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BRETTON WOODS AGREEMENTS
ACT AMENDMENT

HEARINGS
BEFORE THE

COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
EIGHTY-SEVENTH CONGRESS
SECOND SESSION
ON

H.R. 10162
TO AMEND THE BRETTON WOODS AGREEMENTS ACT TO
AUTHORIZE THE UNITED STATES TO PARTICIPATE IN
LOANS TO THE INTERNATIONAL MONETARY FUND TO
STRENGTHEN THE INTERNATIONAL MONETARY SYSTEM

MARCH 30 AND APRIL 3, 1902

Printed for the use of the Committee on Foreign Relations

U.S. GOVERNMENT PRINTING OFFICE
82526 0




WASHINGTON : 19«2

COMMITTEE ON FOREIGN RELATIONS
J. W. FULB RIGHT, Arkansas, Chairman
A LEX A N D E R W ILEY, Wisconsin
BOURKE B. HICKENLOOPER, Iowa
GEORGE D . AIKEN, Vermont
HOM ER E. CAPEH ART, Indiana
FR AN K CARLSON, Kansas
(
JOHN J. W ILLIAMS, Delaware

JOHN SPARKMAN, Alabama
HUBERT H. HUMPHREY, Minnesota
MIKE MANSFIELD, Montana
WAYNE MORSE, Oregon
RUSSELL B. LONG, Louisiana
ALBERT OORE, Tennessee
FRANK J. LAUSCHE, Ohio
FRANK CHURCH, Idaho
STUART SYMINGTON, Missouri
THOMAS J. DODD, Connecticut

G a e l M a r c y , Chief of Staff
D a b & e il S t . C l a i r e , Clerk

II




CONTENTS
Statements of—
Dillon, Hon. Douglas, Secretary of the Treasury___________________
Groseclose, Elgin, economic consultant, Citizens Foreign Aid Com­
mittee, Washington, D .C ................................................. ......... ......... .
Insertions in the record:
Text of H.R. 10162. ________ _________ ____________________________
Agreement between the United Nations and the International Mone­
tary Fund............................................ ................................................ .
Text of agreement between the United Nations and the International
Bank for Reconstruction and Development______________________
List of IM F member countries that have made drawings. .......... .......
List of composition of United Kingdom drawing on IM F— August
1961........................................................ ................................... ..............
Telegram from General Bonner Fellers, national chairman, Citizens
foreign Aid Committee_________________________________ ______ _
Letter from Charls E. Walker, executive vice president, the Ameri­
can Bankers Association, and enclosed resolution______ ______ ____
Letter from Elgin Groseclose transmitting statement of the North­
west Mining Association_______ _____ _____ _____________________
Appendix: Report of the National Advisory Council on International
Monetary and Financial Problems_______________________ ____________
Summary Index__________ _________ ______ __________ _________________
hi




2
37
1
17
20
24
24
33
33
34
45
73




BRETTON WOODS AGREEMENTS ACT AMENDMENT
FRID AY , MARCH 30, 1962
U n it e d S t a t e s S e n a t e ,
C o m m it t e e o n F o r e ig n R e l a t io n s ,

Washington^ D.C.
The committee met, pursuant to notice, at 1 0 :35 a.m., in room 4221,
New Senate Office Building, Senator J. W. Fulbriglit (chairman)
presiding.
Present: Senators Fulbright, Symington, Aiken, Capehart, and
Carlson.
The C h a i r m a n . The committee will come to order.
The Committee on Foreign Relations today is holding a public
hearing on proposed legislation to amend the Bretton Woods Agree­
ments Act to authorize the United States to participate in loans to
the International Monetary Fund.
(The text of H.R. 10162 follows:)
[H.R. 10162, 87th Cong., 2d sess.]
AN ACT To amend the Bretton Woods Agreements Act to authorize the United State* to
participate in loans to the International Monetary Fund to strengthen the International
monetary system

Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That the Bretton Woods Agreements Act,
as amended (22 U.S.C. 286— 2 8 6 k -l), is amended by adding at the end thereof
the follow ing new sections:
“ Sec. 17. (a ) In order to carry out the purposes o f the decision o f January 5,
1962, o f the Executive Directors o f the International Monetary Fund, the Sec­
retary o f the Treasury is authorized to make loans, not to exceed .$2,000,000,000
outstanding at any one time, to the Fund under article VII, section 2( i ) , of
the Articles o f Agreement o f the Fund. Any loan under the authority granted
in this subsection shall be made with due regard to the present and prospective
balance o f payments and reserve position o f the United States.
“ (b) F or the purpose o f making loans to the International Monetary Fund
pursuant to this section, there is hereby authorized to be appropriated $2,000,000,000, to remain available until expended to meet calls by the International
Monetary Fund. Any payments made to the United States by the International
Monetary Fund as a repayment on account o f the principal o f a loan made under
this section shall continue to be available for loans to the International Monetary
Fund.
“ ( c) Payments o f interest and charges to the United States on account o f any
loan to the International Monetary Fund shall be covered into the Treasury as
miscellaneous receipts. In addition to the amount authorized in subsection (b),
there is hereby authorized to be appropriated such amounts as may be necessary
fo r the payment o f charges in connection with any purchases o f currencies or
gold by the United States from the International Monetary Fund.
“ Sec. 18. Any purchases o f currencies or gold by the United States from the
International Monetary Fund may be transferred to and administered by the
fund established by section 10 o f the Gold Reserve A ct o f 1034, as amended (31
U.S.C. 822a), fo r use in accordance with the provisions o f that section. The
Secretary o f the Treasury is authorized to utilize the resources o f that fund for
the purpose o f any repayments in connection with such transactions.”




1

2

BRETTON WOODS AGREEMENTS ACT AMENDMENT

S ec. 2. The last sentence of section 7(c) of the Bretton Woods Agreements Act
(22 U.S.C. 286e) is amended to read as follow s: “The face amount of spe<eialj notes
issued to the Fund under the authority of this subsection and outstanding at
any one time shall not exceed in the aggregate the amount of the f ubf cr*pU™
the United States actually paid to the Fund and the dollar equivalent, oi_cur
rencies and gold which the United States shall have purchased from thei *una
in accordance with the Articles of Agreement, and the face amount of sm
en
notes issued to the Bank and outstanding at any one time shall not exceed in t
aggregate the amount of the subscription of the United States actually p
the Bank under article II, section 7(i), of the Articles of Agreement
Bank.”
Passed the House of Representatives April 2,1962.
A tte s t :

R a lp h

R.

R o b e rts,

Clerk.

The C h a i r m a n . The purpose of this legislation submitted by the
President to Congress is to strengthen the international monetary sys­
tem and thereby to encourage the continued expansion of world traae.
A special callable-loan arrangement involving up to $6 k^lion
lias been worked out among the 10 principal industrial IMF j 11® 61
1?1countries. The proposal before us provides that the United btates
accept a one-third share in this arrangement.
The only scheduled witness this morning is the Honorable Douglas
Dillon, Secretary of the Treasury.
Mr. Dillon, we are very glad to have you before us again.
You have a prepared statement, I believe?
Secretary D illon . Yes, Mr. Chairman.
The C h a ir m an . Do you wish to read it; or do you wish to summarize
it and just put it in the record ?
You do it either way you like.
Secretary D illon . Either way you prefer.
The C h a ir m an . H ow long is it?
Secretary D illon . About 20 minutes.
The C h a ir m a n . All right, you read it, then.
Secretary D illon . All right.
STATEMENT OF HON. DOUGLAS DILLON, SECRETARY OF THE
TREASURY

Secretary D illon . Mr. Chairman and committee members, I &
&
glad to appear before the committee this morning in support of leg'
lslation to enable the United States, in cooperation with nine other
industrial countries of the free world, to take a major step in support
of a strong international monetary system. An amendment to the
Bretton Woods Agreements Act authorizing the United States to lend
up to $2 billion to the International Monetary Fund is a prerequisite
for U.S. participation in proposed arrangements which will make $6
billion of additional resources available to the fund. The House
Banking and Currency Committee reported without amendment on
March 8, H.R. 10162, a bill to accomplish this purpose.
OTHER COUNTRIES PARTICIPATIN G I N LENDING A R R A N G EM E N T

Five members of the European Common Market are participating in
arran£ernents with an aggregate lending commitment of
$>2.45 billion. Germany’s commitment is $ 1 billion: France and Italy
have agreed to lend up to $550 million each; while the Netherlands
is participating with $200 million, and Belgium with $150 million.



BRETTON WOODS AGREEMENTS ACT AMENDMENT

3

The United Kingdom is to lend up to $ 1 billion. Other participants
are Japan, which is to lend up to $250 million, Canada, participating
with $200 million, and Sweden, with $100 million. In all, the nine
participating countries other than the United States will stand ready
to lend their currencies to the fund up to a total of $4 billion.
These additional resources have potentially great importance for
the United States. The Fund has on hand today only a limited sup­
ply of currencies that could be used if the need for a drawing by the
United States should ever arise. The lending commitments of the
major countries other than the United States and the United King­
dom—which amount to $3 billion—are approximately twice as large
as the Fund’s current holdings of their currencies. These supple­
mentary resources would greatly enhance the Fund’s ability to assist
us shouId it ever become necessary.
PURPOSE OF T H E IN TE R N A T IO N A L M ONETARY FUND

As you know, the International Monetary Fund was established in
1945, at the same time as the World Bank. U.S. membership in the
Fund was authorized by the Bretton Woods Agreements Act. The
Fund’s purpose is to promote exchange and monetary stability among
its 75 member nations. It does so principally by providing short-term
assistance to deal with temporary balance-of-payments difficulties,
pending the results of longer range corrective measures.
With the growth of world trade and the increase in the size of mone­
tary reserves, the resources of the Fund have been called upon to a
greater and greater extent. To keep'pace with these requirements,
the quotas of the Fund’s members, including the United States, were
increased in 1959.
Since that time new problems have arisen, largely as a result of the
recent heavy strains placed upon the two principal world reserve
currencies—the dollar and the pound sterling. The proposed legisla­
tion, which would authorize U.S. participation in the new Fund
borrowing arrangements, is designed to help deal with these problems,
which arose partly as a result of the restoration of currency convert­
ibility among the industrialized countries. With the advent of full
economic recovery in Europe, these countries have improved their
trade and payments positions and have accumulated large monetary
reserves. In the 4-year period from the end of 1957 through the end
of 1961, the reserves in gold and foreign exchange—mostly dollar’s—
of the major industrial countries other than the United States and
the United Kingdom increased from $12 .1 to about $20.1 billion.
INCREASE IN

M OVEMENTS OF SHORT-TERM

C APITAL

As a result of the improvements in the payments positions of other
industrial countries, chiefly in Western Europe, they were able to make
their currencies freely convertible, with the consequence that move­
ments of short-term capital from country to country were greatly
increased. Wider investment opportunities, the attraction of interest
rate differentials, and, to some extent, speculation all contributed to
these movements of capital.




4

BRETTON WOODS AGREEMENTS ACT AMENDMENT
U.S. BALANCE-OF-PAYMENTS DEFICITS

Increases in foreign monetary reserves were largely the counterpart
of overall deficits in the balance of payments of the United States.
Our deficits totaled approximately $13.5 billion during- the 4-year
period 1958-61 and have reduced our gold reserves by almost $6 billion.
The basic part of our deficit has been made up of trade transac­
tions, long-term investment and expenditure for military and eco­
nomic aid programs. But since the middle of 1960 a large part has
also resulted from movements of short-term capital. In 1958, IJo^,
1960, and 1961, our basic deficit—which is the net of all of our inter­
national transactions except short-term capital movements and unre­
corded transactions—was $3.6, $4.3, $1.9, and $0.6 billion, respectively,
while we incurred total deficits, including short-term ca p ita l move­
ments and unrecorded transactions, of $3.5, $3.7, $3.9, and almost
$2.5 billion, respectively.
STABILITY OF THE DOLLAR ESSENTIAL

The stability of the dollar is essential not only to the eJ0 1
1 ^m?
of the United States but to that of the entire free world. M uch oi
world trade and other transactions is carried out in dollars, ana
settlements of payments surpluses or deficits between foreign countries
to a large extent are made in dollars. It is for these reasons that
other nations have a vital interest in these new Fund arran gem ents
which will be so important as an added resource to deal with stresses
in the international payments system.
■
,
In his message of February 6 , 1961, President Kennedy r e fe r r e
to the drawing rights of the United States on the I n t e r n a t io n a l
Monetary Fund as a secondary line of reserves which we could ca
upon to maintain the strength of the dollar, in addition to our o w n
holdings of gold and foreign currencies.
OPERATION OF THE FUND

The U.S. quota in the Fund is $4,125 million, one-quarter of which
the United States has paid to the Fund in gold and t h r e e - q u a r t e r s in
dollars. A member country is normally entitled to draw c u r r e n c ie s
freely from the Fund up to the amount of its gold payment, plus
an amount equal to the outstanding amounts of the member’s c u r r e n c y
which have been drawn by other countries. As of December 31,1961?
these virtually automatic drawing rights of the United States
amounted to $1.7 billion. In addition, the Fund treats liberally
quests for additional drawings up to 25 percent of a member’s quota, i
the member itself is making reasonable efforts to solve its balance-^"
payments problems. In the case of the United States, this would be
the equivalent of another $ 1 billion. Larger drawings are permitted
by the Fund if a member is undertaking programs of monetary sta­
bilization and measures for rectifying balance-of-payments deficits.
U.S. DRAWING RIGHTS ON THE FUND

The total amount, therefore, that the United States would have
ri&ht to draw from the Fund almost automatically would be $1;'
billion, another $ 1 billion could be drawn with relative ease, and addi


BRETTON WOODS AGREEMENTS ACT AMENDMENT

5

tional amounts could be drawn depending upon the seriousness of the
situation and the measures which the United States was taking to cope
with it.
However, the resources of the Fund to meet a U.S. request for a
large drawing are not at present adequate. On December 31, 1961,
the Fund had available to it $2.1 billion in gold and $11.5 billion
in member currencies, but a large part of these currencies consisted
of currencies of the less-developed countries which for the time l>eing
are not suitable for use by the Fund. The Fund's holdings of the
currencies of the major industrial countries amounted on that date to
the equivalent of about $6.0 billion; however, of this amount $4.9
billion was in dollars and sterling and only $ 1.0 billion was in cur­
rencies of the other industrial countries.
The currencies of the member countries of the European Economic
Community accounted for only $890 million of this $1.0 billion. On
the same date, the Fund’s outstanding commitments under existing
standby arrangements, with the United Kingdom and other members,
amounted to the equivalent of $1.4 billion.
It is clear, therefore, that the Fund now lacks the resources in
gold and the currencies of industrial countries other than dollars and
sterling which would be needed to meet a large drawing such as the
United States would be entitled to request.
VIENNA MEETING OF BOARD OF GOVERNORS

At their Vienna meeting last September, there was general agree­
ment among Fund governors that ways should be found to increase
the resources available to the Fund. The arrangements finally worked
out are embodied in the Fund decision of January 5, 1962, and in
the exchange of letters initiated in Paris in December 1961, at the
conclusion of discussions among the 10 governments concerned.
AGREEMENT REACHED IN PARIS

The Fund decision and the related Paris arrangements are reroduced in the report of the National Advisory Council which is now
3fore you.
(See appendix, p. 45.)
The proposed new arrangements can be described very simply. The
10 participating countries would lend stated amounts of their cur­
rencies to the Fund if required to permit drawings from the Fund
by any one of the participant countries in order to “ forestall or cope
with an impairment of the international monetary system.” These
commitments to lend would be invoked only if and when the Fund
needs the additional resources.

K

PURPOSE OF THE ARRANGEMENT

The proposed arrangement is intended to remedy the shortage of
the Fund’s current holdings of currencies of industrial countries,
especially those of countries having surpluses in their balance of
payments and increasing reserves. Tlie participating European Com­
mon Market countries—Belgium, France, Germany, Italy, and the
Netherlands—would commit an amount of their currencies almost
82526 O—62------ 2




6

BRETTON WOODS AGREEMENTS ACT AMENDMENT

equal to their present quotas in the Fund, w hile the commitments of
the United States and the U nited K in gd om w ould be on ly about half
o f their present quotas. The effect o f the new arrangement would
be to increase by about 275 percent the present availability to the
Fund o f the currencies o f the surplus countries o f the European
Econom ic Community.
.
The proposed arrangement is designed so that countries which are
in a surplus position and which are gaining reserves m ay lend their
own currencies to the Fund which in turn can supply them to other
participating countries which m ight need additional resources. Thus,
i f the United States were to draw 011 the Fund, the F u n d would be
able to obtain the currencies which we could use. O n the other hand,
a country which itself faces serious b a la n c e - o f -payments problems
and whose reserves are declining w ould not be expected to lend to the
Fund. This would mean that tne U nited States, fo r example, would
not be expected to lend dollars to the F und under present circum­
stances. In any event, since the Fund still has available in dollars
almost $2.5 billion from the regular U .S. quota, it is h igh ly unlikely
that a need for borrow ing from the U nited States w ill arise.
PROPOSED PROCEDURE FOR WITHDRAWALS FROM, AND LOANS TO, THE FUND

The agreement set forth in the Paris letters establishes the interna­
tional machinery necessary fo r the 10 participating countries to meet
and act upon requests fo r loans to the Fund.
,
I f one o f the 10 participating countries wishes to draw from the
Fund, or to enter into a standby arrangement w ith it, in order to
forestall or cope with a situation that m ight lead to impairment of
the international monetary system, that country w ould consult with
the Managing Director and with the other* participants.
The Managing D irector would then propose to the participants the
total amount which he believes the F u n d should borrow , and the
amounts which should be supplied by each, participant in its own cur­
rency. The participants would try to reach unanimous agreement
on their response to the M anaging D irector’s proposal. I f they cou ld
not reach unanimous agreement, the question o f lending to the Fund
would be decided by a vote o f the participants. T h e country propos­
ing to draw would not vote. A decision w ould require a two-thirds
majority o f the other voting participants and a three-fifths majority
o f their weighted votes.
Since the countries concerned are in constant close com m unication
regarding their balance-of-payments positions not on ly in the Fund,
but also through the Organization fo r E conom ic Cooperation and
Development and bilaterally, a decision can be reached very rapidly*
The procedure established oalances the righ t o f each country to safe­
guard its own interests with the collective judgm ent o f the grou p as to
the needs o f the international monetary system. Such safeguards are
appropriate and necessary since it is impossible to foresee what the
situation o f any particular country may be at an u n sp ecified date in
the future when a borrow ing may be needed.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

7

LOANS TO T H E FUND

Loans tp the Fund by participating countries would carry a trans­
fer charge o f one-half o f 1 percent, plus annual interest o f iy2 per­
cent. Loans to the Fund would mature in 5 years, but would be re­
paid sooner if the draw ing country repaid the Fund sooner. Also, if
a lending country should itself encounter balance-of-payments diffi­
culties, it may obtain prompt repayment from the Fund.
D raw ings o f the additional resources from the Fund would conform
to the F u n d ’s normal procedures; that is to say, the drawing mem­
ber would purchase from the Fund currencies o f other participating
countries with its own currency, and would pay a service charge o f
on e-h alf o f 1 percent on the amount o f the drawing, plus interest. The
rate o f interest would vary with the size o f the drawing and the period
fo r which it would be outstanding. The draw ing member would usu­
ally have to repay the Fund by repurchasing its currency within 3 to r
>
years but would be expected to repay earlier if its repayments situa­
tion improved.
The whole arrangement would be effective fo r an initial period o f
4 years subject to renewal by the Fund but it could not be modified
within that period except with the consent o f all the participants.
ADVANTAGE Of BORROWING ARRANGEM ENTS TO U N ITED STATES

I wish to emphasize the great advantage to the United States o f
these borrow in g arrangements. It may be that the Fund will never
need to borrow . W e hope this will be the case. B ut the commitments
will stand as a reserve to be used if and when necessary and they will
provide the Fund with the currencies which would be needed by the
U nited States i f it were ever to draw on the Fund. Thus the very
existence o f this large supplementary pool o f usable resources should
act as a strong deterrent to speculation against the dollar or other
currencies, since it will be well known that there are ample resources
available to counteract serious disturbances o f the international mone­
tary system. The arrangements will benefit not only the participating
countries, but all countries o f the free w orld. The stability o f the d ol­
lar and o f the other m ajor currencies are o f vital importance to the
smooth functioning o f the international trade and payments system.
CLARIFICATION OF

PROPOSED AM EN D M EN TS

Legislation is required in order to amend the Bretton W oods A gree­
ments A ct, which now prohibits any loan by the United States to the
Fund without the specific approval o f Congress, and grant the author­
ity to lend up to $2 billion. Such legislation should also authorize an
appropriation o f $2 billion, to remain available until expended, fo r the
purpose o f m aking loans to the International M onetary Fund. As I
have pointed out, we will not be called upon to make a loan to the Fund
under present conditions and, in any event, the question o f a loan
would not arise until the Fund’s resources in dollars— currently about
$2 1/2 billion— had been exhausted* This is to be a standby com mit­
ment to the Fund. There would not be an expenditure o f the funds
authorized until such time as we m ight actually make a loan to the
Fund. In considering^,ny request to lend under the commitment,-we




8

BRETTON WOODS AGREEMENTS ACT AMENDMENT

would, of course, take into consideration our balance-of-payments
position at the time and the level of our reserves, as well as the special
circumstances which led to the request to lend.
# .
I should like to emphasize that the amount of the appropriation
must be in the full amount of $2 billion, in order to bring into effect
our agreement with the other nine participants. The entire arrange­
ment is contingent upon the participating countries having authority
to take action promptly. The amount of each country’s commitment
is part of the arrangement, and any change in this amount would re­
quire a renegotiation. It is thus necessary to have the full authority
to provide the necessary financing if we should be called upon, even
though in practice we do not expect to have to use this authority in the
foreseeable future.
. . . .
A technical amendment designed to clarify existing legislative au­
thority is also desirable so as to permit the use of non-interest-bearing
notes^—
and thus save us interest costs—in an amount of any TJ.b.
drawings on the Fund.
If the United States were to draw on the Fund, it would have to
do so by purchasing foreign currencies from the Fund with dollars.
The Fund’s articles of agreement, however, permit these dollars to
be paid to the Fund in the form of non-interest-bearing notes, without
any use of cash from current receipts or any debt operations which
would involve the United States in an interest cost. The Bretton
Woods Agreements Act authorized the issuance of such non-interestbearing notes to the Fund up to the amount of our quota subscription,
which is $4.1 billion. As of December 31, 1961, notes outstanding
under this authority amounted to $2.4 billion. I f the United States
were now to make a drawing from the Fund in excess of the $1.7 bilh°n
balance of this authority, it is not clear, under existing legislation, that
we could issue non-interest-bearing notes in the amount of this excess.
The proposed legislation should make entirely clear the T reasury s
authority on this matter.
IM P O R T A N C E OF PROPOSED A R R A N G E M E N T

