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June'691944 nit line of Principal Points To Be Covered in Discussion of International Monetary Fund and International Bank: for Reconstruction end Development A.. Status of the two plans i* Joint statement an fundamental points in the Fund agreed upon by experts of the United States, England, Russia, cnC. other countries. Ho Government is formally posed.tted« In practice, the Governments are committed, axeopt that Congress can refuse to ratify. II. Bank. Borne discussion of draft Tilth the British, Russians, and others. No agreements. B. Substance of plan for International Monetary Fund jT -« rurrjooc. To contribute to the restoration of international trade as an essential part of v.'orld economic recover-* and of achievement snei maintenance of full employment. II, General (a) Establishment of machinery Tor international cooperation in •nui.n.taining stability of exchcnfJ;c rates, with opportunity for orderly adjustments ;;ithout deflation or harmful restriction of trade. Creation of a reservoir of various currencies available for settling balances, (b) Fund not in any way to interfere vith general exchange market but only to deal vita central authorities at their initiative. Source of funds Contributions by member countries aggregating about 88 billion for the United Nations and the nations associated. .;itb then, '10 billions for entire -world. 17. Form of^ funds Gold an:1 local currencies. CJold to be 25 per cent of quota or 10 per cent of helding3 of gola and G:olc~converticle exchange, vrhichever is the saeller, V. Sizc^ _of quotas Details to be worked out at conference. The United States Treasury recomnendatioc is that the formula t:^.ke into consideration national incone, internationaJ. reeervos, foreign trade, and variations in exports. VI. Rights of countries to uae_ oi; Furv± They are entitled to draw up to their quotas plus their gold contributions, more, Tiith approval of Fund, [jimitationo - not in excess of 25 per cent ox quota a year and subject also to such, limitations as are indicated in subsequent paragraphs. (Gee VII, VIII, IX, and XIII*) VII* Fund * g powers to influence policies of members (a) Fund can serve notice that it viil not permit further ctrcfte oftor an indicated period if a member is usinr the resources of the Fund in a manner contrary to the purposes of the Fund, before giving notice the Fund oust issue to the country £ report explaining the reasons. (b) Fund exercises ride control over exchange rate adjustments and exchange controls. (See X and XII.) (c) Fund may require capital movements to be controlled. (^";ce VIII*) C c The Fund is for the purpose of facilitating current trade, not to finance capital movements. It he.s real poorer to regulate substantial, capita}, movements from & country rising the Fund for that purpose. Only general moral suasion if capital exports are Diet out of other resources, IX. Scarce currencies When the supply of a given currency becomes 1OT. the Fund can declare it to be scarce and can apportion its supply among member countries. Members can then ration the scarce currency among their nationals. X« Exchange rate3 (a) To be agreed upon between member countries xnd the Fund, (b) Fund cannot change a country's rate v/ithout its consent. (Sec XI.) (c) Member can change by 10 ?^er cent without Fund's permission, other changes only v.lth permission, Func may bg asked to raako decision in two days if further change requested docs not exceed 10 per cent. Fund is expected to permit a change when it is essential to the correction of B fundamental disequilibrium. Fond shall not reject a requested change necessary to restore equilibrium because of the domestic social or political policies of the country applying for a change. (d) Fund expected to be more vailing to approve changes during postvar reconstruction period. (e) It is understood (though not stated explicitly) that a country which depreciates its currency must make up the resultant loss to Fund. -J» Gold value of currencies Value of currencies to be expressed in gold. Fund can change gold value 9£ all currencies at ence (which uoulc; not Change exchange rates), provided all countries v.ith 10 per cent of vote agree. XII. Exchange controls Exchange controls to be reaoved by each member as soon at> possible, except in respect to capital movement3, No nev controls or special currency arrangements to be made without approval of the Fund, XIII. Other gold features (a) Countries ffith gold contributions of less than 25 per cent of quota must bring it to that level -.hen their gold and foreign exchange resources increase above the amount of their quota. (b) Countries with gold and foreign exchange reserves equal to their quota must pay for half the foreign exchange thev obtain from the Fund '..1th gold. (c) Countries acquiring gold and foreign exchange beyond the amount of their quotas oust use half of•it to repay the Fund for exchangs they have obtained from the Fund. (d) Countries must sell gold through Fund, if they can do so as advantageously as otherwise, except newly-mined. (e) Countries* obligations to buy or sell gold not stated, but rather implied in undertaking to g&intain exchange rate. Should it be spelled out? XIV. K Votes in Board aid in executive committee closely related to quotas. Host actiunJ^p/ majority vote. Four-fifths vote (includir^ vote of oembor concerned) on change of quota. ? Executive couunittee of nine members. i^ht ol v.lthdrs--;/f Upon notice, withdrawing count??