market. Since 1970, the main operation has consisted in channeling funds from major capital markets and from the Asian region into a large number of developing countries in Asia. Another function of the Asian currency market has been to fill the gap in Eurodollar interest arbitrage among capital markets in different time zones around the globe.

Prior to the increase in oil prices in 1974, banks participating in the Asian currency market carefully matched the maturities of their claims and liabilities. However, since 1974, the banks have participated in the recycling of surplus funds of oil producing countries, which has led to a decrease in the maturity of their liabilities and an increase in the maturity of their assets. As in the Eurocurrency markets, various techniques have been used to decrease the risk involved in this maturity transformation.

The paper provides a rough estimate of the contribution of the Asian currency market to real income in Singapore. This contribution appears to be modest but significant, particularly when the evaluation includes external economies accruing to other sectors.

Model of Inflation and Its Performance in the Seven Main Industrial Countries, 1958-76—erich spitÄller (pages 254-77)

This paper develops a model of inflation against the background of the recent literature. The model allows for a number of systematic determinants of the inflation process. These determinants include (i) inflationary expectations, (ii) changes in money, as regards their role in expectations, (iii) economic activity, represented alternatively by the level of the output gap and the change in real output, and (iv) changes in foreign prices and the exchange rate as they affect import price changes.

On a theoretical level, the model differs from other contributions in the literature in a number of respects, especially (i) in the way in which inflationary expectations are formulated, (ii) in allowing for the possibility of a “first negative, then positive” relationship between changes in prices and changes in output, (iii) in the way in which the level of imbalances in the goods market is related to the percentage change in output, and, perhaps also, (iv) in the way in which foreign price and exchange rate changes affect inflation. In the first instance, this means that any effect of changes in money on inflationary expectations, and thereby on inflation, is taken into account. In the second instance, the model accommodates a situation where the productivity effect of output changes on inflation is initially stronger than the demand pressure effect of these changes. The output gap, the measure of imbalance in goods markets, and the rate of change in output are linked through an identity relationship. This contrasts with the more conventional way of introducing changes in output via a link with the level of unemployment. This level is related here to the level of the output gap. Foreign price and exchange rate changes are represented together by import price changes, and enter the model as components of the rate of change in the general price level and as competitive influences on domestic price changes, rather than in other ways.

The model is estimated for the seven main industrial countries. Generally, the model performs well. It does best for Canada, the United Kingdom, and the United States, where it is consistent with the data in all respects. It does somewhat less well for France, Italy, the Federal Republic of Germany, and Japan, for reasons that differ across countries. Judging from estimates over different time periods, there is a presumption that the speed of adjustment to inflation has generally accelerated in the 1970s, compared with earlier years.

The Role of Savings in Flow Demand for Money: Alternative Partial Adjustment Models—arturo brillembourg (pages 278-92)

This paper attempts to provide an empirically manageable partial stock adjustment model that accounts for the role of savings in the adjustment process. It is shown that the management of the allocation among different assets as well as the total flow of savings can play an important role in minimizing the costs of adjustment to asset disequilibria. Unfortunately, there are great difficulties encountered in deriving a theoretically valid but empirically manageable model that accounts for the role of savings.

This paper attempts to develop such a model by deriving a partial adjustment model that distinguishes the role, in the stock adjustment process, of portfolio reallocation from that of savings. Derived under conditions of uncertainty, a general partial adjustment model is presented. Application of this model, however, depends on the modelling of the savings process. To show various ways of modelling this process, the formulation of the flow demand for money is attempted. Various models are presented and tested using U.S. data for the period extending from the first quarter of 1960 to the first quarter of 1977.

The usefulness of the approach taken here is that it provides some theoretical foundation for the prevalent practice of assuming autocorrelated residual errors in the flow demand for money. It is shown, however, that the model of the hoarding process that is compatible with this assumption is but one of various reasonable models. In fact, the estimation results show that using other models not only provides theoretically more defensible results but also gives better fits of the data.