In conclusion, Mr. Chairman, I should like to say that the present
proposal is one which is in the best interests of the United States
and of the free world as a whole. It is essential to us and to other
countries that the dollar be maintained as a sound and reliable cur­
rency at its present parity. If necessary to defend the dollar, as
President Kennedy said last year in his balance-of-payments message,
we will use our drawing rights in the International Monetary Fund
as a supplementary form of reserves. The legislation being requested
will enable the United States to participate in arrangements which
will provide the International Monetary Fund with an adequate
supply of the currencies which we ourselves might someday need. It
will provide significant assistance to the United States in dealing witn
the balance-of-payments problem.
The arrangement can be used by the Fund to assist any other partici­
pating countries as well. The other nine countries also have a stake m
the maintenance of a stable international monetary structure in the
free world, and this is whjr they are all now cooperating in this new
arrangement. We should join with them in strengthening the Inter­
national Monetary Fund by giving it authority to borrow, if needed,




BRETTON WOODS AGREEMENTS ACT AMENDMENT

9

the currencies which are most essential to cope with an impairment
of the monetary system of the free world.
Thank you, Mr. Chairman.
The C h a i r m a n . Thank you, Mr. Secretary.
NEED FOR PROPOSED LEGISLATION

Would you say that the Monetary Fund up to now has been success­
ful in fulfilling its purpose ?
Secretary D i l l o n . Yes, I think that the Monetary Fund has been
one of the real successes of the postwar era.
The C h a i r m a n . The proposed legislation is not necessary because
of any failure on the part of the Fund to function as contemplated
under existing legislation, is it ?
Secretary D i l l o n . Not at all* It is merely that apparently when
the Fund was originally set up no one contemplated that the United
States might ever be in a position to need to use its resources.
Also, at that time, immediately after the Avar, the countries of
Europe were not in very good economic condition, and their quotas
in the Fund were set with that in mind. So their quotas are out of
line with their present situation in the world.
This operation is merely designed to provide substantial extra
quantities of these countries’ currencies to help strengthen the in­
ternational monetary system.
The C h a i r m a n . In other words, this is a readjustment in the sys­
tem of the contribution of the other countries in view of the progress
that they have made in their own economies. They have brought it
up more in accord with our own and, therefore, they should make
a greater contribution ?
t
.
Secretary D i l l o n . That is right. I think that is a fair charac­
terization. It is not done in the Fund. One might ask why _ is
it
not done as a change in quota, but that raises all sorts of difficult
problems with other members as to relative size of quotas, and many
countries are not interested in increasing their quotas at this moment.
So it is, therefore, felt better to do it this way.
NATURE OF APPROPRIATION REQUEST

The C h a i r m a n . Originally I believe this sort of increase might
have been made, and I believe was made, by a request for authority
t° borrow as a public debt transaction, was it not?
.
,
Secretary D i l l o n . I assume that that is what we still will asK.
The C h a i r m a n . But I thought you were asking here for an
appropriation.
. .
Secretary D i l l o n . Yes, but when we go for the appropriation we
will ask for authority to use the public debt transaction.
The C h a i r m a n . I am a little puzzled about that.
Secretary D i l l o n . The only difference is that there will be apPr£yal of this form of financing by the Appropriations C
This is what happened in the case of the In ter- American
,
we look at the record. When we made our contribution to>the
Inter-American Bank there was some substantial amount,
$200 million, which was in the form of callable capital similar
that of the World Bank, w h ich would only be used if there had




10

BRETTON WOODS AGREEMENTS ACT AMENDMENT

been a default on the obligations of the In ter-American Bank. The
Appropriations Committee, in addition to appropriating cash con­
tributions, also gave borrowing authority for this $200 million.
It was approved by them and that was the only difference.
The C h a irm a n . S o, in effect, is it correct to say that this piece of
legislation is a request for an appropriation, but when you go to
the Appropriations Committees for the appropriation you contem­
plate they will then give you borrowing authority ?
Secretary D il l o n . Yes, this is a request for authorization, and then
when we go there we contemplate they will then give us borrowing
power.
The C h a irm a n . S o the borrowing authority is all right so long as
it is authorized by the Appropriations Committee, and not by this
committee or any other committee. Is that correct ?
Secretary D i l l o n . I think that there is a very strong fe e lin g , cer­
tainly in the other body, that any and all appropriations should go
through the appropriations process.
When they do that they should be made in the proper and best
form. Certainly, as this money is not going to be spent in the fore­
seeable future, there is no use doing it in any other fo r m than borrow­
ing authority, and I think that is what the provision will be.
The C h a p m a n . Is it fair to say that the ^back-door financing -7-a
term of which I do not approve nor have ever used; the House orig­
inated it—is all right so long as the Appropriations Committees
authorize it?
—
Secretary D il lo n , Well, the words “back-door” mean, in the House,
going around behind the Appropriations Committee.
The C h a ir m a n . Yes, they originated the term, I think.
.
Secretary D illo n . Surely, if you go through the Appropriations
Committee it is “ front-door.”
The C h a ir m a n . It is “ front-door” even though it is b orrow in g
authority?
Secretary D il lo n . That is right.
The C h a ir m a n . Well, I do not approve o f this procedure, but it
looks as i f they have had their way anyway. They have convincea
the Treasury it is necessary.
CORRECTIVE MEASURES

In your statement, you referred to corrective measures. I s it not so
that one of the principal virtues of the IMF is the fact that it is in &
position to require corrective measures, which I have always th o u g h t
of as a rather important educational function in the fiela of inter­
national payments and international finance?
Is that correct?
Secretary D il lo n . That is correct, and also the whole theory of the
Fund would not work otherwise, because the theory is that the tempo*
rary pool of funds is to give cpuntries time when they get an imbal­
ance of payments and find it difficult to adjust without t a k i n g too
drastic measures. And unless there were corrective measures taken
during that time the Fund would be in a position where it would be
putting out but not be repaid, and they have to be sure that the Fund
will be repaid so there will be a readily available revolving fund.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

So that is a very important element in the Fund.
The C h a i r m a n . And it is important because the Fund is able to
require these conditions and reforms, we will say, apparently without
offending the sovereignty and propriety of the participating coun­
tries. Is that not so?
Secretary D i l l o n . I think that is basically correct, yes.
The C h a i r m a n . Does this arrangement involve any transfer of
Secretary D i l l o n . No, none whatsoever.
ROLE OF THE OECD

The C h a i r m a n . What role, if any, does the OECD play in the
administration of this ?
Secretary D i l l o n . It does not play any role in the administration of
this. However, the 10 participating countries have agreed, among
themselves, in accordance with the letters which are before you, as to
how they will respond and the actions they will take to meet a call
by the Managing Director of the Fund.
The 10 participating countries are all members of the OECD with
the exception of Japan. So Japan is an extra member, and a number
of the OECD countries are not members because their currencies are
not sufficiently important in the international payments system.
So the OECD itself is not involved but, certainly, the types of co­
ordination and cooperation that take place in the regular meetings of
working party 3 of the OECD, which deals with monetary affaire
and meets every couple of months in Paris, are very important in
keeping everyone up to date and keeping close cooperation, because all
out one of the members of this borrowing arrangement are also mem­
bers of that Organization.
RELATIVE IMPORTANCE OF ARRANGEMENT TO UNITED STATES AND UNITED
KINGDOM

The C h a i r m a n . Would you say that this new proposal is essentially
beneficial to the United States or to the United Kingdom ? .
secretary D i l l o n . Well, I would say especially to the United States.
The Monetary Fund has shown that it has adequate assets to meet
a maximum drawing by the United Kingdom, such as occurred last
summer.
It does not have the proper assets available to meet a drawing that
would be of similar proportions by the United States, because that
would be a larger drawing. The United States is a bigger country
and if we had to draw, I presume, it would be larger.
bo I think it is probably only in the case of the United states
that there is this shortage of other useful currencies. This arrange­
ment is required to build them up so that if we wanted to draw on the
* und, in accordance with our right, this would put it in a position
to meet that drawing, something it is not in a position to meet today.
SYSTEM OF VOTING

The Ch a p m a n . Will the prospective system of weighted voting,
2® **®$cribed h§re, be roughly the same or identical to that used m the
as a Vhole?



12

BRETTON WOODS AGREEMENTS ACT AMENDMENT

Secretary D il lo n . Well, it is roughly the same.
1 ^
.
In fact, I think it is pretty much the same except that it only
applies to the 10 participating countries.
.
. lx J n
The only difference is that the weighted vote here is weighted solely
on the amount of funds that are pledged by each country, whereas, in
the IMF quotas, there is a fixed number of votes that any country
gets, no matter how small it is, and then the rest of it is based on
that quota.
V
T H E “ T RIFFIN p l a n ” A N D T H E BER N STE IN PROPOSAL

The C h a ir m a n . Last year, when this matter was under discussion,
there was much talk about the so-called “Triffin Plan” and, Ibelieve,
another suggestion by a man named Bernstein for overhauling this
international monetary system and creating a kind of common cur­
rency for it.
.
, f
Would you say this is the result of that thought and, instead
following in that direction, that this is the procedure that you preler.
Secretary D illon . Well, there was talk of this in other areas, too.
The International Monetary Fund itself, its Managing Director,
think, started his thinking along these lines in the fall of I960 when
it first looked as though there might be serious difficulties for the
dollar. He had come to the conclusion that s o m e strengthening o
this nature was necessary for the Fund and first circulated a paper
to the Fund Board on.it in early January of 1961. And so it has
been considered off and on ever since then in the Fund.
The Bernstein proposals are, in essence, not too far different from
this proposal. The basic Bernstein proposal was to make arrange­
ments for lending a stated amount of funds to the Monetary 1 un ,
!
and that' it what is done here, although the details are somewhat cli ferent. But he had envisioned basically this.
The Triffin Plan is something quite different which involves crea
tion of an international monetary organization and internationa
monetary controls, sort of like an international monetary Federa
Reserve System, ^ou might say. It involves necessarily the function
of a substantial giving up of national sovereignty, of national policy
and monetary decisions, and it is very clear that none of the nationa
monetary authorities of the world are presently interested in moving
in that direction. They all feel it is better to perfect and make fu
use of the system that has operated reasonably well so far, and thi
is also the opinion of the Managing Director of the Fund, and it is our
opinion.
CONTRIBUTIONS B Y IM F M EMBERS TO T H E F U N D

The C h a ir m a n . T he Senator from Verm ont.
*
benator A ik e n . M r. Secretary, how many o f the members o f the
international Monetary Fund have contributed to the F u n d ?
.
,
secretary D illon . There are 75 members o f the In tern ationa1

uted t ^ t ? e ^ n d a^ ° ^ e^ er

here ^()U meai*
to th eF ^ n d n ^ '




^ e y all have quotas and have contn

particular arrangement that we are talking about
Ten’ yeS’ but)have aU t h e 75 members c o n trib u te d

BRETTON WOODS AGREEMENTS ACT AMENDMENT

13

Secretary D illo n . They have all contributed to the Fund, That
is right.
Senator A ik e n . How have their contributions been determined?
Are they purely voluntary?
Secretary D i llo n . They are determined by negotiation with the
Fund when they become a member; a negotiated quota is based on
their size, their gross national product, their world trade, their re­
serves, and various things like that which are taken into account.
The Fund staff works out what they think is an appropriate quota,
and they negotiate with the country. If the country agrees it then
enters the Fund with a certain specified quota.
Senator A ik e n . When they vote 011 policy do they vote according
to the contributions or does one country havejust one vote ?
Secretary D i llo n . No, in the Monetary Fund it is entirely on the
basis of weighted vote.
Senator A ik e n . You mean, according to the----Secretary D i llo n . According to the contributions but, as I said
earlier, there are a fixed number of votes that go to any country no
matter how small. So it is not quite exactly according to contribu­
tions. That serves to reduce slightly the proportion of the vote of
the bigger countries.
Senator A ik e n . Are they all paid up on their contributions?
Secretary D i llo n . Yes, sir.
Senator A ik e n . They are all paid up at the present time.
CHARGE OF INTEREST ON LOANS

Does the International Monetary Fund charge interest on its loans?
t Secretary D i llo n . Yes—it does not charge interest on first borrow­
ings—“gold-tranche,” as they call it—but thereafter they do charge
interest, and the interest they charge increases with the amount of
your quota that you draw. If you draw only a part of your quota you
pay a lower rate! If you draw the full quota you have to pay a higher
rate. Also it varies with the length of time your drawing is outstand­
ing. I f it, is outstanding only a year it is less. If it is outstanding 5
years, which is the full amount of time, it is somewhat higher.
IM F 'S F R O FITM A K IN G STATUS

Senator A ik e n . W h a t I intended to ask, really, was if it is a profitmaking institution ?
Does it make money ?
secretary D i llo n . Oh, yes, it has.
■tor about the first. 10 years of its existence it did not make much
money because it did not do much business, but since then, as more of
its members’ currencies have become convertible, it has been called upon
for much greater activity, and it has put aside in reserves substantial
profits, you can say, in the order of $50 million a year in the last few
years.
IN T E R N A T IO N A L M O N E TA R Y FU ND RESERVES

Senator A ik e n . What are its present reserves? An approximate
hgure is all right,
secretary D i llo n . Something over $75 million.
82526 O— 452-------3




14

BRETTON WOODS AGREEMENTS ACT AMENDMENT

Senator A i k e n . $75 million?
Secretary D i l l o n . Yes.
WORLD b a n k ’ s P R O F IT M A K IN G STATUS A N D IT S RESERVES

Senator A i k e n . N o w , the World Bank is also a profitmaking insti­
tution, is it not?
Secretary D i l l o n . Yes, it is, but it has been m a k i n g profits for a
little longer because it started actively to function earlier, and so it
has larger reserves.
Senator A i k e n . And it has reserves of something in excess of half
a billion dollars at the present time ?
Secretary D i l l o n . Something like that, yes.
A FFILIA TIO N W IT H T H E U N IT E D N A T IO N S

Senator A iike n . Now, I would like to ask a couple of questions, since
._ lator A k
v
^ese
ith
these two moneymaking institutions, in a sense, are affiliated w
the I]
United Nations. I believe they are, are they not ?
.
Set
Secretary D i l l o n . They are both specialized agencies of the United
Nations.
"N
ations.
Senat<
Senator A i k e n . And the United Nations is in financial trouble.
< ______________
Why cannot the United Nations sell its proposed bond issue to the
___ j
r—
World Bank and to the ts ... i a ■
Fund ?
Secretary Dillon. Well, the World Bank and the Fund both w
ere
established as independent agencies, affiliated with the United Na­
tions, for very specific, limited purposes, and these purposes w
ere
spelled out in the charters of the two institutions.
As far as the Monetary Fund is concerned, its full purpose is to
stabilize the monetary conditions throughout the world and, therefore,
promote trade and so forth. It is just directed to short-term monetary
stabilization, so that would not be appropriate.
.
As far as the World Bank is concerned, its purpose was initially
reconstruction of war damage, which is now over, and international
development. Now, to the extent that funds were used for developpurposes, that would be a nice question, whether they could
utilize their funds through some other organization, but I do not
think they ever have. I t has always------Senator Aiken. Well, the U.N. has borrowed
other atnliated organizations------ ■

when in need from

Secretary D illo n . There is a legal difference. Certain of these
amiiated U.N. organizations, are much closer to the United Nations,
ihe affiliation of the World Bank and the Monetary Fund is rather
lhey are independent. Their headquarters are here1
®
j Thfty d? * tak®directives from the U.N. at all, hut
?ot
send a reportthere^6 ^ 26^ a^encies’ and once a year ^hey g° U or
01
P
POSSIBILITY OF IN VESTM EN T I N U .N . BONDS B Y T H E WORLD B A N K

Bank?




the res°lution authorizing the sale of bonds
d permit the sale of 1 1 (1
)0 1 8 the W

BRETTON WOODS AGREEMENTS ACT AMENDMENT

15

Secretary D illo n . Yes, the World Bank, as a matter of investment.
If they wanted to invest in this they could, presumably, invest some
of their funds there, if they wanted to.
Senator A ik e n . Would not it be a good investment for the World
Bank to buy those bonds?
Secretary D i llo n . I would think not, because I would think their
own investments are generally short term. They do not try to have
on hand any more cash than they need for current operations. And
they have to raise the bulk of that cash by selling their own bonds
on the market. The latest issue was sold at 4.5 percent, so it would not
be very good for them to turn around and use that money at 2 percent
on a long-term basis. If it was just a very short-term investment,
that might be all right.
Senator A ik e n . Well, the World Bank sells its bonds in accordance
with the capital ist system, does it not ?
Secretary D i llo n . That is correct. They sell them in the open
m
arket in various countries of the world.
Senator A ik e n . And the United Nations proposes to sell its bonds
in accordance with the Communist system. Is that not correct?
Secretary Dh^lon. Well, I think that the bonds that the United
Nations are selling are not being sold on a competitive interest cost
basis, so there must be some humanitarian or political reason that
would cause one to make an investment in these bonds. It would not
be purely on a financial basis.
Senator A ik e n . Would the purchase of $2 million worth of bonds
by the World Bank impair the solvency of the Bank in any way?
Secretary D i llo n . Impair the solvency ? I do not think tliey would
have those funds available for this purpose unless they went out and
borrowed some more. I do not think it would be within the charter.
As I understand it, these U.N. bonds are not solely directed for de­
velopment purposes. So I do not think the World Bank could do
that.
Senator A ik e n . Doesn't the World Bank make enough money so
that it could devote parts of its profits to the United Nations, say,
$25 million or $50 million a year ?
,
Secretary D i llo n . This, Senator, is a very difficult question because
^ is a question of what, is an adequate reserve. They have had a very
good repayment, record so far, but they do assume some day they will
»ave losses, and they are building up a rather large reseire.
Athink they are beginning to give some thought as to just what to
do about it, and it is a matter of discussion in the executive board
of the World Bank.
WORLD b a n k ’ s

Senator A i k e n . Well, is not
a «alf billion or $600 million?

the

INVESTMENTS

World Bank’s investment reserve
,

, ,

.

.

secretary D i llo n . I would have to look at the balance sheet.
. senator A i k e n . Well, I think we might assume that it is invested
m| Inething or other.
0
Secretary D illo n . Oh, yes.
. _T . , X ,.
T
,
Senator A i k e n . But wouldn’t investment m United Nations bonds
be agood place to put it ?




16

BRETTON WOODS AGREEMENTS ACT AMENDMENT

Mr. Black has been around here, I believe, s p e a k i n g to some of m
y
colleagues, telling them what a good investment the United Rations
bonds would be for the United States. I was wondering why they
would not be a good investment for his bank.
J ..T
Secretary D illo n . Well, I think he would like to get something to
give him a little higher rate of interest, probably.
Senator Aiken. You mean he would not feel like contributing
million ayear out of his earnings?
. ,
To your knowledge, has this possibility been talked over in
World Bank?
Secretary D illo n . To my knowledge----Senator A ik en . Has it tieen considered?
#
,
Secretary D illo n . No. To my knowledge, the United Nations n
not approached the World Bank on this. There could have been ai cussions in the executive board, but I amnot aware of them.
Senator A ik en . Well, it has always appeared, and it appears m
o
so now, that the successful financing in the United Nations may' “ a.,.
to depend on something besides assessments on countries that wi
not pay their assessm
ents.
A
So I was just wondering why the World Bank could not be used a
a source of income to keep the U.N. solvent; and, as a good investing ,
it could help the World Bank earn money, and it would be a good tm
ng
all around.
Secretary D illo n . Apparently, in answer to the earlier Q
uestion,
reserves of the World Bank are $600 million as of last June o0, a
they are essentially all invested in U.S. Government obligations*
Senator A iken . You mean we would borrow money from the Wor
Bank at 4^ or 4.10 percent, or whatever it is----Secretary D illo n . Oh, no. T h e y ju s t buy in the market.
Senator A ik en . Short or long term?
Secretary D illo n . Shortterm.
Senator A ik en . That would be 2.9 or 3 percent or something u
that?
Secretary D illo n . Something of that nature.
.,
Senator A ik en . We borrow money from the World Bank, whicn
affiliated with the United Nations, and then we lend it to the Uni
Nations for something over 1 percent less than what we pay the am
ate for the money.
That does not seemto make sense, does it ?
Secretary D illo n . We do not borrow from the World Bank. A
difference between the Bank and the U.N. is, as I pointed out, that tne
World Bank operates on a straight business basis, with no other
Senator A iken . Capital assistance in the World Bank ?
. ,
Secretary D illo n . That is correct. And they buy our issues in t
market at the going rate of the market. There is no special negotiatio
with the World Bank. They just buy whatever is available there athe going rate.
Senator Aiken. I hope you call Mr. Black’s attention to this 0pp°r'
. tunity for an excellent investment, in buying the United Nations bonds,
or even of making a liberal contribution each year out of the Ban
earnings and also those of the IMF.
Secretary Dillon. I will be glad to call his attention to it.
senator Aiken. I will not ask any more questions.
The C h a ir m a n . The Senator from Indiana-.



BRETTON WOODS AGREEMENTS ACT AMENDMENT

17

POSSIBLE DIVIDEND P A Y M E N TS B Y WORLD B A N K

Senator C a p e h a r t. I s it the intention of the World Bank to pay
dividends on its reserves of $600 million ?
Secretary D i l l o n . It has not been their intention to do that so far.
Senator C a p e h a r t. In other words, someday they will pay divi­
dends, will they not?
Secretary D i l l o n . They might. No action has been taken, but there
is pressure from borrowing countries for them to reduce the rate of
interest they charge* They currently charge 1 percent over the going
rate on the money they have to borrow to set aside for their reserve
purposes.
They make a rather substantial profit, and there has been some
pressure to reduce that. They have not felt it wise to do so yet.
AGREEMENTS BETW EEN T H E B A N K , T H E FU N D , AND T H E TT.N.

Senator C a p e h a r t. What is the exact connection between the
Monetary Fund and the World Bank and the United Nations?
Secretary D i l l o n . I would have to supply for the record the exact
connection with the United Nations.
(The texts of the agreements between the United Nations and the
International Monetary Fund and between the United Nations and
the International Bank for Reconstruction and Development follow:)
AGREEMENT BETWEEN THE UNITED NATIONS1 AND THE
INTERNATIONAL MONETARY FUND
A r t ic l e

I

General
1. This agreement, which is entered into by the United Nations pursuant to
the provisions of Article 63 of its Charter, and by the International Monetary
Fund (hereinafter called the Fund), pursuant to the provisions of article X of
its Articles of Agreement, is intended to define the terms on which the United
Nations and the Fund shall be brought into relationship.
2. The Fund is a specialized agency established by agreement among its mem­
ber governments and having wide international responsibilities, as defined in its
Articles of Agreement, in economic and related fields within the meaning of
Article 57 of the Charter of the United Nations. By reason of the nature of
its international responsibilities and the terms of its Articles of Agreement,
the Fund is, and is required to function as, an independent international organ­
ization.
3. The United Nations and the Fund are subject to certain necessary limitations
for the safeguarding of confidential material furnished to them by their mem­
bers or others, and nothing in this agreement shall be construed to require either
of them to furnish any information the furnishing of which would, in its judg­
ment, constitute a violation of the confidence of any of its members or anyone
from whom it shall have received such information, or which would otherwise
interfere with the orderly conduct of its operations.
1 The Agreement was approved by the Board o f Governors o f the International Monetary
Fund on September 1!7, 1947 and by the General Assembly of the United Nations on
November 15, 1947. Accordingly, the Agreement came into force on November 15, 1947.