/ obliged to meet its obligations to Fund in a reasonable time. -':g-ttgr£ of specie! concern to Federal Reserve System (a) General interest in economic stability to v.hich the Fund should contribute. „ (b) Regularization of gold flows. If the plan in successful the United States Trill get less gold than if no plan •wioj&dopted. If it foils, the United States is not likely to get any more than it would have received without the plcn, or is it? (c) System has an interest in the Initial exchange rates to be established. (The higher the pound is, for instance, the more export surplus ve are likely to have.) (d) Specific points to ?ratchi (i) Manner of paying in United States contribution. (;-•) Participation in management through membership on a committee to help select Euad guide American director. (£) Additional powers to absorb member bank roservc-s. Do ae need them i and \ hen? (4) In preparation of plan System might favor: (a) imposition of on interest rate on funds drawn fro?* Fund above country's gold contribution; (b) some method to regulate period for which funds are kept; (c) more explicit and effective provisions for preventing speculative capital rnovoments; (d) explicit statement that the Fund can ma!ce a report to any member country, whether it is using the Fund or not, indicating that its actions tire contrary to comraon purposes. Substance of Bank plan (^) Capital - $10 billions - 20 per cant in first year and no more than 20 per cent a year. Small part in gold - rest in currency. (b) Operations Loans and guarantees of loens for purpose of productive enter* prises - Governments or central bar&s to guarantee repayment. JO loans to be made or gu^r^ntecd by Bcn:c v ithout ; pprov^l of country in uhose currency loan is mode. Query: Liust country also agree as to trhere money is to bo spent? (c) No loons to be iaade or ^uyrcnteed, unless private funds arc not othorv/ise available on reasonable terms. (d) Management Governing board imd executive cociniittee, Votes in relation to capital contributions. k INTERNATIONAL MONETARY ' TD Chief Points of Agreement in Joint Statement I, Subscriptions to Fund A Fund of $8-10 billion subscribed to by member countries according to agreed quotas. A member subscribes 25$ of its quota or 10$ of its gold and gold-convertible exchange, whichever is smaller, in gold, and the rest in local funds. Changes in quotas possible only with .4/5 vote and approval of member countries concerned. II. Limitations on Fund's Operations Can deal with member countries only through Treasuries, Central Banks, Stabilization Funds, or other fiscal agencies. Operations limited to lending to member countries as outlined under III, gold operations as outlined in VI, borrowing from member countries, • and offering gold tu member countries in exchange for their currencies. Fund's account in a member country to be kept at the Central Bank of the member country. III. Borrowing Privileges of Member Countries In general a member- country is entitled to get foreign exchange from the Fund in exchange for its own currency up to the amount of its quota plus its gold contribution provided that the foreign exchange is currently needed for making payments in that currency, that the country can get no wore then 25$ of its quota in foreign exchange in any 12 month period, that the currency needed has not boon declared scarce, and that the Fund has not given previous notice that the member is suspended from making further use of the Fund*8 resources on the grounds that it is using them in a manner contrary to the purposes and policies of the Fund. The Fund may waive any of the condition,?, above. A member may not use the Fund's resources to finance a large or sustained outflow of capital. IV. Scarce Currencies The Fund may declare a member country's currency to be scarce in the Fund, and may apportion its supply among member countries. When a currency has thus been declared scarce all member countries are authorised to ration their supplies of the currency among their nationals. The -Fund must issue a report analyzing the causes of the scarcity and containing recommendations designed to bring it to an end. V. Par Values of Currencies Initially established in terms of gold by agreement with member countries. Members not to buy gold, at a price which exceeds the agreed parity by more than a prescribed margin, nor to sell gold at a price which falls below the agreed parity by more than a prescribed margin. A member may alter the par value of its currency by 10$ without the approval of the Fund. All further changes arc subject to the: approval of the Fund, but a member requesting a