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Unauthorized Changes of Par Value and Fluctuating Exchange Rates in the Bretton Woods System

Published online by Cambridge University Press:  28 March 2017

Joseph Gold
Joseph Gold*
Affiliation:
International Monetary Fund
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Extract

In these days when the exchange rate provisions of the Articles of Agreement of the International Monetary Fund are being scrutinized, although in a spirit of continued approbation of the basic principles of what is called the par-value system or the Bretton Woods system, it may be useful to examine one of the most remarkable features of the agreement which was reached in July, 1944. The reference is to Article IV, Section 6, of the Articles of Agreement, which deals with what are called, in the title of the provision, "unauthorized changes" of par values. The provision is interesting not only because it establishes an important principle of the par-value system but also because it does this by means of a novel and ingenious legal technique.

Type
Research Article
Information
American Journal of International Law , Volume 65 , Issue 1 , January 1971 , pp. 113 - 128
Copyright
Copyright © American Society of International Law 1971 

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Footnotes

*

The opinions expressed in this article are those of the author and not the official views of the Fund unless the context indicates that they are.

References

1 Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944 (U. S. Department of State Publication 2866, International Organization and Conference Series 1, 3 (hereinafter referred to as Procs. and Docs.)), Vol. I, pp. 867–886, Vol. II, pp. 1210–1212.

2 “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.” (Art. IV, Sec. 1(a).) On initial par values, see Art. XX, Sec. 4.

3 2 Procs. and Docs. 1213.

4 “Foreign exchange dealings based on parity

The maximum and the minimum rates for exchange transactions between the currencies of members taking place within their territories shall not differ from parity

(i) in the case of spot exchange transactions, by more than one percent; and

(ii) in the case of other exchange transactions, by a margin which exceeds the margin for spot exchange transactions by more than the Fund considers reasonable.” (Art. IV, Sec. 3.)

“Obligations regarding exchange stability

(a) Each member undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.

(b) Each member undertakes, through appropriate measures consistent with this Agreement, to permit within its territories exchange transactions between its currency and the currencies of other members only within the limits prescribed under Section 3 of this Article. A member whose monetary authorities, for the settlement of international transactions, in fact freely buy and sell gold within the limits prescribed by the Fund under Section 2 of this Article shall be deemed to be fulfilling this undertaking.” (Art. IV, Sec. 4.)

5 Art. XV, Sec. 2(b) provides: “If, after the expiration of a reasonable period 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, that member may be required to withdraw from membership in the Fund by a decision of the Board of Governors carried by a majority of the governors representing a majority of the total voting power.”

8 The International Monetary Fund 1945–1965: Twenty Years of International Monetary Cooperation (Washington, D. C, IMF, 1969; hereinafter referred to as History), Vol. I, pp. 6, 23, 28–29, 46–47.

7 2 Procs. and Docs. 1629–1636.

8 1 History 82–83.

9 2 Procs. and Docs. 1635.

10 1 History 84.

11 2 ibid. 582–588.

12 1 ibid. 84.

13 1 Procs. and Docs. 21–60.

14 Ibid. 38.

15 Ibid. 270–271.

16 Ibid. 868.

17 Ibid. 52–53, 272–273.

18 Ibid. 522.

19 Ibid. 662 (Drafting Committee text of July 16).

20 Ibid. 772. The change was made in the second report of the Drafting Committee (apparently of July 18).

21 The Fund has no right to object under Art. IV, Sec. 5(c) (i) or (e).

22 1 Procs. and Docs. 557. See also pp. 271, 463.

23 1948 IMF Annual Report 36–38, 76–78.

24 Art. IV, Sec. 5(c)(i).

25 Ibid., Sec. 5(e).

26 See 1 History 360.

27 Gold, Joseph, “The Duty to Collaborate with the International Monetary Fund and the Development of Monetary Law,” in Law, Justice and Equity 143–146 (edited by Code, R. H. Holland and Schwarzenberger, G.; London and Dobbs Ferry, N. Y., 1967)Google Scholar.

28 Selected Decisions of the Executive Directors and Selected Documents (Washington, D. C, IMF, Fourth Issue, April, 1970; hereinafter referred to as Selected Decisions), p. 18.

29 2 History 152–173.

30 Joseph Gold, Maintenance of the Gold Value of the Fund’s Assets (IMF Pamphlet Series, No. 6, 1965).

31 Selected Decisions 7–11.

32 Art. XV, Sec. 2(a).

33 2 History 582–588.

34 Selected Decisions 104–105.