18

BRETTON -WOODS AGREEMENTS ACT AMENDMENT
A r t ic l e I I

Reciprocal representation

1. Representatives of the United Nations shall be entitled to attend, and to
participate without vote in, meetings of the Board of Governors of the Fund.
Representatives of the United Nations shall be invited to participate without vote
in meetings especially called by the Fund for the particular purpose of con­
sidering the United Nations point of view in matters of concern to the United
Nations.
2. Representatives of the Fund shall be entitled to attend meetings of tne
General Assembly of the United Nations for purposes of consultation.
3. Representatives of the Fund shall be entitled to attend, and to participate
without vote in, meetings of the committees of the General Assembly, meetings
of the Economic and Social Council, of the Trusteeship Council and of their
respective subsidiary bodies, dealing with matters in which the Fund has an
interest
4. Sufficient advance notice of these meetings and their agenda shall be given
so that, in consultation, arrangements can be made for adequate representa­
tion.
A rticle III
Proposal o f agenda item s

In* preparing the agenda for meetings of the Board of Governors, the Fund
will give due consideration to the inclusion in the agenda of items proposed by
the United Nations. Similarly, the Council aixd its commissions and tne
Trusteeship Council will give due consideration to the inclusion in their agenda
of items proposed by the Fund.
A rticle IV
Consultation and recommendations
1. The United Nations and the Fund shall consult together and exchange views
on matters of mutual interest
2. Neither organization, nor any of their subsidiary bodies, will present
any formal recommendations to the other without reasonable prior consulta­
tion with regard thereto. Any formal recommendations made by either
ization after such consultation will be considered as soon as possible by
appropriate organ of the other.
Article V
Exchange of information
The United Nations and the Fund will, to the fullest extent practicable and

subject to paragraph 3 of article I, arrange for the current exchange of inform
tion and publications of mutual interest, and the furnishings o f special repor
and studies upon request.
Article VI
Security Council
note of
obligation assumed, under paragraph 2 of
2 J. e T
Vn.lted Nations Charter, by such of its members as are als
PmtnMpn?
u United Nations, to carry out the decisions of the Secur y
thpTflra ™
r0UK
action in tbe appropriate specialized agencies of wbicb
d^Tsion« nf
an(? wiJ ’ in the c°nd^ t of its activities, have due regard for
Charter
Security Council under Articles 41 and 42 of the United Nations
tioii

np
S
oagrees.1° * ssist the Security Council by furnishing to it inform*’
V
accordance with the provisions of article V of this agreement.
A rticle VII
Assistance to the Trusteeship Council

o u ? o f ^ f n n S , t°KC Pe!ate wlth the trusteeship Council in the carrying
?
request and in in!*
f i s h i n g information and technical a s s i s t a n c e upon

ofA^re to eF n e S m r Wy a my b C M te t w th ^
n f?h u d r U la BS S a e 0 is n lth e



BRETTON WOODS AGREEMENTS ACT AMENDMENT
A r t ic l e

19

VIII

International Court of Justice
The General Assembly of the United Nations hereby authorizes the Fund to
request advisory opinions of the International Court of Justice on any legal
questions arising within the scope of the Fund’s activities other than questions
relating to the relationship between the Fund and the United Nations or any
specialized agency. Whenever the Fund shall request the Court for an advisory
opinion, the Fund will inform the Economic and Social Council of the request.
A r t ic l e

IX

Statistical services
1. In the interests of efficiency and for the purpose of reducing the burden 0 1
1
national Governments and other organizations, the United Nations and the Fund
agree to co-operate in eliminating unnecessary duplication in the collection,
analysis, publication and dissemination of statistical information.
2. The Fund recognizes the United Nations as the central agency for the collec­
tion, analysis, publication, standardization and improvement of statistics serv­
ing the general purposes of international organizations, without prejudice to
the right of the Fund to concern itself with any statistics so far as they may be
essential for its own purposes.
3. The United Nations recognizes the Fund as the appropriate agency for the
collection, analysis, publication, standardization and improvement of statistics
within its special sphere, without prejudice to the right of the United Nations
to concern itself with any statistics so far as they may be essential for its own
purposes.
4. (a) In its statistical activities the Fund agrees to give full consideration to
the requirements of the United Nations and of the specialized agencies.
(b)
In its statistical activities the United Nations agrees to give full con­
sideration to the requirements of the Fund.
5. The United Nations and the Fund agree to furnish each other promptly
with all their non-confidential statistical information.
A r t ic l e

X

.4dministrative relationships
1. The United Nations and the Fund will consult from time to time concern­
ing personnel and other administrative matters of mutual interest, with a view
to securing as much uniformity in these matters as they shall find practicable
and to assuring the most efficient use of the services and facilities of the two
organizations. These consultations shall include determination of the most equi­
table manner in w
’hich special services furnished by one organization to the other
should be financed.
2. To the extent consistent with the provisions of this agreement, the Fund will
participate in the work of the Co-ordination Committee and its subsidiary bodies.
3. The Fund will furnish to the United Nations copies of the annual report
and the quarterly financial statements prepared by the Fund pursuant to section
7 (a) of article V o f its Articles of Agreement. The United Nations agrees that,
in the interpretation of paragraph 3 of Article 17 of the United Nations Charter
it will take into consideration that the Fund does not rely for its annual budget
upon contributions from its members, and that the appropriate authorities of
the Fund enjoy full autonomy in deciding the form and content of such budget.
4. The officials of the Fund shall have the right to use the laissez-passer of
the United Nations in accordance with special arrangements to be negotiated be­
tween the Secretary-General of the United Nations and the competent authorities
of the Fund.
A r t ic l e XI
Agreements with other Organizations
The Fund will inform the Economic and Social Council of any formal agree­
ment which the Fund shall enter into with any specialized agency, and in par­
ticular agrees to inform the Council of the nature and scope o f any such agree­
ment before it is concluded.




20

BRETTON WOODS AGREEMENTS ACT AMENDMENT
A r t ic l e

X II

Liaison
1. The United Nations and the Fund agree to the foregoing provisions in the
belief that they will contribute to the maintenance of effective cooperation
between the two organisations. Each agrees that it will establish within its
own organization such administrative machinery as may be necessary to make
the liaison, as provided for in this agreement, fully effective.
2. The arrangements provided for in the foregoing articles of this agreement
shall apply, as far as is appropriate, to relations between such branch or re­
gional offices as may be established by the two organizations, as well as
between their central machinery.
A b t ic l e

X III

Miscellaneous
1. The Secretary-General of the United Nations and the Managing D i r e c t o r
of the Fund are authorized to make such supplementary a r r a n g e m e n t s as they
shall deem necessary or proper to carry fully into effect the purposes of this
agreement.
2. This agreement shall be subject to revision by agreement between the
United Nations and the Fund from the date of its entry into force.
,
3. This agreement may be terminated by either party thereto on six months
written notice to the other party, and thereupon all rights and obligations of
both parties hereunder shall cease.
^
4. This agreement shall come into force when it shall have been a p p r o v e d
by the General Assembly of the United Nations and the Board o f G o v e r n o r s
of the Fund.
TEXT OF AGREEMENT BETWEEN THE UNITED NATIONS AND THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOP­
MENT
(Approved by the Board of Governors, September 16, 1947, and the United Na­
tions General Assembly, November 15, 1947)
A b t ic l e

I

GENERAL

1. This Agreement, which is entered into by the United Nations pursuant to the
provisions of Article 63 of its Charter, and by the International Bank for Recon­
struction and Development (hereinafter called the Bank) pursuant to the pro­
visions of Section 8(a) of Article V of its Articles of A g r e e m e n t , is intended to
ri?-!b 1erms on which the United Nations and the Bank shall be b r o u g h t into
l t

and tbe Bank are subject to certain necessary limita-

Ti!— , \ iCLCIveu »ucn lnrormatioi
wise interfere with the orderly conduct of its operations.




BKETTON WOODS AGREEMENTS ACT AMENDMENT
A r t ic l e

21

II

r e c ip r o c a l r e p r e s e n t a t io n

1. Representatives of the United Nations shall be entitled to attend, and to
participate without vote in, meetings of the Board of Governors of the Bank.
Representatives of the United Nations shall be invited to participate without
vote in meetings especially called by the Bank for the particular purpose of
considering the United Nations point of view in matters of concern to the United
Nations.
2. Representatives of the Bank shall be entitled to attend meetings of the Gen­
eral Assembly of the United Nations for purposes of consultation.
3. Representatives of the Bank shall be entitled to attend, and to participate
without vote in, meetings of the committees of the General Assembly, meetings
of the Economic and Social Council, of the Trusteeship Council and of their
respective subsidiary bodies, dealing with matters in which the Bank has an
interest.
4. Sufficient advance notice of these meetings and their agenda shall be given
so that, in consultation, arrangements can be made for adequate representation.
A r t ic l e
pro po sal

op

III

agenda

it e m s

In preparing the agenda for meetings of the Board of Governors, the Bank
will give due consideration to the inclusion on the agenda of items proposed by
the United Nations. Similarly, the Council and its Commissions and the
Trusteeship Council will give due consideration to the inclusion on their agenda
of items proposed by the Bank.
A r t i c l e IV
c o n s u l t a t io n

and

r e c o m m e n d a t io n s

1. The United Nations and the Bank shall consult together and exchange
views on matters of mutual interest.
2. Neither organization, nor any of their subsidiary bodies, will present any
formal recommendations to the other without reasonable prior consultation
with regard thereto. Any formal recommendations made by either organiza­
tion after such consultation will be considered as soon as possible by the ap­
propriate organ of the other.
3. The United Nations recognizes that the action to be taken by the Bank on
any loan is a matter to be determined by the independent exercise of the Bank’s
own judgment in accordance with the Bank’s Articles of Agreement. The
United Nations recognizes, therefore, that it would be sound policy to refrain
from making recommendations to the Bank with respect to particular loans or
with respect to terms or conditions of financing by the Bank. The Bank recog­
nizes that the United Nations and its organs may appropriately make recom­
mendations with respect to the technical aspects of reconstruction or development
plans, programs or projects.
A r t ic l e V
exchange

of

in f o r m a t io n

The United Nations and the Bank will, to the fullest extent practicable and
subject to paragraph 3 of Article I, arrange for the current exchange of informa­
tion and publications of mutual interest, and the furnishing of special reports
and studies upon request.
A r t i c l e VI
s e c u r it y

c o u n c il

1.
The Bank takes note of the obligation assumed, under pargraph 2 of
Article 48 of the United Nations Charter, by such of its members as are also
members of the United Nations, to carry out the decisions of the Security
Council through their action in the appropriate specialized agencies of which
they are members, and will, in the conduct of its activities, have due regard for
82526 0 -6 2 -




22

BRETTON WOODS AGREEMENTS ACT AMENDMENT

decisions of the Security Council under Articles 41 and 42 of the United Nations
^ ^ T h e Bank agrees to assist the Security Council by funiishing to it infor­
mation in accordance with the provisions of Article V of this Agreement.
A r t ic l e

VII

A S SISTA N C E TO T H E TR U S T E E SH IP CO U NCIL

The Bank agrees to co-operate with the Trusteeship Council in the carry|*^
out of its functions by furnishing information and technical
distance
request and in such other similar ways as may be consistent with the Aru
of Agreement of the Bank.
A r t i c l e VIII
IN T E R N A TIO N A L COURT OF JU ST IC E

The General Assembly of the United Nations hereby authorizes the Bank
to request advisory opinions of the International Court of Justice on any lega
questions arising within the scope of the Bank’s activities other than questio
relating to the relationship between the Bank and the United Nations or any
specialized agency. Whenever the Bank shall request the Court for an aaviso y
opinion, the Bank will inform the Economic and Social Council of the request.
A e t ic l e

IX

S T A TIS TIC A L SERVICES

1. In the interest of efficiency and for the purpose of reducing the burden on
national governments and other organizations, the United Nations and the Ban
agree to co-operate in eliminating unnecessary duplication in the c o l l e c t i o ,
analysis, publication and dissemination of statistical information.
2. The Bank recognizes the United Nations as the central agency for
collection, analysis, publication, standardization and i m p r o v e m e n t o f sta^tistics
serving the general purposes of international organizations, without prejudice
to the right of the Bank to concern itself with any statistics so far as they may
be essential for its own purposes.
.
3. The United Nations recognizes the Bank as the appropriate agency for tne
collection, analysis, publication, standardization and improvement o f statistics
within its special sphere, without prejudice to the right of the United Nations
to concern itself with any statistics so far as they may be essential for its own
purposes.
4. (a) In its statistical activities the Bank agrees to give full c o n s id e r a t io n
to the requirements of the United Nations and of the specialized agencies,
(b) In its statistical activities the United Nations agrees to give full
consideration to the requirements of the Bank.
5. The United Nations and the Bank agree to furnish each other promptly
With all their non-confidential statistical information.
A r t ic l e X
A D M IN IST R A TIV E R E LA TIO N SH IPS

1. The United Nations and the Bank will consult from time to time c o n c e r n i n g
personnel and other administrative matters o f mutual interest with a
to securing as much uniformity in these matters as they shall find p r a c t i c a b l e
and to assuring the most efficient use of the services and facilities of the two
organizations. These consultations shall include determination of the most
equitable manner in which special services furnished by one o r g a n i z a t i o n to
the other should be financed.
2. To the extent consistent with the provisions of this Agreement, the B a n k
will participate in the work of the Coordination Committee and its subsidiary
bodies*
will furnish to the United Nations copies of the annual r e p o r t
and the quarterly financial statements prepared by the Bank pursuant to S e c t i o n
A^tiicle
its Articles of Agreement. The United Nations agrees
tnat, in the interpretation of paragraph 3 of Article 17 of the United N a t i o n s




BRETTON WOODS AGREEMENTS ACT AMENDMENT

23

Charter it will take into consideration that the Bank does not rely for its annual
budget upon contributions from its members, and that the appropriate authorities
of the Bank enjoy full autonomy in deciding the form and content of such
budget.
4.
The officials of the Bank shall have the right to use the laissez passer
of the United Nations in accordance with special arrangements to be negotiated
between the Secretary-General of the United Nations and the competent authori­
ties of the Bank.
A r t ic l e X I
AGREEM ENTS W IT H OTHER O RGAN IZATIONS

The Bank will inform the Economic and Social Council of any formal agree­
ment which the Bank shall enter into with any specialized agency and in par­
ticular agrees to inform the Council of the nature and scope of any such agree­
ment before it is concluded.
A r t i c l e X II
LIA ISO N

1. The United Nations and the Bank agree to the foregoing provisions in the
belief that they will contribute to the maintenance of effective cooperation be­
tween the two organizations. Each agrees that it will establish within its own
organization such administrative machinery as may be necessary to make the
liaison, as provided for in this Agreement, fully effective.
2. The arrangements provided for in the foregoing Articles of this Agreement
shall apply as far as appropriate to relations between such branch or regional
offices as may be established by the two organizations, as well as between their
central machinery.
A r t i c l e X III
M ISCELLAN EO U S

1. The Secretary-General of the United Nations and the President of the
Bank are authorized to make such supplementary arrangements as they shall
deem necessary or proper to carry fully into effect the purposes of this Agreement.
2. This Agreement shall be subject to revision by agreement between the
United Nations and the Bank from the date of its entry into force.
3. This Agreement may be terminated by either party thereto on six months
written notice to the other party and thereupon all rights and obligations of
both parties hereunder shall cease.
4. This Agreement shall come into force when it shall have been approved by
the General Assembly of the United Nations and the Board of Governors of the
Bank.

Secretary D i l l o n . They were both created before the United
Nations, so they preceded the United Nations.
They are independent and have their own independent resources,
but they do have a working agreement governing their relationship,
and they voluntarily report to the U.N. once a year.
Now, the Bank and the Fund have no direct relationship with each
other except that one cannot be a member of the World Bank without
first being a member of the Monetary Fund. That is a prerequisite
for membership in the World Bank.
Senator C a p e h a r t. Can you be a member of the World Bank with­
out being a member of the United Nations ?
Secretary D i l l o n . Yes. Senator C a p e h a r t. Well, does the United Nations have any veto
over the actions of the World Bank ?
Secretary D i ix o n . None whatsoever; no.
Senator C a p e h a r t. Then it is not quite clear what connection they
do have, is it?




24

BRETTON WOODS AGREEMENTS ACT AMENDMENT

Secretary DuJO . It is just a cooperative reporting arrangement.
jN
There is no connection as regards a legal obligation to be subservient
in any way or subordinate in any way to the United Nations.
COUNTRIES W H IC H H A V E BORROWED FROM T H E F U N D

Senator C a fe h a rt. What countries have borrowed money so far
through the International Monetary Fund ?
Secretary D i l l o n . Oh, a great many countries. I would be glad to
put a list in for the record.
(The list referred to follows:)
IMF member countries that have made drawings (as of February 28,1962)
Argentina
Australia
Belgium
Bolivia
Brazil
Burma
Ceylon
Chile
Colombia
Costa Rica
Cuba
Denmark
Dominican Republic
Ecuador
El Salvador

Ethiopia
Finland
France
Haiti
Honduras
Iceland
India
Indonesia
Iran
Israel
Japan
Mexico
Morocco
Netherlands
Nicaragua

Norway
Pakistan
Paraguay
Peru
P h ilip p in e s

South Africa
Spain
Sudan
Syria
Turkey
United Arab Republic *
Egypt
United Kingdom
Yugoslavia

RECENT AM OUNTS BORROWED B Y U N IT E D K IN G D O M

Secretary D i l l o n . I think we all know the most recent large bor
rower was the United Kingdom.
9
Senator C a fe h a r t . What was that amount? Do you know.
Secretary D i l l o n . They borrowed $1^ billion in cash,
standby agreement, which they did not have to utilize so far, ot s
p
million, a total line of credit of----Senator C a p e h a r t. What currency was that in ?
.
Secretary D i l l o n . They borrowed that in a number of currenci •
$450 million of it was in dollars. There was $270 million each
deutsche marks and French francs, but I can give you the whole us .
They borrowed about eight different currencies.
(The list referred to follows:)
Currency composition o f United Kingdom drawing on IMF—August 1961
Million

U.S. dollars____________________________________________________ ____
Deutsche marks______________________________________ _______________
French francs_____ _________________________________________________
Italian lire____________________ _______ ________________________ ______
Netherlands guilders__________________________________________________
Belgian francs____________ ___________________________________________
Japanese yen___________________________________________________ _____
Canadian dollars____________________________I _____________________
Swedish kroner________ _____
~
”
_________
Total.




270
270

120
9n
if)
^

75

1,500

BRETTON WOODS AGREEMENTS ACT AMENDMENT

25

U.S. TRANSACTIONS WITH THE FUND

Senator Capehart. How much money do we, at the moment, have
in the Monetary Fund ?
Secretary D illo n . We have in the Monetary Fund ourselves, at the
moment, $4,125 million, of which just over $1 billion, or a quarter of
it—$1,030,000,000-odd—was paid in gold. The rest is in non-interestbearing securities and notes and is used by the Fund as needed to
make its advances to other countries.
Senator Capehart. But we have an investment at the moment of
over $4 billion ?
Secretary D illo n . That is right.
Senator Capehart. Have we ever borrowed any money from the
Fund?
Secretary D i llo n . No, we never have.
Senator Capehart. Do you anticipate that we will, in the near
future, borrow money from the Fund ?
Secretary D illo n . No, I do not, but I think we should be in a posi­
tion where, if we needed to, we would be able to do so. And that is
the purpose of this legislation. I do not anticipate, though, any
borrowing.
reason for legislation request

Senator Capehart. Well, how much additional money will be put
into the Fund as a result of this legislation ?
Secretary D illo n . A s a result of this legislation we will undertake
a contingent commitment to loan to the Fund, under certain circum­
stances, an additional $2 billion.
We will not immediately put anything additional in, and it is highly
unlikely in the foreseeable future that this will ever be called upon.
It could only be called upon if the Fund ran short of dollars, and it
lias over $2y2 billion now. The only way they could really run short
of dollars would be if there was a major imbalance-of-payments
crisis, affecting all the major countries of the Continent of Europe,
all at the same time, and that is certainly the complete opposite of the
present monetary situation.
Senator Capehart. Y ou say it has $ 2 ^ billion in dollars at the
moment ?
Secretary D illo n . Yes.
Senator Capehart. Then why do you feel it is necessary for us to
make a commitment of another $2 billion ?
Secretary D illo n . Well the reason for this is, Senator, this is a
cooperative arrangement between these particular 10 countries. The
funds that they agree to put up are available for the restricted pur­
pose of being loaned through the Fund to these 10 member countries
and not anybody else. It is not a general increase in the resources
of the Monetary Fund, and unless we were one of these countries,
the way it is set up, we could not benefit in this thing.
Now the other countries, who are in this Fund and who have put
up far more than we have, all they have asked in return is that we
ought to put something up because maybe sometime the monetary
situation that presently exists will turn upside down—all of Europe
might be in very bad trouble at the same time—and there might be a
need for extra dollars.




26

BRETTON WOODS AGREEMENTS ACT AMENDMENT
U.S. BALANCE-OF-PAYMENTS DEFICIT

Senator Capehart. Well what major countries at the moment have
an imbalance of trade?
Secretary D illo n . Of what ?
Senator Capehart. Have an unfavorable balance of payments?
Secretary D illo n . Have a deficit?
Senator Capehart. Yes; what major countries at the moment----Secretary D illo n . Well I think the United States, among the ma­
jor countries at the moment, is the only one.
The British have had from time to time an imbalance of payments,
but they just reported last year they had a very small basic surplus
in the second half.
Senator Capehart. In other words, the United States is the only
one of the major countries at the moment which has an imbalance of
trade?
Secretary D illo n . That is correct—oh, Japan also does. I am
sorry.
Senator Capehart. Japan and the United States?
Secretary D illo n . Yes.
Senator Capehart. What was our imbalance of trade, say, for the
last 2 years?
Secretary D illo n . Well we had a basic balance-of-payments deficit
2 years ago of $1.9 billion, and last year of $600 million.
These were increased by substantial short-term capital outflows
to a total overall figure of $3.9 billion in 1960 and $2.45 billion last
year.
FAVORABLE U.S. BALANCE-OF-TRADE POSITION

The

Chairman.

Will the Senator yield there for a clarification?

Senator Capehart. Yes.

The C h a irm a n . When you refer to the “balance of trade,” is there
not a difference between a deficit in the balance of trade and one in
the balance of payments ?
Senator C a p e h a r t. I corrected it to “balance of payments.”
Secretary D illo n . I think that is what the Senator meant.
The C h a irm a n . Well you used the word “trade” and in trade alone
there has not been a deficit.