change of a further 10$ may request the Fund to act on it in two days. The Fund shall approve a change when it is essential to the correction of a fundamental disequilibrium. There may be a uniform change in the par values of all currencies provided all countries with 10$ or more of the votes approve. VI. Special Gold Provisions Members are expected to sell gold through the Fund if it is equally advantageous to them, except for newly mined gold. Members with gold and gold-convertible exchange equal to their quota must pay for half the exchange obtained from the Fund with gold. Members acquiring gold and gold-convertible exchange, beyond the amount of their quotas must use half of it to repay the Fund for exchange obtained from the Fund, and, in addition, to build up their original gold contribution to 25% of their quota provided it was less than that. VII. Exchrngo Controls Members agree to abandon exchange controls on current account transactions as soon as they consider it possible. Members cannot impose new controls on current transactions without the approval of the Fund. VIII. Management A board representing all members. An executive committee of nine members including the representatives of the five countries with the largest quotas. Distribution of voting power on both the board and the executive committee closely related to quotas. All matters settled, by majority vote except for changes in quotas and decision to make uniform change in the gold values of all currencies. IX. Withdrawal On giving notice, ^^^ http://fraser.stlouisfed.org/ Reciprocal obligations be liquidated within reasonable time. Federal Reserve Bank of St. Louis INTERNATIONAL i/iONETARY FUND Chief Points Which Must Be Settled At The Conference and Other Points Which May Be Discussed I. Subscriptions to Fund The formula for determining quotas must be settled. The loading formula is the Treasury one which takes account of national income, gold and gold-convertible exchange holdings, and foreign trade. The formula for gold contributions may be further discussed. The definition of gold and gold-convertible exchange holdings must be agreed on. The arrangements for payment of subscriptions must be settled, particularly the way in which local funds may be subscribed. The time at which the Fund begins operations must be determined. II. Limitations on the Fund's Operations None III. Borrowing Privileges of Member Countries provision should be made for levying a snail interest charge on a member's net indebtedness to the Fund. Provision should perhaps be made for requiring a member to reduce or eliminate its indebtedness to the Fund over a specified period of time, provided (say) that its indebtedness exceeds l/4 ox its quota on the average of a three months period. The notice provision must be carefully worked out. Presumably a member should be allowed to continue drawing on the Fund for a limited period of time after notice has been given and up to a specified maximum. Perhaps the period of notice and the specified maximum should depend on the extent of the member's indebtedness to the Fund. The conditions under which the Fund may give notice may be further spelled out. The conditions under which the Fund can waive the quantitative limits on a member's right to obtain foreign exchange from the Fund may be further spelled out. IV. Scarce Currencies These provisions may be further discussed. Possibly countries adequately supplied with gold or the scarce currency should not be allowed to ration the scarce currency simply because the Fund's supply is becoming exhausted. V. Par Values of Currencies The provisions concerning 10$ changes must be spelled out. It is not absolutely clear on what base the 10% will be calculated3 for example, if a change has been made and approved by the Fund since the establishment of the initial rates. The way in which initial par values will bo determined must be further discussed. There may be further discussion of the conditions under which the Fund shall approve a change in par values. VI. Special Gold Provisions The provision which cays members are expected to sell gold through the Fund will not in practice force then*to do so. It is possible that P. rvrrwi an or VII. Exchange Controls The provisions governing the relaxation of exchange controls after the war arc very loose. No member can be forced to abolish controls at any time. These provisions should perhaps be tightened up. There is no requirement that numbers control disturbing or speculative capital movements„ VIII. Management The formula for the distribution of voting power must bo agreed on. A formula similar to the one in the; Revised White Plan would appear to be reasonable. The distribution of voting power in the Executive Committee will presumably have to be based on the assumption that certain members of the Executive Committee will represent members which are not directly represented on the Executive CoTumittee. IX. Withdrawal The arrangem-onts for reciprocal liquidation of obligations must be worked out.
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