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Published online by Cambridge University Press: 28 March 2017
Recent events in the international monetary system culminating in the decision of the United States, announced on August 15, 1971, to suspend the convertibility of the dollar induce the international lawyer to ask once again what contribution sanctions can make to respect for international law and the effectiveness of multilateral treaties. This question has been a practical problem at two stages in the development of the International Monetary Fund. It arose first during the negotiation and drafting of the original Articles of Agreement which were adopted at the Bretton Woods Conference in July 1944. The second stage was the negotiation and drafting of the amendment of July 28, 1969, which dealt mainly with the legal structure of special drawing rights as a supplement to existing reserve assets. It is now apparent that there will be a third stage, in which a reform of the international monetary system, perhaps in some of its most fundamental aspects, will lead to a further amendment of the Fund's charter.
The views expressed in this article are those of the author and not necessarily those of the Fund.
This article is of particular interest in view of the current and continuing negotiations concerning the further development of the International Monetary System called for by the Smithsonian Agreement of December 18, 1971.
That interest is heightened by the recommendations of the study issued in February 1972 by the Panel on International Monetary Policy of the American Society of International Law. In that study, “Long-Term International Monetary Reform: A Proposal for an Improved International Adjustment Process,“the Panel specifically called for a strong “compliance authority” to “enforce compliance”with what would be the Fund's greatly expanded functions (were the Panel's recommendations to prevail)“to assure a smoothly functioning international balance of payments adjustment process.” (p. 7 ) While recognizing “that compliance is a difficult concept for sovereign nations to accept,” the Panel was of the view that nonetheless “an acceptable compliance procedure will be essential.” (p. 37)
This analysis of the existing sanctions in the Fund's Articles, and of their use and non-use is both valuable and timely for the important negotiations which lie ahead.Ed. Note, Stanley D. Metzger
1 See the Resolution of the Board of Governors on the International Monetary System adopted at the 1971 Annual Meeting of the Board of Governors of the Fund (Resolution No. 26–9).
“whereas the present international monetary situation contains the dangers of instability and disorder in currency and trade relationships but also offers the opportunity for constructive changes in the international monetary system; and . . .
whereas consideration should be given to the improvement of the international monetary system and the adjustment process; . . .
Now, Therefore, the Board of Governors hereby Resolves that: . . .
III. The Executive Directors are requested:
(a) to make reports to the Board of Governors without delay on the measures that are necessary or desirable for the improvement or reform of the international monetary system; and
(b) for the purpose of (a), to study all aspects of the international monetary system, including the role of reserve currencies, gold, and special drawing rights, convertibility, the provisions of the Articles with respect to exchange rates, and the problems caused by destabilizing capital movements; and
(c) when reporting, to include, if possible, the texts of any amendments of the Articles of Agreement which they consider necessary to give effect to their recommendations.”
(International Monetary Fund, Summary Proceedings of the Twenty-Sixth Annual Meeting of the Board of Governors, 1971 at 331–32 (hereinafter referred to as Summary Proceedings for a particular year); 23 International Financial News Survey (No. 39, 1971) at 322.
2 Art. IV §§ 3 and 4 of the Articles of Agreement of the International Monetary Fund which entered into force on Dec. 27, 1945 and were amended effective July 28, 1969. References hereinafter to an Article or a Schedule are to a provision of this Agreement. International Monetary Fund, Selected Decisions of the Executive Directors and Selected Documents (hereinafter referred to as Selected Decisions) (Washington, Fifth Issue, 1971) at 15 (Decision No. 904–(59/32), July 24, 1959).
3 International Monetary Fund, The Role of Exchange Rates in the Adjustment of International Payments: A Report by the Executive Directors 54–58, 76–78 (1970) (hereinafter cited as Report on Exchange Rates).
4 ”We should also consider how to achieve adequate safeguards against unilateral breaches of the new agreement.” (Statement by Per Kleppe, Minister of Commerce and Shipping of Norway, at the Twenty-Sixth Annual Meeting of the Board of Governors, 1971, Summary Proceedings, 1971, at 88.
5 For earlier discussions of practice, see 2 The International Monetary Fund, 1945–1964: Twenty Years of International Monetary Cooperation 582–88 (1969); and Joseph, Gold, “Certain Aspects of the Law and Practice of the International Monetary Fund,” in The Effectiveness of International Decisions: Papers of a Conference of the American Society of International Law, and the Proceedings of the Conference (SchwebeL ed., 1971) at 72–76 Google Scholar (hereinafter referred to as Effectiveness of International Decisions).
6 Art. XII § 3(a) and (g); § 15 of the By-Laws. For the reserved powers, see Art. XII § 2(b) and Art. XXVII (a)(i).
7 Art. XII § 5(d). The voting power of a member consists of a fixed number of votes, which is the same for all members, and votes that are weighted according to the quota of the member (Art. XII § 5(a)).