Secretary D illo n . Oh, no.
Senator Capehart. You mean the trade in physical things ?
Secretary D illo n . That is right.
Senator Capehart. We have a surplus ?

Secretary D illo n . We have a continuing surplus.
factors constituting u n f a v o r a b l e

u.s.

b a la n c e -o f-p a y m e n ts

position

Senator Capehart. How does our imbalance then occur ?
secretary D illo n . Our imbalance then occurs because we have a
substantial responsibility in defense around the world. We keep
m ^y troops overseas. That costs us about $3 billion a year.
Y e have substantial outflows of long-term capital. We are investV
ingheavriy around the world. That is some $2y2 billion a year.
.

rtJm o -r * I ’
aid Pr°g™ms. While we are trying to limit
uch as possible, the purchases not made here in the United



BRETTON WOODS AGREEMENTS ACT AMENDMENT

27

States last year accounted for $1.3 billion. There were large pur­
chases outside the United States.
All of these items combined require us to enlarge our surplus on
trade, since we wound up with a deficit.
Senator Capehart. Well you----Secretary D illo n . There has been a deficit for the last few years.
U .S. OOtD LOSS

Senator Capehart. Of course, as a result of this, we have had an
imbalance of payments likewise in the loss of gold ?
Secretary D illon . That is correct.
Senator Capehart. And our gold now is down to about $16%
billion ?
Secretary D illio n . $16.6 billion*
Senator Capehart. $16.6 billion. Are we still losing gold ?
Secretary D illo n . We have, during the first quarter of this year.
Our gold loss has been $280 million, which is large in comparison with
our balance-of-payments overall deficit in the same period, and it will
probably prove ta be the major part of our overall deficit for the
first 3 months of the year. The main reason for this has been a
realinement of monetary reserves in other countries. So while capital
has flowed from Europe to the United Kingdom, and since tli/e United
Kingdom habitually always keeps their reserves in gold, that resulted
in drainings on our gold stock.
The United Kingdom, you may notice, has recently reduced their
bank rate from 6 to 5 percent which may slow up very large inflows.
Senator Capehart. How many dollars do foreign governments and
foreign individuals have in the United States ?
Secretary D i llo n . Foreign officials—governments and central
banks—had just about $11 billion in short-term dollar assets at the
end of last year and foreign individuals, in addition, had about $8
billion more.
Senator Capehart. So that is about $19 billion ?
Secretary D i llo n . About $19 billion.
Senator C apehart. Is that the total call of our gold, $19 billion ?
Secretary D i llo n . I would say that is probably the most accurate
figure.
That does not take account of foreign holdings of Treasury bonds
and notes or of dollars that are held by international institutions, but
these institutions do not habitually call on gold.
Senator Capehart. I see the figure of $23 billion.
Secretary D illo n . That would include, you see, the $3 billion in the
International Monetary Fund.
Senator Capehart. And foreign relations, foreign institutions, and
foreign individuals have a call on our gold up to $23 billion ?
Secretary D i llo n . Probably, technically, but these international in­
stitutions do not operate that way.
Senator Capehart. But they technically have-----Secretary D i llo n . Technically, I think, that is correct.
Senator C apehart. What is the amount of gold required to main­
tain our currency?
.
, .
Secretary DnxoN. Under the *25 percent requirement, it is cur­
rently around $11.75 billion.




28

BRETTON WOODS AGREEMENTS ACT AMENDMENT

Senator Capehart. $11.75 billion.
Do you think you could stop this imbalance of payments and out­
flow of gold?
Secretary D illo n . Yes. We definitely plan to. We are working
toward that end. I submitted a rather detailed report to the Presi­
dent the other day, which he transmitted to the Congress, showing
for last year a very drastic improvement already in our basic
balance.
We hope that improvement will continue this year. We are making
very real efforts to offset and reduce the cost of maintaining our
troops abroad, and I think we are having very real success in that
area. I think that there will be probably some decrease in capital
outflows, and there also should be some decrease in foreign aid out­
flows, as the policies that were adopted a number of years ago, of
spending money only in the United States have time to really take
effect.
But this will leave a necessity of improving our export surplus by
some reasonable amount, somewhere between half a billion and $1
billion a year. I think that is possible with the big efforts that are
now being put into that area.
reason fo r

$2 b i l l i o n

requ est

Senator Capehart. Well, then the reason for this additional $2
billion is really like one going to a bank and establishing credit, bor­
rowing in advance in case he may need it later ?
Secretary D illo n . That is exactly—
Senator Capehart. And the reason we are doing this is that we
anticipate that as a result of this imbalance of payments and the loss
of gold that we may need to call upon this Fund.
Is that right?
Secretary D illo n . That is about right, but we have seen in the last _
few years—since currency convertibility, which after all is a rela­
tively new thing, starting only in early 1959—that the short-term
nows are very much larger than people thought before and do re­
quire larger resources to take care of them. That is what this is for,
to strengthen us for that purpose.
Senator Capehart. Should we not couple this reserve that we are
talking about, this credit that we are talking about that we hope we will
never need but that we might need, with a reduction in our foreign
expenditures and attack it from that angle, too ?
Secretary D illo n . Oh, very much so. That is why I said we have
been working very hard in our military expenditures and felt that
we would have very real results there.
Senator Capehart. That is all.
The Chairman. The Senator from Kansas ?
TH E FU N D AS A U .S . RESERVE RESOURCE

Senator Carlson. Mr. Secretary, you stated, I believe, that we have
not used the Fund as yet
?
l^ e
ftar*nDlLL0N* ^ e,kave never'drawn on the Fund.
Carlson. Well, in view of that statement, why should *6
n S d 't?
Preseixt time>in view of the fact that we have not



BRETTON WOODS AGREEMENTS ACT AMENDMENT

29

Are you just asking us to increase this Fund with the thought that
we may need large withdrawals from it or----Secretary D i l l o n . The reason for that, I think, is simply that we
now can foresee, in view of these great, sharp movements of funds,
which are not always for business reasons but sometimes for political
reasons from country to country, that there might be a sudden sharp
d.emand for dollars that would require our using the Fund as a second
line of reserve, as we have every right to do.
We have not needed to do it yet. If we should, if that occasion
should occur, our drawing rights are very large in the Fund. But,
unfortunately, they are paper rights at the moment because the Fund
has not got the money to meet them.
If we asked for the drawing rights, and this arrangement will pro­
vide that money if it ever should be necessary, we would be in the
same position as every other country is in now if we want to go in and
exercise our right to draw. Then we can have it met.
Senator C a p e h a r t. If the Senator will yield, he is doing what I
think I learned to do as abusinessman.
When I did not need the money, then is when I arranged to borrow
it, and arranged for my credit, because I discovered a couple of times
that I had waited too late because I really needed it and it was then
awfully hard to get.
Secretary D i l l o n . That is correct; you have to have it all set up so
you can operate very rapidly if you need it.
Senator C a r ls o n . Well, following the Senator’s suggestion, my
thinking was this: I think everyone who follows our fiscal situation
is concerned about the withdrawal of gold. I know the Secretary is
because I have heard him express himself on this.
Now, we have a Fund. We are going to increase it greatly.
Would not that be a temptation to not really make ever}7sincere
effort we can to preserve our balance of gold in this country ?
Secretary D i l l o n . N o, not at all, because, as I pointed out, the Fund
is only available to meet the short-term movements, temporary move­
ments, to give someone a little time to put their house in order, and is
not a cure for the balance-of-payments deficit.
It does not hold itself out as such, and we have to, and will, con­
tinue to work in every way, to work in every way possible, to help
our balance of payments, which we are doing all the time. This is
only one element that is certainly not the only element, or even the
main element.
It is an element, however, which would give us knowledge, and the
certainty, that if there should be one of these short-term scares, such
as occurred a few years ago, in the fall of 1960, that we would be in a
position, if needed, to draw from the Fund.

We think one thing that is very important is that with this cur­
rency convertibility there is greater opportunity in the world market­
places for speculation on currencies, and it is verv useful for the
speculators to know that the resources are available to handle any
possible attack on the dollar.
And we think this will greatly diminish the possibility of this ever
being needed.

82526 0 —h62--------5




30

BRETTON WOODS AGREEMENTS ACT AMENDMENT
POSSIBILITY OF INVITING CARELESS FISCAL POLICIES

Senator C a r ls o n . Well, I know this would not be true of the present
Secretary of the Treasury but, looking to the future, I can see why
some folks might say, “Well, we have no problems now, but we have
a Fund here to take care of any problems that arise and so why not be
a little careless?”
That is one thing that concerns me.
Secretary D illon. Well, I think that is a very real question, but
there is an answer to that, and that is that any drawings from the
Fund of the type we have been talking about, which we would have a
right to, can only be made under the terms and provisions of the
Fund. And while they are very free in allowing these drawings up
to the extent of the original gold contribution of a country, as you
begin to get beyond that they do require a performance on the part of
the brrower and, as the Chairman pointed out, that is one of the most
important things about the Fund.
So no one could count on borrowing a very large amount of money
unless they were prepared and willing to put their house in order at
home, and also to indicate that they were going to correct their im­
balance of payments.
Senator Carlson. Well, now, you stated that our withdrawals
would be based or could be based, at least, on our contributions in
gold.
Is it not true that over 50 percent of Our contribution to this Fund
is in our own gold ?
Secretary D illon. No, our contribution to the Fund was $4 billion,
altogether^ and we paid in $1 billion of that in gold and $3 billion in
dollars. That first $1 billion in the Fund is practically automatic in
a drawing if this country feels it needs it.
It is only when it gets beyond that, and the resources that are re­
quired beyond that, that the Fund begins to press for significant action
by the country. And the more money they want, the more action they
press for.
.
Also, any borrowing from the Fund has to be repaid in 3 to 5 years.
At is a temporary thing there. It is not any invitation to careless

seal policies because they would not be allowed to carry these borrow­
ings on for any length of time by the Fund.
U.S. G LD CONTRIBUTIONS TO THE FUND
O

<U^O
Kaknv^ARL80N' In your statement you said that the U.S. quota is
in old
one-quarter of which the United States paid to the Fund
Secretaiy D i l l o n . That is right,
oenator C a r ls o n . Later on you said:
$11.5 W u T r K m b S ^ n c ^

available to 14 $21 bilUon in g° W

goldtottiisFund? mean f^at we had contributed 50 percent of the
c
available gold> N
?LLO
^ see>y°u wean 50 percent of the presently
Senator C a h lso n . Yes.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

31

Secretary D illo n . Well, I do not think so because the Fund has
received more gold than the $2 billion that presently remains, and in
order to acquire needed currencies, in order to make some interestbearing investments, they have disposed of some of the gold.
The total amount of gold that the Fund originally acquired, by
countries9 subscriptions, is about $3 billion. The United States put
in about a third, because we have about a third interest in the Fund,
just under 30 percent.
TYPES OF CONTRIBUTIONS

CONTEMPLATED BY LEGISLATION

Senator C arlson . You said to the chairman that this proposal
would require no transfer of gold.
Now, under this arrangement, would there be any additions to this
Fund in the form of gold \

Is our next contribution going: to be in currency ?
Secretary D illo n . Under this borrowing arrangement this would
all be in currencies that are needed.
As I said, there are very inadequate resources in the currencies of
the continental European countries such as the deutsche mark, the
French franc, and these assets will be greatly increased, and they
would, of course, under present circumstances, D very useful to us if
e
we ever needed a drawing.
The Fund does continually get a small amount of gold because, un­
der its provisions, interest on its loans are generally payable in gold,
and I think last year they received some $45 million in gold from vari­
ous people. And whenever a new country joins they have to pay a
quarter of their quota in gold, and they do.
r . S . GOLD W ITH D RA W A LS

Senator C arlson . Mr. Chairman, I have heard the Secretary tes­
tify many times, and I was just concerned on this point. He is fa­
miliar with this situation, and I appreciate that he is, because I think
lie is vitally concerned.
I noticed this morning on the financial pages, and I think that was
the Secretary’s response to Mr. Capehart, that our gold holdings were
down to 16.(> million in this country, and this article said that we have
had rather substantial withdrawals this year which is not too en­
couraging.
Secretary D i llo n . Well, as I pointed out, this has been the case
this year. The withdrawals in gold have been the major part of our
actual deficit, but that has not been caused by anything that we have
been doing. It has been caused by the shifting of reserves between
continental countries, such as Germany, which generally keeps a por­
tion of their reserves in dollars, to England which traditionally keeps
all of their reserves in gold.
So when this reserve shifts the British wish to buy gold with it.
Senator C arlson . Well, I think this is one of the important prob­
lems facing our Nation.

Thank you, Mr. Chairman.




'

32 /

BRETTON WOODS AGREEMENTS ACT AMENDMENT
COUNTRIES AFFECTED BY THE AMENDMENT

The C h a irm a n . Mr. Secretary, will this amendment affect only the
rights of the 10 participating members or does it affect the others
‘ rights to borrow ?
Secretary D i l l o n . It does not affect others at all. It is very care­
fully insulated.
.
The C h a irm a n . In other words, the other 65 members cannot obtain
any larger rights under this proposal ?
P

Secretary D i l l o n . N o. This is specifically designed to deal with
the crises that might impair the functioning of the world monetary
system.

So it only includes countries that have substantially important cur/rencies.
The C h a irm a n . And I believe you said that it would be very dis­
couraging to speculation against the dollar, too ?
Secretary D i l l o n . T o have this in effect, oh, very much so.
COMMENT ON OPPOSITION EXPRESSED TO THE PROPOSED

AM ENDM ENT

The C h a irm a n . Mr. Secretary, I have a telegram here which I
would like you to comment on.
It is a request to appear in opposition to this bill. It says:
Permission is requested for the Citizens Foreign Aid Committee to submit a
statement on S. 2824 to amend the Bretton Woods Agreement in view of the fact
that this bill would increase foreign claims on dollars. This is in effect foreign
aid and is regarded with disfavor by this committee.

It is signed by General Bonner Fellers, the national chairman.
Is that a correct statement as to what this bill does?
Secretary D i l l o n . No, in fact, it is upside down.
The basic advantage of this bill is to allow us to join in an agree­
ment which would make available, if needed, very substantial addi­
tional quantities of funds from other countries to the United States.
And other countries are putting in, in total, $4 billion compared to the
$2 billion that we are putting up.
Our commitment is conditioned on the need of the Fund for dollars.
It already has $2% billion. So it is hard to see that that need will
come very early.
It is also conditioned on our balance-of-payments situation. As
long as we are in balance-of-payments difficulties, there is no obligation
to put up any funds, and that is the situation now.
...
So, under present circumstances, it does not increase our liabilities
at all, and will not until such time as these other conditions are metIhe C h a irm a n . And by no stretch of the imagination can this be
considered a foreign aid program ?
Secretary D i l l o n . None whatsoever.
The C h a irm a n . We have another letter-----senator Cari^on. Before you leave that, did they request you to put
aSfA
^ 11the record or did they want to appear here?
1
ne C h a irm a n . The Citizens Foreign Aid Committee requested
pennission to submit a statement.
w ? f? ai°r C . L , N- 1 would hope that the chairman would have that
jA S0
R
the hearing
record’ if they requested it be included as a part of



BRETTON WOODS AGREEMENTS ACT AMENDMENT

33

The Chairman. Yes; I contemplate asking him, in reply to this, to
submit a statement, but if he wishes to appear on Tuesday morning
for the usual 10 minutes for public witnesses, he may. But I thought
since the Secretary was here I would like him to comment on the state­
ment made in the request.
I will put the whole telegram in the record.
(The telegram referred to follows:)
W ash in g to n , D.C., March 29, 1962.
Hon. J. W. F ulbright ,
Chairman, Senate Foreign Relations Committee,
U.S. Senate, Washington, D.C.:
Permission is requested for the Citizens Foreign Aid Committee to submit a
statement on S. 2S24t to amend the Bretton Woods agreement. In view of the
fact that this bill would increase foreign claims on dollars this is in effect for­
eign aid and is regarded with disfavor by this committee.
B onner F ellers ,

Xational Chairman, Citizens Foreign Aid Committee.
RESOLUTION OF TH E A M ER IC A N BAN KERS ASSOCIATION

The C h a ir m a n . I also have a letter here from the American Bank­
ers Association, signed by Charls E. Walker, which the reporter will
put in the record at this point.
(The letter referred to follows:)
T h e A merican B a n k er s A ssociation ,

Ncic York, iV.r., March 23,1962.
Hon. J. W. F u lbright ,
Chairman, Committee on Foreign Relations,
U.S. Senate, Washington, D.C.
D ear M r . C h a ir m a n : Mr. Sam M. Fleming, president of the American Bankers
Association, has asked me to send you the enclosed copy of a resolution, adopted
by the ABA in October 1961, endorsing an increase in the resources of the In­
ternational Monetary Fund in order to help minimize pressures resulting from
large international movements of short-term funds. It is our understanding
that S. 2824, now being considered by your committee, would permit the United
States to participate in such an arrangement in a manner consistent with the
ABA resolution.
The resolution is being sent to you for your use as you may see fit
Yours sincerely,
C harls E. W alke r .
I n ternation al M onetary F und

Resolution adopted at the second general session of the 87th annual convention
of the American Bankers Association, San Francisco, October 18, 1961
The Treasury and the officials of the IMF are to be commended on their efforts
to find more acceptable ways to minimize pressures that result from large move­
ments of short-term funds among world financial markets. Proposals have
been advanced to increase the resources available to tlie International Monetary
Fund for this purpose. Careful and arduous negotiations will be required to
reconcile differing positions and to reach agreement on details, but the reason­
able p ro sp e cts are that a workable agreement will be developed in the months
ahead.
Action along this line would be a very useful precautionary measure. A major
contribution of the proi>osed IMF arrangement is that it would give to a country
whose currency is under pressure additional time in which to make necessary
adjustments in its balance-of-payments position. However, the proposal would
not relieve any country, including the United States, of the need to avoid chronic
deficits in its balance of payments.




34

BRETTON WOODS AGREEMENTS ACT AMENDMENT
FURTHER OPPOSITION

The C h a irm a n . I also have received a letter from Groseclose, Wil­
liams & Associates, which is in opposition to it.
There is one statement I would like the Secretary to comment on.
It says:
The legislation in essence is another step in the demonetization of gold and
the substitution of governmental flat for an intrinsic value in our curre cy
system. We do not believe that the economy and livelihood of a nation Q n Z
aJ
maintained in a healthy state under any such theory and policy. A stable p
level—a main object of monetary policy—can, as British experience prior
1914 proved, be maintained only under conditions of a gold-based and. xuiiy
convertible currency, and the present legislation, and other legislation liKe it,
only tend to extend and solidify the unfortunate and deleterious system or m
aged money.

Would you say that is a correct statement ?
Secretary D i l l o n . No.
The C h a irm a n . It is incorrect?
Mr. Reporter, put this entire letter in the record.
(The letter referred to follows:)
G boseclose , W il l ia m s & A ssociates ,

Washington D.C., March 29,1962.
In re S. 2824, to amend Bretton Woods Agreements Act.
Hon. J. W il l ia m F tjlbkight,
Chairman,, Senate Foreign Relations Committee, Washington, D.O.
My D eab S enatob F ulbkight : I am requested by Mr. E. K. Barnes, Pres^ e?.^
Northwest Mining Association, West 522 First Avenue, Spokane, Wash., to ni
with the committee on behalf of the association the following statement in. op­
position to S. 2824, and to request that the statement be made a part or tn
hearings record:
STATEM ENT ON S. 2 8 2 4 , TO AM END BBETTON WOODS AGBEEM ENTS ACT

“The Northwest Mining. Association registers its opposition to S. 2824* to
amend the Bretton Woods Agreements Act to authorize the United States t
participate in loans to the International Monetary Fund and to authorize icn
Secretary of the Treasury to make loans to the In tern a tion al M on etary * *n
J
up to $2 billion when appropriated. Opposition to the bill is based on the to lowing grounds:
.
“ 1. The legislation, if enacted and implemented, would increase the straw
on the dollar rather than strengthen it. It would add $2 billion to f o r e i g n
claims on U.S. gold at a time when such short berm claims are already in
of $22.5 billion and the gold supply is steadily dwindling and is now less tna
$16.7 billion.
“2. The tacit purpose of the legislation is to strengthen the dollar *n^
er'
nationally by providing access to other strong currencies. It sets up what na
been officially described is a ‘standby’ credit. This is an erron eous use or
language and the aarrangement is an illusion. It is an illusion for the reJ*s?*|
that access to such currencies will not be automatic but must be approved y
the sovereignities whose currencies are affected. A ‘standby’ credit is one in
which funds are available on call, or demand. The officials of these sovereign­
ties, notably Germany and France, have made clear that their funds will no
be available automatically.
“3. The legislation will only palliate the existing dollar crisis, an<*
permit the administration to postpone any basic solutions to the gold o u t f l o
and the balance of payments deficit.
4. Despite the favorable legal opinions offered by various law officials of the
administration, the agreements entered into by the Federal Reserve Board wito
foreign central banks, which this legislation seeks to confirm and legitimatize,
o£ ille£ality and unconstitutionally and the passage o f such
legislation will only encourage such ultra vires actions in future.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

35

‘‘5. The legislation in essence is another step in the demonetization of gold
and the substitution of governmential fiat for an intrinsic value in our currency
system. We do not believe that the economy and livelihood of a nation can be
maintained in a healthy state under any such theory and policy. A stable price
level—a main object of monetary policy—can, as British experience prior to
1914 proved, be maintained only under conditions of a gold-based and fully
convertible currency, and the present legislation, and other legislation like it,
only tend to extend and solidify the unfortunate and deleterious system* of
managed money.”
The foregoing is submitted on behalf of the Northwest Mining Association.
Very truly yours,
E l g in G r o se c l o se .
R E L A T IO N S

OF T H E

FUND

W IT H

S W IT Z E R L A N D

The C h a irm a n . Mr. Secretary, does the fact that Switzerland,
which is a major financial center, is not a member of the IMF create
any measurable difficulties, especially regarding short-term flows of
capital ?
Secretary D i l l o n . N o, it does not. We are cooperating very closely
with the Swiss Government. The Swiss are a member of the OECD
working party that deals with monetary matters, and we meet with
the Swiss. We have monthly meetings of the central bankers that are
Governors of the BIS in Basel and we have found that they have been
most cooperative.
Specifically, they have been informed and are aware of the arrange­
ments, and they are in contact with the Fund to see if they cannot
work out some sort of a parallel arrangement whereby Swiss cur­
rency will also be made available in case of need even though they are
not a member of the Fund.
I hope that someday they might become a member of the Fund but
they have never been one.
'I'he C h a irm a n . Are they contemplating becoming a member?
Secretary D i l l o n . I do not think so at this time. They had their
own reasons for not joining it at the time the Fund was set up in
1945.
I would hope that those reasons might gradually appear less cogent
to them.
They are very friendly and do have very close working relation­
ships with member countries here and the Fund itself.
Senator C a r ls o n . Mr. Chairman, right on that point, I heard an
interesting comment the other day that these Swiss bankers were
working with the Soviet Government and, through the connection
with the banks, were having some effect on some of our international
financial operations, in the area of balancing gold payments and so
forth.
Do you know anything about that?
Secretary D i l l o n . I would not comment on that. I have not seen
that story.
It must refer to Swiss private banks, as opposed to the Swiss gov­
ernmental bank, which is what I have been talking about in connec­
tion with our monetary cooperation.