Experience with Programs of Balance of Payments Adjustment: Stand-By Arrangements in the Higher Tranches, 1963-72—thomas m. reichmann and richard t. stillson (pages 293-309)

This paper reviews the experience of the 79 stabilization programs that were supported by Fund stand-by arrangements in the higher credit tranches during 1963-72 in which there were significant net purchases of Fund resources. The paper catalogs the main purposes of these programs and assesses the effect of these programs on trends of domestic credit, credit to the public sector, and net foreign assets. An evaluation is made of the achievement of the programs in terms of their stated purposes. The approach is to test for statistically significant changes in the trends of these variables between the pre-program and post-program periods. The test used is the Mann-Whitney U-test, a non-parametric test for differences in frequency distributions. The behavior of prices and the level of economic activity in the pre- and post-program periods is also examined.

About one half of the programs were designed to correct overly expansionary demand management policies and all of these programs called for a deceleration in credit expansion. About one third of the programs dealt with either an exchange rate adjustment or measures to liberalize the exchange and trade system; the remainder were related to other problems, such as recession, external debt rescheduling, and temporary shortfalls in external receipts.

The overall objectives of programs were achieved in 76 per cent of the cases; of the 19 unsuccessful programs, failure was attributed to exogenous factors in 7 cases. There were three cases of natural catastrophe and four cases of collapse of the market for the principal export commodity. The failure of the remaining unsuccessful programs was attributed to policy failures; in most of these cases, the fiscal performance was judged to be the sole cause. In most of the 79 programs studied, there were no statistically significant changes between the pre- and post-program periods in the trends in prices or in the level of economic activity.

Some Aspects of Income Taxation of Public Enterprises—robert h. floyd (pages 310-42)

Public ownership of business in many countries is no longer confined to traditional fiscal or natural monopolies. Many governments have established or assumed ownership of nontraditional enterprises that generate profits and compete with private enterprise. In view of these developments, the almost exclusive emphasis, in the public finance literature, on traditional monopolies is no longer appropriate; greater emphasis should be placed on nontraditional enterprises.

This paper examines the effects of income taxes on nontraditional public enterprises in economies that are neither centrally planned nor purely free enterprise. It evaluates the effects of this income taxation with respect to the efficiency of resource allocation and the equity of income distribution in the economy.

Since nontraditional public enterprises operate in industries in which the price mechanism could operate effectively as a market signal, it should be possible for these enterprises to run profitably and efficiently. This suggests that the objectives of taxing nontraditional public enterprises should be essentially the same as those for taxing private enterprise—that is, to promote efficient resource usage, equitable distribution of the tax burden, and a stable and growing economy. On the other hand, it must be remembered that special characteristics of public ownership, such as the existence of other government policies and social objectives, may significantly alter the effects of taxation of public enterprises.

In general, the greater are government or other nonmarket constraints on public enterprises in the taxed market, the more limited will be the effects of a profits tax. But the less important are such constraints, and the more important are market incentives, the greater will be the effects of the tax on the economy. Consequently, while imposition of the profits tax under many circumstances might have neither bad nor good implications, the exemption of public enterprises from this tax could have either no effects or only bad effects. The stronger case, therefore, rests with taxing public and private enterprises alike. This conclusion should, however, be tempered by the obvious need to consider more thoroughly the objectives of nontraditional public enterprises and the behavioral responses of their managers to taxation.

The Fund Agreement in the Courts—XIII—joseph gold (pages 343-67)

The par value system that was a central feature of the Fund’s Articles before the Second Amendment involved the proposition that the latest par value for a currency under the Articles existed until changed under the Articles. This was true even if a member floated its currency in violation of its obligations and even though the Fund did not apply the par value in making computations under the Articles. The object was to ensure that the member would be regarded as a violator until it established a new value for its currency under the procedures of the Articles.

The persistence under the Articles of a neglected par value often puzzled external observers because it seemed unrealistic for their purposes. An English court has had to decide the effect of a clause that referred to the par values “in force … as agreed with the … Fund” of sterling and the U.S. dollar in circumstances in which both were floating. The court held that the parties intended “in force” to be additional to “agreed” and to mean that the par values were being maintained. The parties had intended a commercially realistic meaning for the clause. The Court of Justice of the European Communities has had similar problems in two cases, but applicable provisions did not enable it to come to as fully realistic a conclusion.

The Second Amendment abrogates all par values, but the Fund may call a par value system into existence under certain provisions. At all times, however, members will be able to choose their exchange arrangements. No member will be required to have a par value for its currency even if the Fund institutes the new par value system. In further contrast to the past, a member will be able to terminate a par value without establishing a new one. Moreover, the Fund will be able to find that a par value has ceased to exist.