8 Art. XII § 2(e).
9 Art XII § 3(i).
10 Art. XII 5 8.
11 Art. XIV § 2. For the obligations of convertibility, see Art. VIII §§ 2, 3, and 4.
12 Art. XIV § 2.
13 Art. XIV § 4.
14 Art. V § 5; Selected Decisions supra n. 2, at 33.
15 Art. XII § 8.
16 Effectiveness of International Decisions supra n. 5, at 73–76.
17 Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944 (Dept. of State Pub. 2866, Intl. Org. and Conf. Series I, 3 (1948) at 1087–88) (hereinafter cited as Procs. and Docs.).
18 Art. XII §3(j).
19 He can cast the number of votes allotted to all of the members which elected him only as a unit (Art. XII § 3(i)).
20 Bernstein, E. M. , “Scarce Currencies and the International Monetary Fund,” 53 J. of Political Economy 1–14 (1945)Google Scholar (reproduced in Hearings on Bretton Woods Agreements Act Before the Senate Comm. on Banking and Currency, 79th Cong., 1st Sess. 621–32 (1945) (hereinafter cited as Senate Hearings).
21 Art. VII $ 1.
22 Countries may get into a position where there is a scarcity of foreign currency not .because of the fault of the country from which they are buying but due to their own extravagant policies. We said we could accept no such assumption, either implicit or explicit, that if dollars became scarce in the fund, that the fault is necessarily ours. We finally agreed that if any currency becomes scarce a report will be prepared and a member of the committee which prepares that report shall be a representative of the country whose currency is becoming scarce. We want to make certain any report made is a competent one, and places the responsibility for the scarcity where it belongs and give proper weight to each of the various causes. We said we would agree to have the fund make a report. More than that if the fund declares a currency scarce we would agree that the fund be required to make public the report. That, we think, is highly desirable, because if there are causes for that scarcity which are in part due to policies pursued by the United States, then we think that Congress ought to know it. The report of the fund would have prestige, if the fund earns prestige. If the fund conducts itself in such a way that it wins the confidence of the various countries, Congress or a committee—your committee would have it—would have before it the report of the fund for you to examine for what it was worth. If the reason stated in the report seemed sound it might influence your policy, you would take that fact into consideration.” (H. D. White in Senate Hearings supra n. 20, at 168–69. See also at 170).
23 Ibid. 169–70; and 211.
24 Selected Decisions supra n. 2, at 22–23.
25 Art. V § 8(c) and (d). Rules and Regulations, Rule I-4(g). Under the Rule, the Fund may impose penalty rates if an agreement that has been reached on the reduction of the Fund’s holdings is not observed by the member.
26 Art. XV § 2(a).
27 See, for example, Friedmann, W., “General Course in Public International Law,” in 127 Recueil des Cours: Collected Courses of the Hague Academy of International Law 68–70 (1969)Google Scholar.
28 Art XV § 2(a).
29 Procs. and Docs, supra n. 17, at 272.
30 Ibid. 534.
31 Art. XIV § 4.
32 Art VI § Ka). But see Art. VI §§ 1(b) and 2.
33 Art. V § 5.
34 Art XII § 5(b).
35 Art.V§4.
36 See also Art. XII § 3(c) which is designed to ensure the presence of directors appointed by “creditor” members in the Executive Directors.
37 Joseph, Gold, “Unauthorized Changes of Par Value and Fluctuating Exchange Rates in the Bretton Woods System,” 65 A.J.I.L. 113–28 (1971)Google Scholar.
38 Art. IV § 6.
39 See, for example, Senate Hearings supra n. 20, at 40–41.
40 Art. VII § 2.
41 Art. VII § 3(a).
42 Art. VII § 3(b).
43 Bernstein, supra n. 20 at 4 et seq. (Senate Hearings, 624 et seq.).
44 Art. VIII §§ 2(a) and 3.
45 “I suggest that one of my difficulties with it [Article VII, Section 3] is that that seems to be an international indictment of the United States . . . I mean this is a statement from the world that the United States is refusing to take imports, they are refusing to lend us money, they are refusing to export capital, and so we indict them.” (Senator Taft, Senate Hearings, supra n. 20, 167–68. See also 170 et seq.)
46 Bretton Woods Agreements Act, Section 4(b)(4), 59 Stat. 513 (1945).
47 Art. IV §§ 3 and 4(b).
48 Art. IV § 4(a). See also Joseph, Gold, “The Duty to Collaborate with the International Monetary Fund and the Development of Monetary Law,” in Law, Justice and Equity 137–51 (1967)Google Scholar.