36

BRETTON WOODS AGREEMENTS ACT AMENDMENT

BUDGETARY E F FE C T; ROLE OF T H E E X C H A N G E STA B IL IZA T IO N FUND

The C h a irm a n . What effect, if any, will this bill have upon the
current U.S. budget?
Secretary D i l l o n . It will have none.
The C h a irm a n . I recall, I think, a story or something to the effect
that the Treasury is now acting through the Federal Keserve Bank of
New York in conducting foreign currency operations.
Does that have any relation to this matter at all ?
Secretaiy D i l l o n . Yes, I think it does. This is another line of de­
fense.
I
We started operations about a year ago through the exchange stabilization fund of the Treasury which were designed to moderate
| shifts in the foreign exchange market and designed to reduce the
\ drain of dollars. And I think those operations, which have been very
modest in size because of the size of the exchange stabilization fund,
\ have been generally agreed to have been quite successful,
i
The Federal Eeserve, with its much larger assets, has now agreed to
\ enter into the same general field.
Now all of the central banks without exception in Europe have op­
erated in this area for a long time, and I think it is useful for us. It
will make a better international monetary market to be in this posi­
tion.
STATUS OF RATIFICATIO N

OF A G R EEM EN T

The C h a irm a n . H o w many of the 10 States which entered into this
agreement have already approved it ?
Secretary D i l l o n . One of them, Italy, has already completed ratifi­
cation.
The others are all moving through the ratification process, and we
expect that it will be completely ratified by all the other countries by
early fall.
The C h a irm a n . But you are very interested in having us act on
this legislation as soon as possible ?
Secretary D i l l o n . A s soon as possible, yes.
The C h a irm a n . Do you have anything else you would like to add?
mai^Cre^
ar^ LL0N* ^°) I have nothing else. Thank you, Mr. ChairThe C h a irm a n . Any further questions ?
benator C a r ls o n . N o.
The C h a irm a n . Thank you very much, Mr. Secretary.
I he committee is adjourned.
(Whereupon, at 12 o’clock noon, the committee was adjourned.)




BRETTON WOODS AGREEMENTS ACT AMENDMENTS

TUESDAY, A PR IL 3, 1962
U n it e d S ta te s S e n a t e ,
C o m m i t t e e o n F o r e ig n R e l a t i o n s ,

Washington, B.C.

The committee met, pursuant to notice, at 10:80 a.m., in room F-53,
U.S. Capitol Building, Senator J. W. Fulbright (chairman) presid­
ing.
Present: Senators Fulbright, Lausche, and Wiley.
The Chairm an. . The committee will come to order.
The first witness this morning is Dr. Elgin Groseclose, economic
consultant, Citizens Foreign Aid Committee, Washington, D.C.
Dr. Groseclose is representing, I believe, General Fellers of the Citi­
zens Foreign Aid Committee. We received a telegram from General
Fellers this week to that effect, didn’t we ?
Mr. G r o s e c l o s e . Yes; General Fellers.
The Chairm an. You are representing him ?
Mr. G r o s e c l o s e . Yes.
The C hairm an. You go right ahead.
STATEM ENT

OF E L G IN

GROSECLOSE, ECONOMIC CONSULTANT,

C IT IZE N S FO R E IG N A ID COMMITTEE, W A SH IN G T O N , D.C.

Mr. G r o s e c l o s e . Mr. Chairman, and members of the committee,
thank you for this privilege of appearing before you on behalf of the
Citizens Foreign Aid Committee, in opposition to S. 2824. My ap­
pearance is also on behalf of the Northwest Mining Association, which
has already registered with you its opposition to this bill and has au­
thorized me to make a further statement in its behalf. My name is
Elgin Groseclose and I am head of Groseclose, Williams & Associates,
financial analysts and consultants of this city, and research consult­
ants to the Citizens Foreign Aid Committee. I have been concerned
with monetary problems for over 35 years since my first official post
as specialist in Far Eastern finance with the U.S. Department of
Commerce. I was the first financial editor of Fortune magazine,
and during World War II served as Treasurer-General of Iran by
appointment of the Iranian Parliament, with responsibilities for
monetary policy, note issue and the operations of the central bank. I
have taught money and banking at the College of the City of New
York, and I am the author of the recently published “Money and Man,”
a new version of a history of money first published by the University
of Oklahoma Press in 1935. A copy of this work is offered to the com­
mittee in evidence of my competence to testify on the subject before
you.




37

38

BRETTON WOODS AGREEMENTS ACT AMENDMENT

STABILITY OF DOLLAR ESSENTIAL TO FREE W ORLD’ S E C O N O M Y A N D POLITICAL
ST AB ILITY

The Secretary of the Treasury has testified that the dollar is the
major reserve currency of the free world and that the stability of the
dollar is essential not only to the economy of the United States but to
that of the entire free world. I may add not only the economy of the
free world, but the political stability of the free world. Let us not
forget that Hitlerism rose to power on the collapse of the gold stand­
ard and that the Hitler madness fed on the hashish of managed money.
REASONS FOR OPPOSITION TO LEGISLATION

The Citizens Foreign Aid Committee believes that the most effective
foreign aid we can render the world is to maintain a sound dollar, and
it opposes this legislation because it does not strengthen but rather
weakens the dollar, and because it is a form of foreign aid. The bill
weakens the dollar because:
(а) It would increase rather than limit or reduce foreign claims
on dollars;
(б) it palliates the balance of payments crisis instead of con­
fronting it;
(e) it is a form of back-door financing to evade needed fiscal
reforms; and
(d) finally, it is an extension of the system of managed money,
a further dilution of the money system, and a move toward the
demonetization of gold.
Last Friday, Mr. Chairman, you asked the Secretary of the Treas­
ury two questions prompted by statements in opposition to this bill
filed by the Citizens Foreign Aid Committee and the Northwest Min­
ing Association. The first was whether the bill was a form of foreign
aid. The second was whether it represented an extension of the system
of managed money. To both questions the Secretary gave a short
negative. Let us attribute this light dismissal to the lateness of the
hour Friday; they are questions too serious to permit here indulgence
m levity. They go to, the core of the issue.
f u n d ’s

RESOURCES M A IN L Y OF W E A K CURRENCIES

It is curious that the Secretary should deny that the bill is a form
in ^le light of his explanation as to why the resources
tt
international Monetai7 Fund could not be drawn upon by the
United States. The Fund commands total subscription resources
theoretically equivalent to $15 billion, but actually consisting largely
of weak currencies. In 1959, you will recall, the United States in­
creased its subscription by 50 percent in order to strengthen the Fund s
resources. Fifteen billion dollars sounds like a lot of money. The
°l

President, you will also recall, assured the country in his balanceoi-payments message last year that we had a secondary reserve in the
S Z
^ bL
llion- A member ^ the committee asked the
]
'I? effect why this bill was necessary in view of such
resources and the President’s assurances. The Secretary’s response,
rptnT ,^
O a«iJ!VS
a
hut the answer may be found in the Sec­
retary s prepared statement and in the reports of the F u n d itself-




BRETTON WOODS AGREEMENTS ACT AMENDMENT

39

Neither the $15 billion nor even the $4 billion referred to by the Pres­
ident is available to us. The Fund's resources are not available to
us because they are largely locked up in the currencies of the lessdeveloped countries.
Senator L a u s c iie . May I ask a question at this point, Mr. Chair­
man ?
The

C h a ir m a n .

Yes.

Senator L a u s c h e . Are you saying that if these were hard curren­
cies, and were in the possession of the Monetary Fund, they would
be available to us?
Mr. Groseclose. Yes, I think so.
Senator L a u s c iie . But because they are soft, they are of no utility.
Mr. Groseclose. That is the Secretary’s statement. He said they
are not the kind that we can use.
Senator L a u s c h e . Thank you.
Mr. G r o s e c lo s e . The United States has supplied the Fund $4,125
billion in gold and convertible currency. Over the years the Fund
has been exchanging these strong dollars for the weak currencies of
the world, giving sound fruit for culls. Of sales of good currencies
by the Fund to the end of 1960, totaling $3.7 billion, some 87 percent
consisted,of dollars, a minor balance consisting of European curren­
cies and Canadian dollars. Certainly this is foreign aid, however
you disguise it in the technicalities of international finance.
Senator W i l e y . May I ask a question ?
The

C h a ir m a n .

Yes.

Senator W ile y . Is this money that we speak of now—you say $3.7
billion—in the hands of these other nations used to create a demand
upon our economy ?
Mr. Groseclose. They can use those dollars to buy goods here, yes.
Senator W ile y . That is what I mean.
u.s. G LD
O

Mr. Groseclose. Yes, sir, they represent resources to them, or they
can use them to buy gold.
Senator W il e y . In other words, these dollars come back home.
Mr. Groseclose. Well, they may be taken out in the form of gold.
A good deal of it has been taken out in the form of gold.
Senator W il e y . If they are taken out in the form of gold, they still
are used to buy American merchandise, are they not ?
Mr. G roseclose. Not if they are taken out in the form of gold,
Senator.
Senator W ile y . W h y not?
Mr. G r o s e c lo s e . Well, gold is a commodity, of course. Gold is a
commodity—it is buying U.S. gold. The French last week bought
$50 million worth of U.S. gold.
Senator W i l e y . In other words, you are talking about other nations
buying the gold in America.
Mr. G roseclose. Yes.

Senator W i l e y . With the credit or the dollars we have provided
them.
Mr. G roseclose. That is right.
Senator W il e y . That is all.




40

BRETTON WOODS AGREEMENTS ACT AMENDMENT

CURRENCIES ALLOWED TO ACCU M U LATE I N BALANCES I N U N ITED STATES

Senator L a u s c h e . Mr. Groseclose, you don’t mean to say that when
the International Monetary Fund’s dollars are sent to one country
to stabilize their currency, those dollars must be spent in the United
States mandatorily ?
Mr. G r o s e c lo s e . Well, if they are spent, they could only be spent
in the United States. But they may be left here as a deposit with the
Federal Keserve, as a bank deposit, or they may be drawn out in tne
form of gold, or they may be used to buy American commodities. But
what has happened is that we have made credits available to these
foreign countries, and they have not used them to buy U.S. c o m m o d i­
ties. They have allowed them to accumulate here in balances, as tne
Secretary testified in his statement.
Senator L a u s c h e . Aren’t the provisions of the Monetary Fund that
the hard currency which the borrower gets he can use to purchase goods
wherever he wants? He doesn’t have to purchase American goods
for the American dollar, and Canadian goods for the Canadian dollar,
and Swiss goods for the Swiss franc.
Mr. G ro s e c lo s e . That is undoubtedly true, Senator. What I mean
to say is that once these dollars are out, they may pass, say, from the
Indian Government, which acquires the dollars—and w
’hich may trade
them for British goods. Then the British acquire the dollars, ana
they may buy U.S. goods with them, or they may buy gold.
Senator L a u s c h e . They eventually come back.
Mr. G r o s e clo s e . Unfortunately a good deal have been going to
Germany and France, these dollars, and they have been using them
to buy gold—not entirely goods. We have been trying to get them
tp buy more goods here.
Senator L a u s c h e . A ll right. Thank you very much.
Mr. G r o s e clo s e . What has happened to the $4 billion already pro*
vided by the United States to the Fund you may be sure will soonei
or later happen to the $2 billion you are now asked to supply*
U .S. BALAN CE-OF-PA Y M E N T D IFFIC U LTIES

But the Secretary assures the committee that there is little
hood of the United States being called upon to put up this money. 1*
ie
real purpose of the bill, we are informed, is to give the United States
access to certain strong foreign currencies in order to relieve our bajance-of-payments difficulties. The inference is that our $2 billion is
analogous to the cost of a key to one of these gaslight clubs after wine i
everything comes with the price of a drink. I am sure the committee
is not so naive as to accept such an interpretation of the case.
CURRENCY POOL AGREEM ENT ,

Ten governments, initially, are to subscribe $6 billion to a loan poolof winch the U.S. quota is $2 billion. Thus, we are told, the United
■ sta tes w ill be able to acquire m arks, fra n cs, g u ild e rs, an d oth er good
currencies to meet some o f o u r overseas bills.
q tS S
rplnnfnV*

T

m arks’ f Fai}cs; gu ild ers b e a g i f t to the United
V n
/
^inost o p tim istic o n e -w o rld e r m ust shudder at th
ce o f ou r allies to com e to ou r need, as reflected in the lectuie




BRETTON WOODS AGREEMENTS ACT AMENDMENT

41

read to us by Herr Blessing and Monsieur Baumgartner at the Vienna
meeting of the Fund.
No, uie agreements show these foreign currencies do not come as a
gift. We have to buy them. With what? Either cash or I O TJ’s,
of course. Here is where the need for this bill enters. The com­
mittee will not be deceived. Either this currency pool agreement
means that we put up $2 billion, or the whole scheme is a sham.
THREAT TO TH E DOLLAR

A further curiosity in the Secretary’s testimony is his assurance
that this device will help alleviate the balance-of-payments deficit.
As you are aware—as the Secretary made clear—the threat to the dol­
lar arises from the overhang of some $23 billion quick claims on dol­
lars held abroad. The solution to the problem, as must appear to
any novice, is either to redeem these claims or to fund them into
long-term claims so that the liability is spread out. The operation
proposed by this bill does neither. It adds $2 billion of prospective
liabilities, and these liabilities are of short term. As already noted,
to the extent that the Treasury obtains marks or francs, it must
surrender dollars.
The net effect of this is to aggravate our balance-of-payments prob­
lem, rather than to alleviate it. For when the Treasury obtains marks
or francs, they are largely spent to support our troops in Europe,
but the dollars which we give in exchange are not spent but, as the
thrifty French are doing, they are converted into gold and taken out of
the country in specie.
m anaged

m oney

The Secretary’s denials, in response to the chairman’s second ques­
tion, that the transactions to be authorized by the bill represent an
extension of managed money, is even more puzzling. By “managed
money” ordinarily is meant money, the amount and value of which
is governed by government fiat and manipulation, and that does not
represent an intrinsic substance such as gold or silver. What the
administration proposes here is that we create certain Treasury obli­
gations or credits and that certain foreign governments will also
create certain credits and that by trading these back and forth we
will somehow manage to keep gold from flowing out of the country.
It is hard to see how this is not the very essence of managed money.
The unfortunate aspect of this proposal, as is the case with all man­
n ed money systems, is that it allows the governments to avoid dealing
with the fiscal realities involved in the creation of actual wealth. In
this case, it is an attempt to postpone any balancing of our payments
deficit by the legerdemain of Treasury obligations.
l e g i s l a t io n ’s

IN F LA T IO N A R Y IM PA C T

A final comment : A prime object of administration policy is the
fftaintenance of stable price level. But the bill before you is, in essence,
inflationary and contributes to the unsettlement of prices. It* is
inflationary because its creates new Government debt and provides
its monetization through the mechanism of the International
Monetary Fund. By so doing it is an impetus to price inflation. We
will regain stability of prices only so soon as we abandon the leger­



42

BRETTON WOODS AGREEMENTS ACT AMENDMENT

demain of managed money, with its paraphernalia of international
monetary funds, gold pools, standby credits, and the like, and return
to fully convertible money, fully backed by gold.
STUDY OF GREAT B R IT A IN ’ S PRICE LEVEL DEPRECIATION

In the question read to the Secretary reference was made to the
stability of the price level in Great Britain prior to 1914, during the
period of free gold currency, by contrast with the steady depreciation
of the price level since. Figures for the price level of Great Britain
are found in Prof. Edwin W. Kemmerer’s work, “ Gold and the Gold
Standard,” a compilation based upon the studies of John Parke Young,
N.J. Silberling, and Sauerbeck. They indicate that, with 1913 as a
base, in the 93 years between 1821 and 1914 the index varied not more
than 30 percent in either direction, that is, between a low of 72 and a
high of 128. Since 1914: when Great Britain suspended the gold
standard, and moved toward managed money, the pound sterling has
been officially devalued between three or four times, depending on how
one regards official devaluation, and the gold content has been reduced
to nearly a third. The movement of prices since 1914 is not easy to
trace due to the absence of reliable statistical material, but, in general,
the price level may be said to have moved up some 400 percent by
1954, and another 20 percent since. Meantime the pound sterling has
lost all its former stability and from being the strongest currency of
the world is today one of the weakest in Europe. Last year, as the
Secretary testified, the British Government had to borrow $1.5 billion
from the Fund with a standby arrangement for another half billion.
The sad experience of Britain belies the assertion that the Interna­
tional Monetary Fund has been instrumental in the restoration of
c.urrency stability and convertibility. Currency stability
will be obtained, as Germany has demonstrated, only by fiscal honesty,
hard work, and hard money.
NATURE OF OPPOSITION TO LE G ISLA TIO N

For the foregoing reasons, and others that could be presented if
time permitted, the Citizens Foreign Aid Committee and the North­
west Mining Association oppose S. 2824 and other like bills to extend
the power and authority of the International Monetary Fund, and
respectfully urge the committee to report the bill unfavorably.
i h e C h a irm a n . S en ator W i l e y , d o y o u h a ve a n y q u estio n s?

reportfthe billT^'
q ^ n ? R° w CL0SE'

S

V^ U ^ S'
S U*

happen if we don’t

Jnw liat respect, S en a tor?

Mr
} E ' JL international monetary sense.
Y
T ri;*H
»n
j 01'
85
’ ^ we don’t stop some of our overseas exS
!,™ ’ and P«t our fiscal house in order, I will expect to see m
ore
imipm-o ^ might say.1 exPect to see tlie dollar devalued by force
a” w W
l1
majeure, you
pass"he°bnT?L Y
E

^°Umean *° say this will happen if we do not

wedo S ° " r S - Noi If \ do not Pu our fiscal house in order, if
E
ve
fc
of t K
l ?me T * f,oreign spending, which is the main cause
a^
ance"°f'Payments deficit, I expect to



BRETTON WOODS AGREEMENTS ACT AMENDMENT

43

Senator W iley. All right. Now tell us—in your judgment—what
you think should be done ?
Mr. G r o s e c lo s e . The first thing that should be done should be to
drastically curb our foreign aid expenditures, most of which are ex­
travagant and have proved unprofitable and ineffective. Our
foreign aid costs us around $5 billion a year, plus the $3 billion we
spend in maintenance of our troops overseas—a total drain on our
economy of the order of $8 billion.
Now if we could reduce that bill by $3 billion we would have bal­
anced our payments and stopped the outflow of gold—restored con­
fidence in the dollar; but this bill allows us to continue these payments,
and postpones the day of reckoning. If we don’t do it today we will
have to do it next year, and the condition will be even worse, because
we will have added even more billions of dollars to foreign claims.
FOREIGN AID CONTRIBUTIONS OF ALLIES

Senator W i l e y . I think there was something in the paper this
morning—and I didn’t get time to read it thoroughly—to the effect
that there is an intention to make a considerable reduction in foreign
aid to certain countries, particularly in Europe. Did you see that
article ?
Mr. G r o s e c lo s e . The only item that struck my eye this morning
was the statement, I believe, that they have had some difficulty in
getting our allies to take over any proper share of the foreign aid bill.
I think they have a little more understanding of the problem—they
are less willing to pour out money the way we have been.
Senator W i l e y . In other words, then, your suggestion is that we
should say to our allies: “Unless you come through, we will not come
through to any great extent ourselves,” or words to that effect.
Mr. G r o s e c lo s e . Well, there is a lot of foreign aid that goes to
countries that are not our allies, as I recall, Senator. We wouldn’t
have to say that to them.
Senator W i l e y . M y question referred to allies.
Mr. G r o s e c lo s e . You mean speaking about the NATO----Senator W i l e y . F o r example, take country X that is not a so-called
ally, but which we are aiding. W e are also claiming, as I understand
it, that our allies sliould make a contribution to assist that country
X, whatever it is.
Mr. G r o s e c lo s e . Yes, sir.
.
Senator W i l e y . N o w , assume they are not coming through with
iheir fair contribution.
G r o s e c lo s e ""Y
es
Senator W i l e y . All right. Let’s find out, in a case^like that, what
your idea is. Do you think we can keep on expending the amount
°f money we do ? W h a t is your idea as to the budget? Where are we
going to find the budget next year ?
^ eed for po l it ic a l a n d m oral reforms i n underdeveloped countries

Mr. G r o s e c lo s e . S o far as our allies’ reluctance to come through,
I think they appreciate that the real solution to the problems of all
these underdeveloped countries is not money. Their problems are
political. And we do not solve them by money. I went around the




44

BRETTON WOODS AGREEMENTS ACT AMENDMENT

world this past winter, and spent a few days in some of these under­
developed countries, where I had been earlier. My conviction is—
steadily increases—that we are approaching our international prob­
lems the wrong way by trying to solve them with money. Their need
is political and moral reform.
.
And all the money in the world is not going to solve their prob­
lems—give them stable governments or stable economies—until they
accomplish these basic reforms. And by putting the emphasis upon
money, we lead them away from making the proper cures that are
needed to their systems—just as in this bill before us, instead of fac­
ing the real issue, which is fiscal reform, we are trying to postpone it
through creating more Treasury obligations. I hope that the com­
mittee will allow me the privilege of discussing the foreign aid bul
in extenso when that bill comes before the committee, and I would like
to go into some of these things in more detail, because I think a good
deal could be said that hasn’t been said in analysis of the failure of
foreign aid. But as it relates to this bill, foreign aid is certainly the
major way by which we could balance our budget, and balance our
international payments. And until we have positive proof that results
are being accomplished through our foreign aid we can do much
more by strengthening the dollar than by pouring out untold billions
of dollars. It is much more important to the world that we have a
strong dollar than a strong India, for example.
Senator W i l e y . D o you want to apply that logic to any particular
section of this globe?
Mr. G r o s e clo s e . Any section in which I have traveled and am
familiar, I would be glad to discuss; yes.
I think India, for example, if you want to discuss India.
Senator W i l e y . What about South America ?
Mr. G r o s e c lo s e . Well I have never traveled in South America but
I can say this for South America—from anyone’s normal reading:
Here is a country that is a new continent like ours—we say that our
wealth is due to the fact that we have new resources, a new continent
to develop—it is populated by people of European stocky people of
the Christian tradition mainly. Why are they so far behind us ^onomically, if it is not they are politically weak ? It is not the fact that
money hasn’t gone into Latin America, or that they don’t have the
racial stock or the cultural traditions; but they don’t have the political
stability that is necessary to encourage the formation of capital. And
I don t see how you create it by pouring in more capital while they
dram it out themselves into the foreign banks, and European banks*
Senator W il e y . There are “ haves” and the “ have-nots” down there.
Mr. G r o s e clo s e . That is right.
Senator W i l e y . A ll right. Now then, i f I understand your answer,
t ls tMt thaPresident’s program should be stymied. He is talking
about $10 billion and you are not in favor of that.
Mr. G r o s e c lo s e . No indeed, I am not, Senator.
D,?nR o r W ile y .