In view of the provisions of the Second Amendment, future legal instruments are not likely to refer to par values. Instead, a unit of account, such as the SDR, may be employed.



In statistical matter (except in the résumés and resumenes) throughout this issue,

Dots (…) indicate that data are not available;

A dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

A single dot (.) indicates decimals;

A comma (,) separates thousands and millions;

“Billion” means a thousand million;

A short dash (-) is used between years or months (e.g., 1971-74 or January-October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

A stroke (/) is used between years (e.g., 1973/74) to indicate a fiscal year or a crop year;

Components of tables may not add to totals shown because of rounding.

International Monetary Fund, Washington, D.C. 20431 U.S.A.

Telephone number: 202 477 7000

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Volume 7: Algeria, Mali, Morocco, and Tunisia

The seventh volume in this series surveying the African economies comprises four countries, three located along the Mediterranean coast of North Africa—Algeria, Morocco, and Tunisia—and one south of Algeria landlocked in the center of West Africa—Mali.

An introductory chapter deals with the principal characteristics of these countries, points out current economic issues, and notes prospects for economic growth and development. In general, the years 1970-74 are covered, although there is some information for 1975. The subjects dealt with include investment and production; economic developments and planning; prices, wages, and employment; government finance; money and banking; balance of payments, trade, and foreign debt; and exchange and trade controls. Detailed statistical tables supplement the text.

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Experience since 1961 with the third edition of the Manual has also led to the inclusion of additional explanations and to further clarification of the recommendations. The work of producing a new edition of the Manual has been carried out by the staff of the Fund in close consultation with compilers of national balances of pay ments.

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Mr. Gold, the General Counsel and Director of the Legal Department of the Fund, is a graduate of the Universities of London and Harvard. He is the author of numerous books, pamphlets, and essays on the Fund and on international and national monetary law.


The first seven articles, together with another article, were issued in book form as The Fund Agreement in the Courts (Washington, 1962); the next four articles were issued as The Fund Agreement in the Courts: Parts VIII-XI (Washington, 1976). The twelfth article was published in Staff Papers, Vol. 24 (March 1977), pp. 193-231.


Joseph Gold, The Fund’s Concepts of Convertibility, IMF Pamphlet Series, No. 14 (Washington, 1971), pp. 33-37.


Joseph Gold, “The Legal Structure of the Par Value System,” Law and Policy in International Business, Vol. 5 (Number 1, 1973; hereinafter referred to as Gold, “Legal Structure of Par Value System”), pp. 177-84.


Article XV, Section 2(a), original and first. In the footnotes to this article, the word original, first, or second in italics following the reference to a provision of the Articles shows whether the reference is to the original Articles, or to the First Amendment, or to the Second Amendment.


Article XV, Section 2(b), original and first.


Annual Report, 1951 (Washington, 1951), p. 40.


Article IV, Section 5, original and first Article XX, Section 4(a) and (d) (iii), original and first.


See Joseph Gold, “Unauthorized Changes of Par Value and Fluctuating Exchange Rates in the Bretton Woods System,” American Journal of International Law, Vol. 65 (1971), pp. 117-20; Gold. “Legal Structure of Par Value System,” pp. 174-75.


Article IV, Section 8, original and first. See also Joseph Gold, Maintenance of the Gold Value of the Fund’s Assets, IMF Pamphlet Series, No. 6 (Washington, Second Edition, 1971), pp. 20-21.


Article XVI, Section I, original and first. For the partial suspension of one provision, see Decision No. 4078-(73/102)S. November 5, 1973 and Decision No. 4145-(74/6) S, February 1, 1974, Annual Report, 1974 (Washington, 1974), pp. 103, 108-109.


See, for example, Decision No. 3865-(73/12) G/S, February 16, 1973, Annual Report, 1973 (Washington, 1973), p. 98; Decision No. 3537-(72/3) G/S, January 4, 1972 and Decision No. 3637-(72/41) G/S, May 8, 1972, Annual Report, 1972 (Washington, 1972), pp. 87-89. The process culminated in the “basket” valuation of the SDR (Decision No. 4233-(74/67) S, June 13, 1974, as amended by Decision No. 4261-(74/78) S, July 1, 1974 and Decision No. 4234-(74/67) S, June 13, 1974, Annual Report, 1974 (Washington, 1974), pp. 116-18.