49 Art. VII § 4.
50 Art. XXX § 1(b).
51 Art. XV § 3 and Schedule D; Art. XXX § 2 and Schedule H.
52 Art. V § 5.
53 Art. VI § 1.
54 Art XIV § 4.
55 Art. XV § 2(a).
56 Art. XII § 2(b)(vi).
57 On Jan. 3, 1972, there were 120 members of the Fund. If only a majority of governors had been prescribed, the requirement could have been satisfied on that date by 61 governors having as little as 9.0 per cent of the total voting power. If only a majority of the total voting power had been prescribed, the requirement could have been satisfied on that date by as few as 7 governors.
58 Art. XII § 3(a).
59 Art. XXV § 3(a).
60 Art. XXV § 3(b).
61 Art XXV § 5(a).
62 It is also possible for the Fund to permit the participant to agree with another participant that the latter shall transfer to the former an amount of special drawing rights that will offset the failure to observe the expectation (Art. XXV § 2). An agreement under this provision avoids the necessity for designation. The technique of agreement, which is perhaps less likely to give the impression of a remedy, has been used so far in the two instances in which the expectation was not observed.
63 A participant may agree to hold more than the mandatory maximum (Art XXV §4).
64 Art. XXIX § 2(a).
65 Art. XXIX § 2(c); Rules and Regulations, Rule R-4.
66 Rules and Regulations, Rules R-5 to 8.
67 Art. XXIX § 2(d).
68 Art. XXIX § 2(b).
69 Art. XXIX § 2(e).
70 Art. XXV § 6, Schedule G; Rules and Regulations, Rules P-l to 7. See also Joseph, Gold, Special Drawing Rights: Character and Use, International Monetary Fund, Pamphlet Series No. 13, 2d ed. (1970) at 67–70 Google Scholar.
71 Art. VIII §§ 2(a) and 3.
72 Schedule G, para. 2.
73 Art. XXIX § 2(b) and Schedule G, para. 2.
74 Art. XXIX § 1.
75 Art. XVI § 1(b) and (c).
76 Art. XX § 4(i); Selected Decisions, supra n. 2, at 126.
77 Art V § 3(a)(i); Selected Decisions, supra n. 2, at 18–19.
78 See Joseph, Gold, The Stand-By Arrangements of the International Monetary Fund: A Commentary on Their Formal, Legal and Financial Aspects (1970)Google Scholar.
79 “There is another advantage to which I would draw your Lordships’ special attention. A proper share of responsibility for maintaining equilibrium in the balance of international payments is squarely placed on the creditor countries. This is one of the major improvements in the new plan. The Americans, who are the most likely to be affected by this, have, of their own free will and honest purpose, offered us a far-reaching formula of protection against a recurrence of the main cause of deflation during the interwar years, namely, the draining of reserves out of the rest of the world to pay a country which was obstinately borrowing and exporting on a scale immensely greater than it was lending and importing. Under clause VI of the plan a country engages itself, in effect, to prevent such a situation from arising again, by promising, should it fail, to release other countries from any obligation to take its exports, or, if taken, to pay for them. I cannot imagine that this sanction would ever be allowed to come into effect If by no other means, than by lending, the creditor country will always have to find a way to square the account on imperative grounds of its own self-interest. For it will no longer be entitled to square the account by squeezing gold out of the rest of us. Here we have a voluntary undertaking, genuinely offered in the spirit both of a good neighbor and, I should add, of enlightened self-interest, not to allow a repetition of a chain of events which between the wars did more than any other single factor to destroy the world’s economic balance and to prepare a seedbed for foul growths. This is a tremendous extension of international cooperation to good ends. I pray your Lordships to pay heed to its importance.” (Address of Lord Keynes before the House of Lords on May 23, 1944, Great Britain, 131 Parliamentary Debates (Hansard), House of Lords, May 23, 1944, Col. 842 (reproduced in Senate Hearings, supra n. 20, at 211)).
80 Bernstein, supra, n. 20, at 1 (Senate Hearings, 622).
81 Selected Decisions 68–82, 88–91.
82 Report on Exchange Rates 26–28, 54–55, 78–78.
83 Art. XXIX § 2(f). It is also provided that a participant shall not be suspended in its right to use special drawing rights because it has become ineligible to use the resources of the Fund held in the General Account.
84 See supra n. 62.
85 Louis, Henkin, How Nations Behave: Law and Foreign Policy (1968)Google Scholar.
86 Ibid. 45.
87 In parliamentary systems, the detriments include the severe criticism of the opposition. See for example, Canada, 114 House of Commons Debates, 28th Parl., 2nd Sess., No. 134 (June 1, 1970) at 7526–27. See also Handelingen der Tweede Kamer (the Lower House of Parliament of the Netherlands), 3de vergadering (Behandelling brieven betreffende monetaire situatie, May 25, 1071) at 65,73.
88 See, e.g., supra n. 1.
89 Art. IV § 6.
90 Art. XXV § 4; Art. XXIX § 2(a) and (c); Rules and Regulations, Rule R-4.
91 Art. V § 5 .
92 Art. VII § 3(a).
93 Art. XXIX § 2(a).