I

th in k

I

nave taken e n ou g h tim e,

Mr.

Chairm an-

The C h a irm a n . Is that all?
Senator W i l e y . That is all.
The C h a ir jia k . Thank you very much, Dr. Groseclose.
(Whereupon the committee proceeded to other business.)




APPENDIX

National Advisory Council
ON

INTERNATIONAL MONETARY
AND FINANCIAL PROBLEMS
•
SPECIAL REPORT

to the President
and to the Congress
ON SPECIAL BORROWING ARRANGEMENTS
OF THE
INTERNATIONAL MONETARY FUND

JANUARY 1962
82526 0 - 6 2 -4




45




BRETTON WOODS AGREEMENTS ACT AMENDMENT

47

LETTER OP TRANSMITTAL

T h e W h ite H ou se,

Washington, February 2, 1962,
H on . J o h n W . M cC o r m a c k ,

Speaker of the House of Representatives,
Washington, D C.
D e a r M r . S p e a k e r : Transmitted herewith for the consideration
of the Congress is legislation which would implement the recommenda­
tions of the National Advisory Council on International Monetary
and Financial Problems relating to *
'special borrowing arrangements
of the International Monetary Fund.” A copy of the report of the
Council is attached.
The legislation takes the form of an amendment to the Bretton
Woods Agreements Act and authorizes the United States to participate
in loans to the International Monetary Fund in order to strengthen
the international monetary system.
The International Monetary Fund has been a vital force for eco­
nomic stability in the free world ever since it was formed in 1946. Its
transactions have supported the currencies of free world nations which
encountered balance of payments or other monetary difficulties, and
it helped maintain confidence in the currencies of its members. The
leadership of the United States in the establishment and support of
the Fund has been a source of pride and satisfaction.
In my message of last February 6 ,1 discussed the imbalance in our
international payments and called for a series of related measures to
correct it. A number of these measures have been adopted. But the
problem is stubborn and complex and will require additional action
over a number of years.
Meanwhile, we can strengthen the monetary system in general and
the position of the United States in that system by augmenting the
resources and flexibility of the International Monetary Fund to permit
the Fund to be utilized more effectively in supporting a healthy and
growing world economy.
To accomplish this purpose, intensive negotiations have gone for­
ward, with the active participation of the Fund, among the major in­
dustrial nations of the free world. These negotiations culminated m
the proposals described and recommended in the National Advisory
Council’s report calling for the addition of $6 billion to the resources
of the Fund. This addition would strongly reinforce the international
Monetary system of the free world.
It would, in particular, greatly enhance the ability of the rund to
assist the united States in coping with its international payments
problems. Today, the Fund has on hand only $1.6 bulion of the
currencies of other major industrial countries exclusive of the United
Kingdom, which has itself made a large drawing from the FJmd—to
meet a possible need for a drawing by the United States, lhe new




48

BRETTON WOODS AGREEMENTS ACT AMENDMENT

arrangements would permit an additional $3 billion increase in
available resources of these other major currencies, and would thus
assure the Fund the assets needed to meet a request for a drawing by
the United States should such a request ever be necessary. At a
time when the confidence in the dollar is of utmost importance to the
free world, the $6 billion addition to the Fund will be especially
significant. It will greatly enhance our own financial resources and
greatly reduce any possibility of a serious drain upon dollar balances.
T h e very existence of the new standby credits will be an assurance of
stability of major currencies.
The new borrowing arrangements would require amendment of the
Bretton Woods Agreements Act by authorizing the United States to
lend up to $2 billion to the Fund. The other nine participants in the
arrangement would commit themselves to provide up to $4 billion.
The commitment of nearly $2.5 billion by members of the European
Common Market—Belgium, France, Germany, Italy, and the
Netherlands—would represent an amount about equal to the present
aggregate of their Fund quotas. By contrast the United States and
the United Kingdom would provide amounts equal to orly about
half their present quotas. The United States would not be expected
to lend to the Fund in the absence of a substantial improvement in
its balance-of-payments position.
The new proposals would strengthen the position of the dollar as
the world's major reserve currency. They would also provide new
armament for tne defense of the currencies of the free world and for
reinforcing the entire international monetary system.
11 urge, therefore, that the Congress promptly consider this legisla­
tion. participation by the United States in the proposed arrange­
ments is in the national interest.
Sincerely,
J o h n F. K e n n e d y .




BRETTON WOODS AGREEMENTS ACT AMENDMENT

49

SPECIAL REPORT OF THE NATIONAL ADVISORY COUNCIL
ON SPECIAL BORROWING ARRANGEMENTS OF THE INTER­
NATIONAL MONETARY FUND

I . I n t ro d u ctio n

President Kennedy, in his message to the Congress on the balance
of payments and gold (H. Doc. 84, 87th Cong., 1st sess.), pointed to
the need for increased cooperation among the industrialized nations
of the world and the harmonization of their policies in the interest
of maintaining the growth and stability of the free world. He said,
m part:
We must now, in cooperation with other lending countries, begin to consider
ways in which international monetary institutions— especially the International
Monetary Fund— can be strengthened and more effectively utilized, both in
furnishing needed increases in reserves and in providing the flexibility required
to support a healthy and growing world economy.

The problems affecting the international monetary system have
been given intensive consideration both in the International Monetary
Fund and in intergovernmental discussion in which the U.S. Govern­
ment has actively participated. The Managing Director of the Fund,
Mr. Per Jacobsson, made a proposal for a borrowing arrangement to
the Executive Board early in 1961 which was intensively studied in
the succeeding months. At the annual meeting of the Board of
Governors of the International Monetary Fund, held at Vienna in
September 1961, the U.S. Governor took the initiative in arranging a
series of exploratory conversations with other Governors, and a num­
ber of Governors referred to the problem in their formal statements.
It was the general consensus of the Governors that concrete steps
should be taken to devise an acceptable arrangement for providing
supplementary resources to the Fund. Subsequent to the Vienna
meeting, the Executive Directors of the Fund gave further considera­
tion to the matter. The interested governments consulted with each
other on the terms and conditions under which they would be prepared
to lend to the Fund, and reached agreement at a meeting held in Paris
in December 1961.
The proposal which has emerged from these discussions in the Fund
and among the governments is intended to deal with the special prob­
lems which have emerged in the last few years. Currencies other than
the dollar have become stronger, particularly in the European coun­
tries, which have accumulated large reserves and improved greatly
their position in the world market. Thus, these countries were able to
proceed with considerable liberalization of trade and allow greater
freedom for capital movements, and to make their currencies con­
vertible* Accordingly, there is less direct control over balances of
Payments, and they have become subject to wider swings. An im­
portant factor has been the movement of short-term capital from




50

BRETTON WOODS AGREEMENTS ACT AMENDMENT

country to country in response to balance-of-payments situations,
opportunity for investment, interest rate differentials, and, to some
extent, speculation.
In order to assist its member countries in countering adverse move­
ments in their balances of payments and reserves under these condi­
tions, the Fund requires adequate resources in the currencies of the
principal industrial countries. The experience of the last few years
has shown that the Fund lacks these resources in adequate amount,
although it has available resources which are probably sufficient to
deal with the balance-of-payments problems of most of its membership.
Under the proposed arrangements, the 10 principal industrial coun­
tries will agree to lend up to stipulated amounts of their currencies to
the Fund, if the Fund requires additional resources in these currencies
to forestall or cope with an impairment of the international monetary
system. The Fund would then borrow these currencies and use them
in drawings by the participating countries under the usual terms and
conditions, which require repayment to the Fund within a period of
3 to 5 years. When one of the participating countries wishes to draw
from the Fund, or to enter into a standby arrangement with the Fund,
the Managing Director and the country proposing the drawing will
consult with the other participating countries to determine the appro­
priate amount of borrowing. The understandings among the partici­
pating countries will assure prompt consideration and decision on any
request. When the currencies are loaned to the Fund, in accordance
with these decisions, the Fund will be obligated to the particular
lenders and will repay them in a period not to exceed 5 years.
The proposal is embodied in the documents reproduced in the
appendixes. The first is a decision by the Executive Directors of the
Fund, adopted on January 5,1962. This decision is reproduced below
as appendix A. The second group of documents is an exchange of
letters between the French Minister of Finance, who presided over the
Paris meeting, and the Secretary of the Treasury, dated the 15th of
December, 1961 (reproduced below as app. B). Similar letters were
exchanged between the French Minister of Finance and the financial
officers of Belgium, Canada, Germany, Italy, Japan, Netherlands,
Sweden, and the United Kingdom. As is shown in the Annex to the
Fund decision, the amounts of the commitments to lend total the
equivalent of $6 billion, divided as follows:

Participant

United States,

Italy...
Japan..
Canada.
Netherlands,
Belgium,
Sweden.,

Units of
participant's
currency
(millions)
US$ 2,000.0
D M 4,000.0
£
357.1
NF
2,715.4
Lit 343,750.0
Yen 90,000. 0
Can$
208.9
f.
724.0
BP
7,600.0
SKr
517.3

Equivalent
in U.S.
dollars
(millions)

200.

Throughout the negotiations culminating in these documents, the
auonal Advisory Council has been consulted by the Treasury and
by the U.S. Executive Director of the Fund, and has approved the

in




BRETTON WOODS AGREEMENTS ACT AMENDMENT

51

positions taken in the negotiations at various stages. The National
Advisory Council strongly recommends the congressional action which
is necessary to enable the United States to participate in these standby
arrangements for strengthening the International Monetaiy Fund.
It believes that the successful operation of the proposed arrangement
will be beneficial to the economy of the free world and can prove to
be of considerable importance to the United States particularly. The
required legislation would authorize the Secretary of the Treasury
to loan up to $2 billion to the Fund. In considering any loan to
make available dollars needed to supplement the Fund's resources,
the Secretary would give due regard to the existing and prospective
balance of payments and reserve position of the United States. An
explanation of the legislation is given in chapter IV of this Report.
II.

T h e N e e d f o r I n t e r n a t i o n a l M o n e t a r y F u n d B o r r o w in g
A rrangements

The International Monetary Fund was organized to promote inter­
national cooperation among its members through consultation and
collaboration on foreign exchange and monetary problems. It has
been provided by its 75 members with resources in gold and currencies
which it uses to provide short-term assistance to deal with temporary
balance-of-payments difficulties. The National Advisory Council has
reported to the Congress on the activities of the Fund and the U.S.
participation therein semiannually and*has submitted to the Congress
seven Special Reports on the policies and operations of the Fund.
These Reports have all agreed that the Fund has played a most val­
uable role in promoting strong and well-coordinated financial relations
among its member countries and that the operations and policies of
the Fund have been consistent with the interests of the free world
and the United States.
In February 1959, the Council submitted a “Special Report on
Increases in the Resources oj the International Monetary Fund and
of the International Bank for Reconstruction and Development9 (H.
9
Doc. 77, 86th Cong., 1st sess.). In this Report, the Council recom­

mended an increase in the U.S. quota in the Fund as part of a general
increase in the Fund quotas. Those additional resources in gold
and convertible currencies have enabled the Fund to meet recent
heavy demands for assistance, including the provision, in August
1961, of $2 billion to the United Kingdom, of which $1.5 billion
Was drawn in various currencies. But the balance-of-payments
developments in the last few years have shown that under some
circumstances the Fund is likely to need additional resoiirces to
deal effectively with the pressures to which the international mone­
tary system may be subject. Wide and rapid variations m the
balance-of-payments position of major countries have become more
evident possibilities since 1959, and have shown the need for the
■Fund to have access on a standby basis to additional resources, parj
ticularly in currencies other than dollars and sterling. The proposed
arrangements will provide these resources in the form of Fund borrow­
ings from countries having a strong position in their international
accounts.




52

BRETTON WOODS AGREEMENTS ACT AMENDMENT

In the last 10 years a number of strong currencies have emerged
in continental Europe, as is shown by the shift in world reserve posi­
tions. (See table 1.) The most notable increase in reserves occurred
in continental Europe. Official gold and foreign exchange holdings
of the continental European countries increased from $7.4 to $23.1
billion in the 10-year period. The most conspicuous cases have been
Germany, whose reserves in this period increased from $518 million
to $6,437 million; Italy, which moved from $774 million to $3,369
million; and France from $616 million to $2,816 million.
T a b l e 1 .—

Official gold and foreign exchange holdings, 1951 and 1958-61
[End of period: millions of U.S. dollars]

United States....................................
United Kingdom................................
Germany.................................
France...........................................

19611

1951

Country
„

Belgium......................................
Netherlands..............................
Canada...... ......................
Sweden.--........................ .
Total of Hated countries *____________ _______
World total.........................................

1958

1959

1960

22,873
2,374
518
616
774
1,054
554
1,826
484
*979

20,582
3,105
5,732
1,050
2,082
1,497
1,470
1,948
*473
861

19,507
2,750
4,533
1,720
2,953
1,222
1,339
1,876
434
1,322

17,804
3,239
6,737
2,070
3,080
1,422
1,742
1,836
488
1,824

17,063
3,318
6,437
2,816
3,369
1,552
1,723
1,933
662
1,611

32,052
49,020

38,800
57,285

37,656
57,040

40,242
59,700

41,182
61,060

1 ^or JJpited ®tates and United Kingdom, data are for Dec. 31: for other countries, and the totals, data
are as of Sept. 30.
s Holdings on Dec. 31,1052.
* Participants in the special borrowing arrangements.
Source: International Monetary Fund.

These changes in reserves were related to the U.S. balance-of-payments deficit over this period, which enabled Europe and Japan to
accumulate dollar reserves, either from transactions with the United
States directly or with third countries which have settled their deficits
by drawing clown their gold and dollar reserves or transferring dollar
earnings to other countries. In September 1961, foreign official hold­
ers (governments, central banks, and other official institutions) held
about $10.9 billion in short-term dollars, while private holdings of
short-term liquid dollars amounted to $7.6 billion.
The dollar and sterling are the key currencies in world trade and
finance. These are the currencies in which trade and financial trans­
actions are generally denominated, and the money markets of the
United States and the United Kingdom provide the largest and best
developed credit facilities for financing trade and other international
transactions. Foreign countries may also readily invest their excess
foreim exchange earnings in liquid obligations in the United States
and British markets, chiefly in the form of Treasury securities or ac­
ceptances. While similar facilities exist in the leading countries of
Western Europe, they are available to a much smaller extent.
Ihe improvement in the balance-of-payments situation of the conti­
nental countries and of the United Kingdom and their accumulation
° , reserves ^
were important factors in the moves to convertibility
which culminated in the adoption of dejacto convertibility for current




BRETTON WOODS AGREEMENTS ACT AMENDMENT

53

international transactions in 1958 by the United Kingdom and the
principal European countries. This substantially ended the complex
exchange controls in the industrial countries which had existed since
the beginning of World War II, although some countries retained re­
strictions on capital movements.
In February 1961, the principal European countries took the addi­
tional step of accepting the obligations of article VIII of the Fund
Agreement. The technical convertibility resulting from this step
gave formal recognition to a situation which had been practically in
effect for over a year preceding. In accepting the conditions of article
VIII, the members agreed not “ to impose restrictions on the making
of payments and transfers for current international transactions”
without the prior approval of the Fund, in contrast to the restrictions
and discrimination permitted under the “ transitional** provisions of
article XIV under which they had previously operated. As a conse­
quence of the reestablishment of external convertibility, transactions
among currencies became easier than they had been before, and the
years 1960 and 1961 began an era of relatively free exchange markets
in the main industrial countries such as had not existed for decades.
As has been noted, this freedom in the exchange markets has been
associated with liberalization of trade and other current payments
and greater freedom of capital movements, made possible by the
increasing economic strength of the European countries. The bal­
ances of payments of the industrial countries have always reflected
swings in trade movements during the business cycle. In the boom
stage of the business cycle, imports of raw materials and industrial
goods increase, while in recession imports generally slacken. Cur­
rency convertibility has made it possible for balance-of-payments
swings to become larger than they had been previously, and to occur
more rapidly, especially because short-term funds can now move more
easily from country to country under the impetus of such factors as
interest differentials, arbitrage, and currency speculation.
The effect of short-term capital movements on the balance of pay­
ments of the United States is shown in table 2, which compares the
basic and the overall balance of payments of the United States. The
basic balance results from trade and service transactions, tong-term
investment, foreign assistance, and military expenditures. The over­
all balance, however, reflects the movement of recorded private short­
term capital, foreign commercial credits to the United States, and
changes in the item of “ errors and omissions,” a considerable part of
which is probably unrecorded capital movements. In 19o0, tor
example, the recorded short-term capital outflow from the United
States was $1.3 billion, while the “ errors and omissions item had
shifted from a positive figure of $528 million in 1959 to a negative
figure of $648 million. Thus, the fluctuations of the overall balance
of payments may be different from the basic balance since the overall
may be reduced by an inflow of short;term capital, as inl 1958 and
1959, or increased by a short-term capital outflow as m 19bU.




54

T a ble

BRETTON WOODS AGREEMENTS ACT AMENDMENT

2 . — U.S.

balance of payments, 1958-61. Difference between the basic and
overall balances
[In millions of dollars]
1058

Basic balance..______ _______ ____ . . . . . . ............................. .
U.S. private short-term assets abroad (increase (—))__ . __ .
Foreign commercial credits to U.S. (increase (4"))______
Errors and omissions.... . . . . . . . . . . _. . . . . . . . . . . . . . . . __
Overall balance...__________ ______ . . . . ___________________

1959

1960

1901 (9
months)1

—3*551
-306
-5 1
+380
-3,528

a -4,348
-7 7
+154
+528
» -3,743

-1,872
-1,312
-9 7
-648
—3,929

1-542
-903
+148
-309
J-1,606

* Seasonally adjusted data.
* Excludes U.S. subscription of $1*400,000,000 to International Monetary Fund.
* Excluding $649,000,000 in foreign debt prepayments to the U.S. Government.
Source: Based on data from the Survey of Current Business, Department of Commerce.

The situation in the United Kingdom is somewhat similar since
sterling is also widely used in international transactions and the
British money market provides facilities for investment in short-term
obligations and deposits. In 1960 weakness in the basic balance of
payments of the United Kingdom was offset by a large inflow of funds,
while in the first half of 1961 a speculative outflow caused considerable
difficulty.
The stability of the dollar and of the pound sterling are fundamental
to an orderly and stable international financial system, since these are
the key currencies, holdings of which constitute an important part of
world monetary reserves. The movements in and out of these cur­
rencies emanate in large part from the other industrial countries which
have an important stake in the stability of the two major reserve
currencies. It is largely in recognition of this common interest in the
smooth functioning of the international monetary system that the 10
main industrial countries are now willing to participate in an arrange­
ment on a standby basis which will provide resources to the Fund
which it can use to forestall or counteract adverse movements affecting
major currencies.
In sum, there is a need for additional resources in the major cur­
rencies to forestall or cope with an impairment of the international
monetary system affecting these currencies. This need results espe­
cially from the greater freedom of movement of funds because of the
liberalization of trade, the growing freedom of capital movements, and
the adoption of convertibility. More fundamentally, the relative
financial strength and reserve positions of industrial countries other
than the United States and the United Kingdom have markedly
increased, and this has not been adequately reflected in the amounts
of their currencies available in the International Monetary Fund.
Consequently, in the proposed credit arrangements these countries
provide a larger share of the funds to be loaned relative to their quotas
than do the United States and the United Kingdom.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

T

able

3.

55

Participants in the special borrowing arrangements and their position in
the International Monetary Fund as of Nov. 30, 1961
[Expressed in millions of U.S. dollars]

New credit
arrangement

Participant

Fund
quota

Fund holdings of
currency

Amount
Germany___
France..____
Italy________
Belgium____
Netherlands...

1,000
550
550
150
200
2,450

2,595.0

889.5

200

Subtotal.
Canada.
Japan...
Sweden..

787.5
787.5
270.0
337.5
412.5

550.0
500.0
150.0

337.9
320.0
87.5

Percent of
quota

250
100

150.2
361.1
27.2
181.1
169.9

Subtotal.. ..

550

1,200.0

1,000

2,000

1.950.0
4.125.0

2,508.2
2,445.1

Subtotal___

3,000

6,075.0

6,000

9,870.0

61
64

4,953.3

Grand total..

10

54
41

745.4

United Kingdom.
United States____

19
46

6,588.2

129

Source: International Monetary Fund.
STATU S OF FUND R E SOU RCES

The Fund's financial operations consist of providing the currencies
needed by a member in exchange for its own currency. The Fund
obtains the needed currencies by cashing the non-interest-bearing
notes denominated in those currencies which it holds or, more rarely,
by buying them with gold. These transactions occur when the
drawing country is in temporary balance-of-payments difficulties.
Subsequently, the drawing country reverses the transaction, repur­
chasing its own currency from the Fund with other convertible cur­
rencies or gold.
Until recent years, the bulk of the Fund's transactions consisted
of sales of U.S. dollars against other currencies since the dollar was
the most useful currency and the only important currency which
was convertible and could be used in repayment. Of the total
transactions of the Fund through November 30, 1961, total currency
sales amounted to the equivalent of $6.2 billion, of which $4.0 billion
were U.S. dollar transactions. Sales of other currencies amounted
to $2.1 billion, of which $1.8 billion were sold in the last 2 years.
With the emergence of strong European currencies, there has been
greater use of these currencies, which may now also be used in repur­
chase from the Fund. In 1961, 67 percent of total Fund sales of
currencies to members drawing from the Fund were in currencies
other than U.S. dollars, and included deutsche marks, French francs,
Belgian francs, Italian lire, Japanese yen, Netherlands guilders,
pounds sterling, Canadian dollars, and Swedish kronor.
A member drawing from the Fund generally repurchases its cur­
rency from the Fund within a period of 3 to 5 years and the rate of
repurchase may be accelerated if a country's gold and foreign exchange
reserves increase before that time. The Fund is a revolving pool of



56

BRETTON WOODS AGREEMENTS ACT AMENDMENT

currencies, and to the present time some $3.6 billion of the original
Fund sales of currency have been repurchased, either by the drawing
members directly or through other countries drawing the currency of
a country which had previously drawn upon the Fund. To Novem­
ber 30, 1961, $2.7 billion had been repurchased in dollars, $185
million in other currencies, and $397 million in gold. (See table 4.)
Net drawings outstanding on November 30 amounted to $2.5 billion,
including $1.1 billion outstanding on the United Kingdom drawing of
the equivalent of $1.5 billion in 1961.
T a b l e 4 . — International

Monetary Fund currency sales and repayments, through
Nov. SO, 1961
[Expressed in millions of U.S. dollars]
Repayments1

Sales
Calendar years

In other By other
curren­ coun­
tries'
cies
drawings

U.S.
dollars

Other
curren­
cies

Total

Total___ *__ ____ _________ 6,161.0

4,023.7

2,137.3

3,579.3

397.0

2,695.9

185.0

30L4

1961 (11 months)............. 2,477.5
1960.............................
279.8
1959.............................
179.8
1958.................................
337.9
1957..........................
977.1
1956 .........
692.5
1955.................. ..........
27 5
1954................................
62! 5
1953......... ....................
229.5
1952................................
85.1
1951....... ....................
34.6
1950.................................
1949.................................
101.5
1948.............................
208.0
1947.................................
467.7

821.0
148.5
138.5
252.2
977.1
677.5
27* 5
62.5
67.5
85.1
6.6

762.5
681.0
607.5
368.9

31.4
32.4
131.2
76.8
51.6
—4.1
58^5
—39 3
- 8! 6
4S 2
14.8
3.0
1*0

530.1
621.7
442.0
270.9
12.2
117.4
174! 0
249.2
171.4
53.3
31.0
20.9
1.6

185.0

16.0
26.9
34.3
21.2

Total

101.5
196.6
461.7

1,656.5
131.3
41.3
85.7
15 0"
162.0
28.0
11.4
6.1

A.o
O
w o
•lit}. o

232.5
209.9
320! 5
101.5
73! 8
23.9
26
ll! 4
6.1

In
gold*

In U.S.
dollars

157.6
28.0
11.4
6.1

1Includes approximately $6,000,000 arising from settlement of account with respect to a drawing by
Czechoslovakia, a former member, in 1948. Excludes member’s repurchases on subscription account.
* Negative figures reflect adjustments to earlier repayments. Entries for 1953 and 1960 include tne
counterparts of those repayments by others' drawings in currencies of members whose net drawings were
rero, but for whom (owing to the subscription account) Fund holdings of their currencies were in excess
of 75 percent of quota.
Source: International Monetary Fund.