Decision No. 3463-(71/126), December 18, 1971 and Decision No. 4083-(73/104), November 7, 1973, Selected Decisions of the International Monetary Fund and Selected Documents (Washington, Eighth Issue, 1976; hereinafter referred to as Selected Decisions), pp. 14-21.


See Joseph Gold, Floating Currencies, Gold, and SDRs: Some Recent Legal Developments, IMF Pamphlet Series, No. 19 (Washington, 1976; hereinafter referred to as Gold, Floating Currencies, Gold, and SDRs, 1976), pp. 15-33. Appendices A and B.


Article IV, Section 4(a), original and first.


[1976] 3 All ER 851.


Ibid., p. 854. Article IV, Section 1 of the original Articles read as follows:

(a) The par value of the currency of each member shall be expressed in terms of gold as a common denominator or in terms of the United States dollar of the weight and fineness in effect on July 1, 1944.

(b) All computations relating to currencies of members for the purpose of applying the provisions of this Agreement shall be on the basis of their par values.

It will be apparent that par values were not agreed with the Fund under this provision as stated in Article 13 of the agreement on German external debt. The initial par value of the currency of an original member was established under Article XX, Section 4 of the original Articles as the result of a communication by the member to the Fund, or by agreement with the Fund if the Fund objected to the communicated par value. A subsequent par value was established under Article IV, Section 5. In some instances, the concurrence of the Fund was necessary, but not in others.


The reference to all provisions of the Articles in the discussion of this case are to provisions of the Articles before the Second Amendment.


[1976] 3 All ERatp. 856.


The court defined floating as a situation in which neither currency “was maintained in relation to gold within fixed margins on either side of their par values.” (Ibid., p. 855.) The situation should not be defined in relation to margins around the par values of the currencies, but in relation to margins around the parity between the currencies based on par values. Rates of exchange could be maintained within the same margins for the two currencies only in relation to the ratio between par values.


[1976] 3 All ER at p. 862.




See Transarctic Shipping Corporation, Inc. Monrovia. Liberia v. Krögerwerft (Kröner Shipyard) Company in Gold, Floating Currencies, Gold, and SDRs, 1976, pp. 17-33 and Joseph Gold, Floating Currencies, SDRs, and Gold: Further Legal Developments, IMF Pamphlet Series, No. 22 (Washington, 1977; hereinafter referred to as Gold, Floating Currencies, SDRs, and Gold, 1977), pp. 33, 56-57; Hornlinie v. Société Nationale des Pétroles Aquitaine in Joseph Gold, The Fund Agreement in the Courts: Parts VIII-XI (Washington, 1976), pp. 110-21; Matter of the Khendrik Kuivas in Gold, Floating Currencies, SDRs, and Gold, 1977, pp. 56-58.


For a discussion of the reform of Article II: 6(a) of the General Agreement on Tariffs and Trade in present circumstances, see Frieder Roessler, Specific Duties, Inflation and Floating Currencies, General Agreement on Tariffs and Trade, Studies in International Trade, No. 4 (Geneva, 1977).

Article II: 6(a) reads as follows:

The specific duties … included in the Schedules … are expressed in the appropriate currency at the par value accepted or provisionally recognized by the Fund at the date of this Agreement. Accordingly, in case this par value is reduced consistently with the Articles of Agreement of the International Monetary Fund by more than twenty per centum, such specific duties … may be adjusted to take account of such reduction….


Case 28/74 [1975] E.C.R. 473.


Ibid., p. 474.


Joined Cases 41, 43, and 44/73 [1977] E.C.R. 445. See also Rebecca M. M. Wallace, “Currency Fluctuation and the Payment of Fines,” European Law Review, Vol. 2 (August 1977), pp. 301-303.


The European Communities employ a number of units of account, of which the one defined in terms of gold was relevant in the case. The European unit of account (EUA), based on a basket of currencies, was created in 1975. So far, it is being used for the purposes of the European Development Fund, the operational budget of the European Coal and Steel Community, and the balance sheet of the European Investment Bank. The European Commission proposed in 1976, and the Council of Ministers agreed, that the EUA should be used eventually in all activities of the European Communities. (See Gold, Floating Currencies, Gold, and SDRs, 1976, pp. 40-45.)


Coöperatieve vereniging ‘Suiker Unie’ UA and Others v. Commission of the European Communities, Joined Cases 40 to 48, 50, 54 to 56, 111, 113, and 114/73 [1975] E.C.R. 2026.


Official Journal of the European Communities, Vol. 5, No. 13, February 21, 1962, p. 204.


Ibid., Vol. 16, No. L 116 (May 1, 1973).


Joined Cases 41, 43, and 44/73 [1977] E.C.R. 449.


Ibid., p. 451.


See fn. 27.


Joined Cases 41, 43, and 44/73 [1977] E.C.R., p. 463.


Financial Regulation of April 25, 1973:

Article 29

The amounts shown to the credit of the accounts referred to in Article 28 shall retain the value corresponding to the parity in force on the day of deposit in relation to the unit of account as defined in Article 10.

Should the parity of the currency of a Member State in relation to the unit of account be modified, there shall immediately be an adjustment of the balance of those accounts, by means of a further payment made by the Member State or Member States concerned or a repayment made by the Commission.

Article 36

Payments provided for in Articles 26 and 34 shall be made in national currencies; they shall be calculated on the basis of the parity declared to the International Monetary Fund in force on the day of payment.

Article 71

Entries in the accounts of any amount in units of account shall comply with the parity in force on the date of payment or actual payment.


Communique of the Committee of the Board of Governors on International Monetary Reform and Related Issues, March 27, 1973, par. 4(a), IMF Survey, Vol. 2 (April 9 1973), p. 100; IMF Press Release No. 964, March 27, 1973.


Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund: A Report by the Executive Directors to the Board of Governors (Washington, March 1976), Part II, Chapter C, Section 6.


Decision No. 3463-(71/126), December 18, 1971 and Decision No. 4083-(73/104), November 7, 1973, Selected Decisions, pp. 14-21.


Summary Proceedings of the Twenty-Sixth Annual Meeting of the Board of Gov ernors, September 27-October 1, 1971 (Washington. 1972), pp. 331-32.


31 U.S.C. 449.


Bretton Woods Agreements Act, Amendments. Public Law 94-564, October 19, 1976, Section 8.

“The legal standards for the dollar of $42.22 per fine troy ounce of gold would be retained solely with respect to gold certificates held by the Federal Reserve System—the only domestic purpose for which a value of the dollar in terms of gold is needed. Approximately $ 1 li billion of these certificates are now outstanding, and are being retired by the Treasury as its gold holdings are sold.” (U.S. Congress, House, Committee on Banking, Currency and Housing, Subcommittee on International Trade, Investment and Monetary Policy, To Provide for Amendment of the Bretton Woods Agreements Act, Hearings on H.R. 13955, 94th Congress, Second Session, June 1 and 3. 1976 (Washington, 1976), p. 12).


Article IV, Section 2(b), second.


Ibid. See also William H. L. Day, “A Reform of the European Currency Snake,” Staff Papers, Vol. 23 (November 1976), pp. 582-84.


Article IV, Section 4, second.


Schedule C, par. 1, second.


Schedule C, par. 3 second.


Schedule C, par. 6, second.


Schedule C, par. 7, second.


Schedule C, par. 8, second.


See Joseph Gold, Voting Majorities in the Fund: Effects of Second Amendment of the Articles, IMF Pamphlet Series, No. 20 (Washington, 1977), pp. 11-12.

“These new exchange rate provisions are of critical importance both for the system as a whole and for the United States. They focus on the essential need to achieve underlying stability in economic affairs if exchange stability is to be achieved. They provide a flexible framework for the evolution of exchange arrangements consistent with this broad focus. And they help to ensure that the United States is not again forced into the position of maintaining a value for its currency that is out of line with underlying competitive realities and that costs the United States jobs and growth due to loss of exports, increased imports and a shift of production facilities overseas. Under the new provisions, the United States will have a controlling voice in the future adoption of general exchange arrangements for the system as a whole; and will have full freedom in the selection of exchange arrangements to be applied by the United States, regardless of the general arrangements adopted, so long as it meets its general IMF obligations.” (U.S. National Advisory Council on International Monetary and Financial Policies, Special Report to the President and to the Congress on Amendment of the Articles of Agreement of the International Monetary Fund and on an Increase in Quotas in the International Monetary Fund (Washington, April 1976), p. 23).


Schedule C, par. 8, second.


Schedule C, pars. 5 and 8, second.


Article VIII, Section 3, second.


Schedule C, par. 8, second.


Schedule C, par. 7, second.


Schedule C, par. 6, second.