As noted above, the emergence of a number of strong currencies in
addition to the U.S. dollar, the greater freedom in exchange and trade
transactions, and the increased movement of short-term capital had
made possible wider swings in the balances of payments of the in­
dustrial countries, particularly the United States and the United
Kingdom, whose currencies are held by other countries as monetary
reserves. This raises the possibility of relatively large drawings on
the Fund by the reserve currency countries. To offset deficits in the
balance of payments of these countries occasioned in part by capital
movements, large amounts of foreign currencies may be needed to
avoid undue declines in reserves.
on November 30, 1961, the Fund had available to it $2.9
billion m gold and $11.6 billion in member currencies, a large p a r t of
i ? currencles consist of currencies of the less developed countries
Which cannot readily be used by the Fund. The Fund's holdings on
that date of the currencies of the 10 main industrial countries
amounted to the equivalent of about $6.6 billion, of which holdings of
dollars and sterling amounted to $5 billion. (See table 5.)



BRETTON WOODS AGREEMENTS ACT AMENDMENT

T a b le

57

International Monetary Fund quotas and holdings of gold and member
currencies

5.

[Expressed in million U.S. dollars]
June 30,1961
Member

United States.......
United Kingdom..
Subtotal.

Quota

Subtotal.

Currency Per­ Currency Per­ Currency Per*
holdings cent of holdings cent of holdings cent of
quota
quota
quota
2,606.1
1,419.0

2.119.5
2.877.5

6,075.0

4,025.1

4,997.0

4,953.3

787.5
787.5
270.0
337.5
412.5

344.7
557.6
159.5
253.1
276.9

92.7
350.6
43.2
193.1
186.9

150.2
361.1
27.2
181.1

2,595.0

1,591.8

866.5

839.5

550.0
150.0
500.0

387.9
112.5
375.0

362.9
92.5
345.0

337.9
87.5
320.0

Canada.,
Sweden.,
Japan_
_

Total o f selected currencies___
Total member currency holdings.......
Total gold holdings1
........_.................

Nov. 30,1961

4.125.0
1.950.0

Germany___
France_____
Italy..............
Belgium____
Netherlands..
Subtotal.

Aug. 31,1961

,

51
147

2.445.1
2.508.2

1 200.0

875.4

800.4

6,492.3
10,961.3
3,281.5

6,663.9
11,453.9
2,842.1

19
46
10

54
41

61
58
64

745.4

9,870.0

129

6,588.2
11,561.2
2,859.4

1
Includes investment of $800,000,000 in U.S. Government securities for which the same quantity of gold
can be reacquired upon termination.
Source: International Monetary Fund.

The impact of the United Kingdom drawing in August 1961 on Fund
resources serves to highlight the Fund's need for additional access to
the currencies of the major industrial countries. As shown in table
5 the Fund had available to it on June 30, 1961, $2.6 billion in U.S.
dollars, and $2.5 billion in the currencies of other participants 1other
than sterling. At the same time there were outstanding commitments
on standby arrangements aggregating $552 million. To deal with the
heavy pressures to which sterling was being subjected, the United
Kingdom drew currencies totaling the equivalent of $1.5 billion, and at
the same time entered into a standby arrangement witb the Fund for
an additional $500 million. This was the largest transaction in the
Fund’s history and slightly exceeded the entire British quota. To
obtain the currencies needed for the cash transaction of $1.5 billion,
the Fund sold the United Kingdom the equivalent of $1 billion of its
holdings of the currencies of the nine other participating countries.
The remainder was bought with $500 million of the Fund's gold,
each member receiving from the Fund in return for its currency an
amount of gold equal to one-half the amount of currency the Fund had
used from its holdings. After this large transaction, the Funds
holdings of the nine currencies were reduced from $5.1 billion to $3.8
billion, of which $2.1 billion were in U.S. dollars. The Fund's holdings
of deutsche marks and Italian lire were reduced to 12 and 16 percent of
quota, respectively. At this date, the Fund’s aggregate holdings of
the principal industrial currencies, other than dollars or sterling, had
been reduced to a point where large drawings were practically pre­
cluded without large sales of the Fund's gold. Against the runds
>The term “ participants" refers to the 10 industrial countries taking part in the proposed borrowing
arrangement.




58

BRETTON WOODS AGREEMENTS ACT AMENDMENT

total gold and currency holdings there were standby commitments
of $1.2 billion.
U.S. DRAWING RIGHTS ON THE FUND

The President, in his balance-of-payments message, included U.S.
drawing rights on the Fund as a secondary source of monetary reserves
for the United States which could, if necessary, be used to make
payments abroad and to restore our reserve position and so check the
drain on gold. The U.S. quota in the Fund is $4,125 million, which
the United States paid to the Fund, one-quarter in gold and threequarters in dollars. Under normal Fund procedure, a member
country is given the overwhelming benefit of the doubt in relation
to requests to draw currencies equivalent to its gold payment on
subscription to the Fund—the so-called “ gold tranche” —and also is
entitled to draw an additional amount equal to outstanding amounts
of that currency reflecting past drawings. As of November 30, 1961,
these drawing rights of the United States amounted to $1.7 billion.
The Fund’s attitude to drawings of the next 25 percent of quota—
equivalent to $1 billion in the case of the United States—-is a liberal
one when a member itself is also making reasonable efforts to solve its
problems. Larger drawings are permitted under Fund policy by
countries which are undertaking programs for stabilization of their
monetary systems and taking important measures for rectifying their
balance-of-payments deficit. Successive drawings of the “ credit
tranches” are generally accompanied by comprehensive programs of
reform.
But the figures given above show that the Fund lacks the resources
in the currencies of the main industrial countries, and particularly
of the European countries whose reserves have been increasing, to
meet any such large drawing as the United States would be entitled
to request in time of need. The standby borrowing arrangement is
precisely designed to mend this weakness in the Fund's ability to cope
with balance-of-payments difficulties. These standby arrangements
may be particularly important for the United States since dimculties
surrounding the dollar would exemplify the impairment of the inter­
national monetary system cited in the preamble to the Fund Decision.
But the arrangements could be brought into operation in the case of
any other serious disturbance of the world monetary system. They
are intended to make available to the Fund the currencies most
needed in international transactions and particularly the currencies
of countries which at a given time are in balance-of-payments surplus.
With this arrangement in force, the Fund* in addition to its holdings
of usable currencies and gold, would be able to borrow currencies to
cope with any impairment in the world payments system which
caused any 1 of the 10 participating industrial countries to come
to the Fund for assistance.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

III.

59

T e r m s o f t h e S p e c ia l B o r r o w i n g A r r a n g e m e n t

The special borrowing arrangement constitutes an action under
the authority of article VII of the Fund's Articles of Agreement,
section 2(i) of which reads as follows:
The Fund may, if it deems such action appropriate to replenish its holdings of
any member’s currency, take either or both of the following steps:
(i)
Propose to the member that, on terms and conditions agreed between the
Fund and the member, the latter lend its currency to the Fund or that, with the
approval of the member, the Fund borrow such currency from other source
either within or outside the territories of the member, but no member shall be
under any obligation to make such loans to the Fund or to approve the borrow­
ing of its currency by the Fund from any other source.

The present proposal to replenish the Fund’s holdings of currency
by means of borrowing represents an agreement (in the form of a
Fund Decision reproduced as app. A) between the Fund and 10 of
its members on the terms and conditions governing the lending of
their currencies to the Fund. These Fund members also entered into
understandings among themselves on the procedures governing their
joint consideration 01 any proposal by the Managing Director to
borrow from them. These additional understandings are embodied
in the exchange of correspondence between the French Minister of
Finance and the representatives of the other participating countries.
Copies of the correspondence between the French Finance Minister
and the Secretary of the Treasury are reproduced in appendix B.
PARTICIPANTS

Ten industrial countries, including the United States, have agreed
to participate in the new borrowmg arrangements. Five of the
participating countries—the Federal Republic of Germany, France,
Italy, the Netherlands, and Belgium—are members of the European
Economic Community. Other participants are Canada, Japan,
Sweden, the United Kingdom, and the United States. With the ex­
ception of Japan, all of the participating countries have currencies
which are convertible within the meaning of article VIII of the Fund’s
Articles of Agreement. Japan has made its currency externally con­
vertible, and thus any Japanese yen used under the new arrangements
will also be convertible in fact.
.
.
Switzerland, although it plays a substantial role in the international
monetary system, is not represented among the group of original
participants because Switzerland is not a member of the
^ J
8"
cussions are underway, however, between the Fund and the owiss
authorities with a view toward working out a means of obtaining
Swiss participation in specific transactions which may arise.
The Federal Republic of Germany is participating in the borrowmg
arrangement through its central bank, the Deutsche Bundesbank.
Specific provision for such participation through the central bank is
included in the Fund Decision.
am ounts

, The potential replenishment of the Fund’s resources made possible
by the special borrowing arrangements is of substantial magnitude,
is shown by the tabulation on page 2. The amounts agreed upon




60

BRETTON WOODS AGREEMENTS ACT AMENDMENT

may be reviewed from time to time during the life of the arrange­
ments, but may be changed only with the agreement of the Fund and
of all the participants.
The $6 billion of supplementary resources represents an increase of
42 percent in the Fund's present resources of gold and currencies of
its members (as measured by quotas), and 61 percent of the currencies
of the participating countries. The supplementary resources are the
equivalent of 91 percent of the Fund's present holdings of the cur­
rencies of these countries.
The increase in the Fund's resources is proportionately greater
in the case of the five industrial countries of the European Economic
Community (EEC). The lending commitments of these countries,
amounting to $2,450 million, are in the aggregate almost as large as
the sum of their present quotas in the Fund. By contrast, the com­
mitments of the United States and the United Kingdom are approxi­
mately one-half the size of their existing Fund quotas. Moreover,
the lending commitments of the five EEC members are the equivalent
of about 275 percent of the Fund’s present holdings of the currencies
of those five countries. The relatively greater share of the European
Economic Community in the provision of supplementary resources
to the Fund reflects the increased strength of the b a la n ce-of-p a y m en ts
and reserve positions of the EEC countries, and the greater responsi­
bility which they can now assume in defense of the stability of the
international monetary system.
INITIAL PROCEDURES

The Fund’s “ Decision of Executive Directors on General Arrange­
ments to Borrow” states that participants will stand ready to lend
their currencies to the Fund when needed “ to forestall or cope with
an impairment of the international monetary system” in the “ new
conditions of widespread convertibility, including greater freedom for
short-term capital movements.” Participating countries experienc­
ing balance-of-payments difficulties such as might lead to use of the
supplementary resources would approach the Fund in the usual way
for a drawing or purchase of needed currencies or standby arrange­
ment entitling it to draw. The Fund's existing policies and pro­
cedures on the use of its resources would also apply.
If the Managing Director of the Fund, after consultation, considers
that the situation which has given rise to the participating country’s
request for Fund assistance is such as to qualify for a drawing under
me criteria of the special arrangements, he will consider whether the
Fund's resources need to be supplemented by borrowing in order to
provide the requested assistance. If he decides that borrowing is
necessary, he will, after consultation with the participating countries,
make a proposal for calls for an exchange transaction, indicating the
amounts of specific currencies to be lent to the Fund. No such pro­
posal of the Managing Director of the Fund will become effective
unless and until it is accepted by the participants and then approved
by the Fund's Executive Directors.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

61

CONSULTATIONS

The exchange of letters of December 15, 1961, describes the con­
sultation procedure which the participants have agreed to. They will
use the facilities of the international organizations to which they
belong to keep themselves continuously informed of developments in
balances of payments and in the international monetary system as a
whole. This will greatly assist the participants to decide what their
reaction should be to any proposal of the Managing Director to make
a call for loans.
When the Managing Director of the Fund makes a proposal, the
participants will consult among themselves, and for this purpose a
meeting will be held among their designated representatives. Recog­
nizing the need for prompt and decisive action, these representatives
will be empowered to act on the proposal during the consultative
meetings. The Managing Director would be invited to participate
in these meetings.
AGREEMENT AMONG THE PARTICIPANTS

As a result of their consultations, the participants will decide
whether to accept the proposal of the Managing Director of the
Fund, which must take account of the present and prospective balanceof-payments and reserve positions of each participant.
The participants have agreed to aim at reaching unanimous agree­
ment, and in practice it should be possible to do so. Nevertheless,
in order to provide assurance that a decision will be reached promptly,
a voting procedure has been established. This procedure provides
for decision by a two-thirds majority of the participants voting and
a three-fifths majority of the votes of the participants voting, weighted
on the basis of their commitments to lend supplementary resources.
The prospective drawer on the Fund will not participate in the vote.
Abstentions may be justified only by reason of the balance-of-payments
and reserve position of an individual participating country.
A participant may give notice that, in its opinion based on its
present and prospective balance-of-payments and reserve position,
calls should not be made on it or that they should be for a smaller
amount. In this event the Managing Director and the other partici­
pants will consult further to determine how the total agreed amount
can be provided. Since the Fund Decision requires the Managing
Director to take full account of the capabilities of the participants
before formulating his proposal for calls, there should seldom be
occasion for any participant subsequently to withdraw itself from the
list of lenders. It should be noted that there is no other basis on
which a participant may refuse to lend once the participants as a
group have agreed to the Managing Director's proposal.
DRAWING TRANSACTION

Upon completion of the procedures described above, and after
each participant concerned has notified the Managing Director of
the amount it will lend, the proposed borrowing transactions will be
submitted for the approval of the Executive Directors of the Fund.




62

BRETTON WOODS AGREEMENTS ACT AMENDMENT

Once approved by them, the Fund will borrow the agreed amounts
of the currencies of the participants and will accordingly be in a
position to honor the request for a drawing of these currencies from
the Fund, together with any amounts of them which the Fund may
use from its regular resources* The transaction may also take the
form of a standby arrangement, and the agreement to lend to the
Fund may relate to this. A standby arrangement gives the Fund
member the right to purchase, without further review, stated amounts
of currencies within a specified time period, in accordance with the
provisions of the given arrangement.
A participant drawing on the Fund must pay the regular service
charge of one-half of 1 percent of the amount drawn, or a charge of
one-quarter of 1 percent on the amount of a standby arrangement.
In addition the Fund charges an amount on drawings which varies
with the size of the drawing in relation to quota and the period during
which the drawing is outstanding.
TERMS OF LOANS

Lenders to the Fund will acquire nonnegotiable instruments in­
dicating the Fund's indebtedness to the participant. The Fund will
pay a transfer charge of one-half of 1 percent to lenders, and will pay
interest at the rate of
percent per annum, subject to revision if the
charges on Fund drawings are changed.
Loans to the Fund, in addition to their high quality, will be en­
dowed with a high degree of liquidity. The maximum duration of
loans is 5 years. But they will be repaid by the Fund immediately
upon completion of a repurchase by the drawer for whose benefit the
Fund originally borrowed the money. Moreover, any loan will be
subject to repayment if the lender at any time represents that it has
a balance-of-payments need for repayment of all or a part of the
loan. The Fund will give the overwhelming benefit of any doubt to
such representations, which in practice assures any lender of prompt
repayment if it, in turn, gets into difficulty. If the United States, for
example, should lend to the Fund, and subsequently experience
balance-of-payments difficulties, this provision would insure that the
United States could secure repayment of its loan.
OTHER PROVISIONS

# TJe commitment of the participants to lend to the Fund is stated
m their owti currencies. The value of any loan made to the Fund will
be determined in terms of gold as of the date of the transfer, and
the Fund will be required to maintain this value and to repay an
equivalent value to the lender. This corresponds to established pro­
cedures and requirements relating to the maintenance of the value of
currencies held by the Fund.
Repayment to a lender by the Fund will be made in the currency
oi the lender, m gold, or, after consultation with the lender, in other
currencies which are convertible in fact.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

63

ENTRY INTO FORCE AND DURATION

, The arrangements will become effective when at least seven partic­
ipants with commitments totaling $5.5 billion, of the total $6 billion
have adhered to the Fund Decision, and have taken all necessary steps
in accordance with law to enable carrying out the terms and condi­
tions of the Decision. The arrangements could not, therefore, become
effective without the participation of the Federal Republic of Ger­
many France, Italy, the United Kingdom, and of the United States,
S Irru
1
commitment of each of these countries exceeds $500 million.
The arrangements will remain in force for a period of 4 years from
the effective date of their entry into force, but may be extended for
such period or periods as may be agreed. During it&life, the Fund
Decision may be amended only with the unanimous consent of the
participants.
IV. P ro p o se d L e g i s la t io n
The Council believes that legislation should be enacted in the present
session of the Congress to authorize the United States to participate
in the lending airangements. While there is no immediate expecta­
tion that the United States will be called upon to make a loan to the
Fund, in adhering to the Fund Decision the United States must in­
dicate that it has taken all steps necessary to carry out the terms and
conditions of that Decision, and without the adherence of the United
States the arrangement will not come into operation.
Accordingly, it will be necessary to amend section 5(e) of the Bret­
ton Woods Agreements Act (which authorized U.S. adherence to the
International Monetary Fund) which provides that “ unless Congress
by law authorizes such action, neither the President nor any person
or agency shall on behalf of the United States * * * (e) make any
loan to the Fund * *
The legislation to be proposed will author­
ize the Secretary of the Treasury to make loans to the Fund, not to
exceed $2 billion outstanding at any one time, under article VII,
section 2(i) of the Articles of Agreement. In connection with any
purchases of currency from the Fund that the United States may
*nake, non-interest-bearing notes may be issued and supplied to the
Fund in substitution for U.S. currency, as the Fund articles permit*
It is further proposed that any purchases of currency effected by the
Secretary of the Treasury from the International Monetary Fund
*ttay be transferred to and administered by the Exchange Stabilization
Fund of the Treasury.
It should be noted that there will be no gold payment to the Fund
by the United States as a consequence of our adherence to the pro­
posed arrangement. Also, additional non-interest-bearing notes
would not be issued to the Fund unless at some later date the United
States might make a drawing from the Fund which called for such
issuance.
V. C o n c lu s io n s an d R ecom m en d ation
The balances of payments of the leading industrial countries with
convertible currencies are from time to time subject to particularly
large fluctuations. Pressures may arise from changes m exports
and imports, shifts in the movement of long-term capital, or other
payments abroad. The liberalization of trade and capital move­




64

BRETTON WOODS AGREEMENTS ACT AMENDMENT

ments and the emergence of strong convertible currencies in the last
few years have facilitated wide swings in the payments position of
major countries, in response to large flows of short-term capital and
other temporary factors.
As a consequence, the principal currencies in which the bulk of the
world’s transactions are carried out and in which monetary reserves
are held have at various times come under severe, though temporary,
pressures. It is in the interest of the international community to
prevent these unusual pressures on the principal currencies from
impairing the stability of the international monetary system. ^The
International Monetary Fund’s present holdings of the currencies of
the main industrial countries are not adequate to finance the large
drawings which might be needed to deal with unusual pressures on
the dollar, or on sterling at a time of relative dollar weakness.
A proposal has therefore been worked out after considerable dis­
cussion and negotiation under which the 10 main industrial countries
would stand ready to lend their currencies to the Fund if the Fund
required additional amounts of currency for use to “ forestall or cope
with an impairment of the international monetary system.” It is
the view of the Council that this provision of supplementary resources
to the Fund is desirable in the interests of the free world and particu­
larly of the United States. Although there is little prospect that
the United States will be called upon to lend to the Fund in the
immediate future, U.S. participation in the proposed arrangements is
essential for the plan to go into effect and for the United States to
become eligible to benefit therefrom.
RECOMMENDATION

The National Advisory Council strongly recommends to the Presi­
dent and to the Congress that the United States participate in the
proposed borrowing arrangements of the International Monetary
Fund. The general terms of these arrangements are set forth in the
decision of the Executive Directors of the Fund of January 5, 1962,
and the exchange of letters between the French Minister of Finance
and the Secretary of the Treasury dated December 15, 1961. The
Council believes that the proposal is in the best interests of the United
States and the stability of the international monetary system.
To permit U.S. participation, amendment of the Bretton Woods
Agreements Act is necessary* Accordingly, legislation should be pro­
posed authorizing the Secretary of the Treasury to make loans, not
exceeding $2 billion outstanding at any one time, to the International
Monetary Fund.
This legislation will enable the United States to participate in the
proposed borrowing arrangement and to bring it into operation. The
proposed arrangements are, in the view of the Council, well adapted
to dealing with the monetary situation that has emerged in recent
years and will contribute significantly to the maintenance of sound
international monetary conditions.




BRETTON WOODS AGREEMENTS ACT AMENDMENT

65

A P P E N D IX E S

A P P E N D IX A
T e x t o f t h e D e c is io n o p t h e E x e c u t i v e D i r e c t o r s o f t h e I n t e r n a t i o n a l
M o n e t a r y F u n d , J a n u a r y 5, 1962
IN T E R N A T IO N A L M O N E T A R Y FU N D

Executive Board Decision No. 1289—
(62/1).
Subject: General Arrangements To Borrow.

Preamble
In order to enable the International Monetary Fund to fulfill more effectively
its role in the international monetary system in the new conditions of widespread
convertibility, including greater freedom for short-term capital movements, the
main industrial countries have agreed that they will, in a spirit of broad and willing
cooperation, strengthen the Fund by general arrangements under which they will
stand ready to lend their currencies to the Fund up to specified amounts under
Article VII, Section 2 of the Articles of Agreement when supplementary resources
are needed to forestall or cope with an impairment of the international monetary
system in the aforesaid conditions. In order to give effect to these intentions,
the following terms and conditions are adopted under Article VII, Section 2 of
the Articles of Agreement.
P a r a g r a p h 1. Definitions

As used in this Decision the term:
(i) “Articles” means the Articles of Agreement of the International Mone­
tary Fund;
(ii) “credit arrangement** means an undertaking to lend to the Fund on.
the terms and conditions of this Decision;
(iii) “participant” means a participating member or a participating
institution;
(iv) “participating institution” means an official institution of a member
that has entered into a credit arrangement with the Fund with the consent
of the member;
.
(v) “participating member” means a member of the Fund that has entered
into a credit arrangement with the Fund;
#
(vi) “amount of a credit arrangement” means the maximum amount
expressed in units of its currency that a participant undertakes to lend to the
Fund under a credit arrangement;
#
(vii) “call” means a notice by the Fund to a participant to make a transfer
under its credit arrangement to the Fund's account;
,, t* jf
t.
(viii) “borrowed currency” means currency transferred to the runa s
account under a credit arrangement;
.
(ix) “drawer” means a member that purchases borrowed currency from
the Fund in an exchange transaction or in an exchange transaction under a
stand-by arrangement;
,
....
... , . „
(x) “indebtedness” of the Fund means the amount it is committed to repay under a credit arrangement.
Parag raph 2 .

Credit Arrangements

Pa r a g r a p h 3 .

1

, .

Adherence

A member or institution that adheres to this Decisionundertakes to lend its
currency to the Fund on the terms and conditions of this Decision up to tne
amount in units of its currency set forth in the Annex to this Decision or estab­
lished in accordance with Paragraph 3(b).
(a)
Any member or instutution specified in the Annex may adhere to t
Decision in accordance with Paragraph 3 ( c ) .




66

BRETTON WOODS AGREEMENTS ACT AMENDMENT

(6)
Any member or institution not specified in the Annex that wishes to become
a participant may at any time, after consultation with the Fund, give notice of its
willingness to adhere to this Decision, and, if the Fund shall so agree and no
participant object, the member or institution may adhere in accordance with
Paragraph 3(c). When giving notice of its willingness to adhere under this
Paragraph 3(b) a member or institution shall specify the amount, expressed
in terms of its currency, of the credit arrangement which it is willing to enter
into, provided that the amount shall not be less than the equivalent at the date
of adherence of one hundred million Unfted States dollars of the weight and
fineness in effect on July 1, 1 9 4 4 .
(c)
A member or institution shall adhere to this Decision by depositing with
the Fund an instrument setting forth that it has adhered in accordance with its
law and has taken all steps necessary to enable it to carry out the terms and
conditions of this Decision. On the deposit of the instrument the m em b e r or
institution shall be a participant as of the date of the deposit or of the effective
date of this decision, whichever shall be later.
P aragraph 4.

Entry into Force

This Decision shall become effective when it has been adhered to by at least
seven of the members or institutions included in the Annex with credit arrange­
ments amounting in all to not less than the equivalent of five and one-half billion
United States dollars of the weight and fineness in effect on July 1 , 1 9 4 4 .
P aragrap h 5.

Changes in Amounts of Credit Arrangements

The amounts of participants' credit arrangements may be reviewed from time
to time in the light of developing circumstances and changed with the agreement
of the Fund and all participants.
P a r a g r a p h 6*

Initial Procedure

When a participating member or a member whose institution is a participant
approaches the Fund on an exchange transaction or stand-by arrangement and
the Managing Director, after consultation, considers that the exchange transaction
or stand-by arrangement is necessary in order to forestall or cope with an impair­
ment of the international monetary system, and that the Fund's resources need
to be supplemented for this purpose, he shall initiate the procedure for making
calls under Paragraph 7.
P aragrap h 7.

Calls

(a) The Managing Director shall make a proposal for calls for an exchange
transaction or for future calls for exchange transactions under a stand-by ar­
rangement only after consultation with Executive Directors and participants.
A proposal shall become effective only if it is accepted by participants and the
proposal is then approved by the Executive Directors. Each participant shall
notify the Fund of the acceptance of a proposal involving a call under its credit
arrangement.
(b) The currencies and amounts to be called under one or more of the credit
arrangements shall be based on the present and prospective balance of payments
and reserve positions of participating members or members whose institutions are
participants and on the Fund's holdings of currencies.
‘ (c) Unless otherwise provided in a proposal for future calls approved under
purchases of borrowed currency under a stand-by arrangem ent
shall be made in the currencies of participants in proportion to the amounts in
the proposal.
(a)
If a participant on which calls may be made pursuant to Paragraph 7(a)
for a drawer s purchases under a stand-by arrangement gives notice to the Fund
that m the participant’s opinion, based on the present and prospective balance
of payments and reserve position, calls should no longer be made on the p a rtic ip a n t
or that calls should be for a smaller amount, the Managing Director may propose to
otner participants that substitute amounts be made available under their credit
arrangements, and this proposal shall be subject to the procedure of Paragraph
„ jv* proposal as originally approved under Paragraph 7(a) shall remain efw ith Para^aph 7 (a)
&ProP°sal for substitute amounts is approved in accordance
Fund makes a call pursuant to this Paragraph 7, the participant
shall promptly make the transfer in accordance with the fall




BRETTON WOODS AGREEMENTS ACT AMENDMENT

67

8. Evidence of Indebtedness
(a) The Fund shall issue to a participant, on its request, nonnegotiable instru­
ments evidencing the Fund’s indebtedness to the participant. The form of the
instruments shall be agreed between the Fund and the participant.
(b) Upon repayment of the amount of any instrument issued under Paragraph
8(a) and all accrued interest, the instrument shall be returned to the Fund for
cancellation. If less than the amount of any such instrument is repaid, the
instrument shall be returned to the Fund and a new instrument for the
remainder of the amount shall be substituted with the same maturity date as in
the old instrument.
P a r a g r a p h 9 . Interest and Charges
(a) The Fund shall pay a charge of one-half of one percent on transfers made
in accordance with Paragraph 7(e).
(b) The Fund shall pay interest on its indebtedness at the rate of one and onehalf percent per annum. In the event that this becomes different from a basic
rate determined as follows:
the charge levied by the Fund pursuant to Article V, Section 8(a) plus the
charge levied by the Fund pursuant to Article V, Section 8(c) (i), as changed
from time to time under Article V, Section 8(e), during the first year after
a purchase of exchange from the Fund, minus one-half of ope percent,
the interest payable by the Fund shall be changed by the same amount as from
the date when the difference in the basic rate takes effect. Interest shall be
paid as soon as possible after July 31, October 31, January 31, and April 30.
(c) Interest and charges shall be paid in gold to the extent that this can be
effected in bars. Any balance not so paid shall be paid in United States dollars.
(d) Gold payable to a participant in accordance with Paragraph 9(b) or Para­
graph 11 shall be delivered at any gold depository of the Fund chosen by the
participant at which the Fund has sufficient gold for making the payment. Such
delivery shall be free of any charges or costs for the participant.
P a r a g r a p h 10. Use of Borrowed Currency
The Fund's policies and practices on the use of its resources and stand-by
arrangements, including those relating to the period of use, shall apply to
purchases of currency borrowed by the Fund.
P a r a g r a p h 11. Repayment by the Fund
(a) Subject to the other provisions of this Paragraph 11, the Fund, five years
after a transfer by a participant, shall repay thej>articipant an amount equivalent
to the transfer calculated in accordance with Paragraph 12. If the drawer for
whose purchase participants make transfers is committed to repurchase at a fixed
date earlier than five years after its purchase, the Fund shall repay the participants
at that date. Repayment under this Paragraph 11(a) or under Paragraph 11(c)
shall be, as determined by the Fund, in the participant’s currency whenever
feasible, or in gold, or, after consultation with the participant, in other currencies
that are convertible in fact. Repayments to a participant under the subsequent
provisions of this Paragraph 11 shall be credited against transfers by the partici­
pant for a drawer’s purchases in the order in which repayment must be made
under this Paragraph 11(a).
, t , „
_
'
(b) Before the date prescribed in Paragraph 11(a), the Fund, after consultation
with a participant, may make repayment to the participant, in part or in full,
with any increases in the Fund’s holdings of the participant s currency that
exceed the Fund’s working requirements, and participants shall accept sucn
P aragraph

(c) Whenever a drawer repurchases, the Fund shall promptly repay an equiva­
lent amount, except in any of the following cases:
■
(i) The repurchase is under Article V, Section 7(b) and can be identified as
being in respect of a purchase of currency other than borrowed currency, ^
(ii) The repurchase is in discharge of a commitment entered into on a
purchase of currency other than borrowed currency.
ntl^ P (iii) The repurchase entitles the drawer to
A
stand-by arrangement pursuant to Section II of Decision No. 87 ( / )
the Executive Directors, provided that, to the extent that the drawer does not
exerdse such augmented rights, the Fund shall promptly repay an equivalent
amount on the expiration of the Btand-by arrangement.
..
,. _v t . ■
(d) Whenever the Fund decides in agreement with a drawer ^ a t ^ e pr°blem
for which the drawer made its purchases has been overcome, the *airor J*aU
complete repurchase, and the Fund shall complete repayment and be entitled to.




68

BRETTON WOODS AGREEMENTS ACT AMENDMENT

use its holdings of the drawer's currency below 75 percent oT the. 'drawer’s 'quota
in order to complete such repayment.
(e) Repayments under Paragraph 11 (c) and (d) shall be made in the order
established under Paragraph 11(a) and in proportion to the Fund's indebtedness
to the participants that made transfers in respect of which repayment is being
made.
(f) Before the date prescribed in Paragraph 11(a) a participant may give notice
representing that there is a balance of payments need for repayment of part or all
of the Fund's indebtedness and requesting such repayment. The Fund shall give
the overwhelming benefit of any doubt to the participant’s representation.
Repayment shall be made after consultation with the participant in the currencies
of other members that are convertible in fact, or made in gold, as determined by
the Fund. If the Fund's holdings of currencies in which repayment should be
made are not wholly adequate, individual participants shall be requested, and will
be expected, to provide the necessary balance under their credit arrangements.
If, notwithstanding the expectation that the participants will provide the neces­
sary balance, they fail to do so, repayment shall be made to the extent necessary
in the currency of the drawer for whose purchases the participant requesting
repayment made transfers. For all of the purposes of this Paragraph 11, trans­
fers under this Paragraph 11(f) shall be deemed to have been made at the same time
and for the same purchases as the transfers by the participant obtaining repay­
ment under this Paragraph 11(f).
(g) All repayments to a participant in a currency other than its own shall be
guided, to the maximum extent practicable, by the present and prospective
balance of payments and reserve positions of the members whose currencies are
to be used in repayment.
(h) The Fund shall at no time reduce its holdings of a drawer's currency
below an amount equal to the Fund's indebtedness to the participants resulting
from transfers for the drawer's purchases.
(i) When any repayment is made to a participant, the amount that can be
called for under its credit arrangement in accordance with this Decision shall be
restored pro tanto but not beyond the amount of the credit arrangement.

Rates of Exchange

P a r a g r a p h 12.

(a) The value of any transfer shall be calculated as of the date of the transfer
in terms of a stated number of fine ounces of gold or of the United States dollar
of the weight and fineness in effect on July 1, 1944, and the Fund shall be obliged
to repay an equivalent value.
(b) For all of the purposes of this Decision, the equivalent in currency of any
number of fine ounces of gold or of the United States dollar of the weight and fine­
ness in effect on July 1, 1944, or vice versa, shall be calculated at the rate of ex­
change at which the Fund holds such currency at the date as of which the calcula­
tion is made; provided however that the provisions of Decision No. 321-(54/32) of
the Executive Directors* on Transactions and Computations Involving Fluctu­
ating Currencies, as amended by Decision No. 1245-(61/45) and Decision No.
1283—
(61/56), shall determine the rate of exchange for any currency to which that
decision, as amended, has been applied.
P a r a g r a p h 13.

Transferability

A participant may not transfer all or part of its claim to repayment under a
credit arrangement except with the prior consent of the Fund and on such terms
and conditions as the Fund may approve.
P a r a g r a p h 14.

Notices

Notice^to or by a participating member under this Decision shall be in writing
member

________ _iule G -l
. j. •
i^t&utlo

.
ln

P a r a g r a p h 15.

---------------- ---- — . iiuv>uc w \ uj ** participating insti—
ji
ky cable and shall be given to or by the participating

Amendment

Decision may be amended during the period prescribed in Paragraph 19(a)
51 ,? I*1 Fund and with the concurrence of all participants. Such
01
?
I x 1 ! ke necessary for the modification of the Decision on its
10
renewal pursuant to Paragraph 19(b).




BRETTON WOODS AGREEMENTS ACT AMENDMENT

69

P a r a g r a p h 16. Withdrawal of Adherence

A participant may withdraw its adherence to this Decision in accordance with
Paragraph 19(b) but may not withdraw within the period prescribed in Paragraph
19(a) except with the agreement of the Fund and all participants.
P a r a g r a p h 17. Withdrawal from Membership
If a participating member or a member whose institution is a participant with­
draws from membership in the Fund, the participant’s credit arrangement shall
cease at the same time as the withdrawal takes effect. The Fund’s indebtedness
under the credit arrangement shall be treated as an amount due from the Fund for
the purpose of Article XV, Section 3, and Schedule D of the Articles,
P a r a g r a p h 18. Suspension of Exchange Transactions and Liquidation
(a) The right of the Fund to make calls under Paragraph 7 and the obligation
to make repayments under Paragraph 11 shall be suspended during any suspension
of exchange transactions under Article XVI of the Articles.
(b) In the event of liquidation of the Fund, credit arrangements shall cease
and the Fund's indebtedness shall constitute liabilities under Schedule E of the
Articles. For the purpose of Paragraph 1(a) of Schedule E, the currency in which
the liability of the Fund shall be payable shall be first the participant’s currency
and then the currency of the drawer for whose purchases transfers were made
by the participant.
P a r a g r a p h 19. Period and Renewal
(a) This Decision shall continue in existence for four years from its effective
date.
(b) This Decision may be renewed for such period or periods and with such
modifications, subject to Paragraph 5, as the Fund may decide. The Fund shall
adopt a decision on renewal and modification, if any, not later than twelve months
before the end of the period prescribed in Paragraph 19(a). Any participant
may advise the Fund not less than six months before the end of the period pre­
scribed in Paragraph 19(a) that it will withdraw its adherence to the Decision
as renewed. In the absence of such notice, a participant shall be deemed to
continue to adhere to the Decision as renewed. Withdrawal of adherence in
accordance with this Paragraph 19(b) by a participant, whether or not included
in the Annex, shall not preclude its subsequent adherence in accordance with
Paragraph 3(b).
(c) If this Decision is terminated or not renewed, Paragraphs S through 14,
17 and 18(b) shall nevertheless continue to apply in connection with any indebt­
edness of the Fund under credit arrangements in existence at the date of the
termination or expiration of the Decision until repayment is completed. If a
participant withdraws its adherence to this Decision in accordance with Paragraph
16 or Paragraph 19(b), it shall cease to be a participant under the Decision, but
Paragraphs 8 through 14, 17 and 18(b) of the Decision as of the date of the
withdrawal shall nevertheless continue to apply to any indebtedness of the Fund
under the former credit arrangement until repayment has been completed.
P a r a g r a p h 20. Interpretation

Anv question of interpretation raised in connection with this Decision which
does not fall within the purview of Article X V III of the Articles shall be settled
to the mutual satisfaction of the Fund, the participant raising the question, and
all other participants. For the purpose of this Paragraph 20 participants shall
be deemed to include those former participants to which Paragraphs 8 through
14, 17 and 18(b) continue to apply pursuant to Paragraph 19(c) to the extent
that any such former participant is affected by a question of interpretation that
is raised.




70

BRETTON WOODS AGREEMENTS ACT AMENDMENT

A nnex

Participants and Amounts of Credit Arrangements
Units of Participant’s Currency

1.
2.
3.
4*
S:
6.
7.
8.
. 9
1 *.
0

United States of America--------- ---------------- -------- — US$
2,000,000,000
4, 000,000,000
Deutsche Bundesbank-------- ---------------------------------- D M
United Kingdom............................ ........ .......... .......£
357,142,857
France
- - - - - - - - - - ____
NF
2, 715,381,428
.................- u t
:
,
Japan........................... ............................................ Yen 90, 000, 000,000
Canada.............................. ................. ................. . Can$
22?, nort, o O
O
Netherlands.............. ............... ............... ................f*
724,000,000
Belgium
_____ ____ ________________________ BF
7,500,000,000
Sweden-*"’ I I ” I I I I I I I I - I I I ”I I I I " I - I I I I _________SKr
517,320,000

343 750 000,000

The foregoing is the text of a decision of the Executive Board taken at Meeting
62/1, January 5, 1962.
R o m a n L. H o r n e , Secretary,
A P P E N D IX B

Exchange op C orrespondence B etw een M. W ilfr id Baum gartner, Minis­
t e r op Finance and Economic A ffa ir s o f F ran ce, and D o u g l a s Dillon,
S ecretary o f th e T reasury, Paris, F rance, D ecem ber 15, 1961
M inisters des F inances,
Le Ministre, Le 15 Dicembre 1961.
The Honorable D ou glas D illo n ,
Secretary of the Treasury.
D ear M r. S ecreta ry : The purpose of this letter is to set forth

t h e under­
standing^ reached during the recent discussions in Paris with r e s p e c t to the pro­
cedure to be followed by the Participating Countries and Institutions ^eremarter
referred to as “the participants”) in connection with borrowings by the l nter~T"
tional Monetary Fund of Supplementary Resources under credit arrangements
which we expect will be established pursuant to a decision of the E x e c u t i v e . u ~
rectors of the Fund.
This procedure, which would apply after the entry into force of that aecifli
with respect to the participants which adhere to it in a c c o r d a n c e with their Jiaw&,
and which would remain in effect during the period of the decision, is as fouow .
A. A Participating Country which has need to draw c u r r e n c i e s from tn
International Monetary Fund or to seek a stand-by agreement with the Jmna ijj
circumstances indicating that the Supplementary Resources might be used, sn
consult with the Managing Director of the Fund first and then with the o t n e r
participants.
B. If the Managing Director makes a proposal for Supplementary
to be lent to the Fund, the participants shall consult on this proposal andinI?.
the Managing Director of the amounts of their currencies which they consiae
appropriate to lend to the Fund, taking into account the r e c o m m e n d a t i o n s o f
Managing Director and their present and prospective balance of p a y m e n t s a
reserve positions. The participants shall aim at reaching unanimous
•
C« If it i s not possible to reach unanimous agreement, the question whether
participants are prepared to facilitate, by lending their currencies, an e x c h a n g e
transaction or stand-by arrangement of the kind covered by the special borrowing
arrangements and requiring the Fund’s resources to be supplemented in the
order of magnitude proposed by the Managing Director, will be decided by a pou
of the participants.
..
The prospective drawer will not be entitled to vote. A favorable decision shaU
require the following majorities of the participants which take part in the vote, i*
being understood that abstentions may be justified only for balance of paymen
reasons as stated in paragraph D :

a
majority of the number of participants voting; and
• { , a three-fifths majority of the weighted votes of the participants voting;
t* R ighted on the basis of the commitments to the Supplementary Resources*
decision m paragraph C is favorable, there shall be further consult*. ° “® ,"no% * he Participants, and with the Managing Director, concermng tne
amounts of the currencies of the respective participants which will be loaned to




BRETTON WOODS AGREEMENTS ACT AMENDMENT

71

the Fund in order to attain a total in the general order of magnitude agreed under
paragraph C. If during the consultations a participant gives notice that in its
opinion, based on its present and prospective balance of payments and reserve
position, calls should not be made on it, or that calls should be for a smaller amount
than that proposed, the participants shall consult among themselves and with the
Managing Director as to the additional amounts of their currencies which they
could provide so as to reach the general order of magnitude agreed under
paragraph C.
E. When agreement is reached under paragraph D, each participant shall
inform the Managing Director of the calls which it is prepared to meet under
its credit arrangement with the Fund.
F. If a participant which has loaned its currency to the Fund under its credit
arrangement with the Fund subsequently requests a reversal of its loan which
leads to further loans to the Fund by other participants, the participant seeking
such reversal shall consult with the Managing Director and with the other
participants.
For the purpose of the consultative procedures described above, participants
will designate representatives who shall be empowered to act with respect to
proposals for use of the Supplementary Resources.
It is understood that in the event of any proposals for calls under the credit
arrangements or if other matters should arise under the Fund decision requiring
consultations among the participants, a consultative meeting will be held among
all the participants. The representative of France shall be responsible for calling
the first meeting, and at that time the participants will determine who shall be
the Chairman. The Managing Director of the Fund or his representative shall
be invited to participate in these consultative meetings.
It is understood that in order to further the consultations envisaged, participants
should, to the fullest extent practicable, use the facilities of the international
organizations to which they belong in keeping each other informed of develop­
ments in their balances of payments that could give rise to the use of the Supple­
mentary Resources.
These consultative arrangements, undertaken in a spirit of international
cooperation, are designed to insure the stability of the international payments
system.
I shall appreciate a reply confirming that the foregoing represents the under­
standings which have been reached with respect to the procedure to be followed
in connection with borrowings by the International Monetary Fund under the
credit arrangements to which I have referred.
I am sending identical letters to the other participants— that is, Belgium,
Canada, Germany, Italy, Japan, The Netherlands, Sweden, the United Kingdom.
Attached is a verbatim text of this letter in English. The French and English
texts and the replies of the participants in both languages shall be equally
authentic. I shall notify all of the participants of the confirmations received in
response to this letter.
W .

B aum gabtner.

P a b is , December 15, 1961.

Monsieur

W ilfr id

B a u m g a rtn er,

Ministre des Finances et des Affaires Economiques,
93, rue de Rivoli, Paris ( ! „ ) .
D e a r M b . M i n i s t e r : This is in reply to your letter of December 15, 1961,
setting forth the understandings reached during the recent discussions in Paris
with respect to the procedure to be followed by the Participating Countries and
Institutions in connection with the borrowings by the International Monetary
Fund of Supplementary Resources under credit arrangements which we expect
will be established pursuant to a decision of the Executive Directors of the Fund.
On behalf of the United States of America, I am pleased to confirm that we are
in agreement with the statement of understandings as set forth in your letter of
December 15, 1961. I am attaching, in accordance with your suggestion, the
French text of this letter of confirmation.

Sincerely yours,




(Signed)

Douglas Dillon
D o u g l a s D il l o n .

72

BRETTON WOODS AGREEMENTS ACT AMENDMENT

A P P E N D IX C
L e t t e r p r o m M . W il f r id B a u m g a r t n e r , F r e n c h M in is t e r o f F in a n c e , to
D o u g l a s D i l l o n , S e c r e t a r y o f t h e T r e a s u r y , J a n u a r y 9, 1962
M in is t e r s : d e s

F in a n c e s ,

Le Ministrej January 9, 1962,
The Honorable D o u g l a s
Secretary of the Treasury,
Washington, D.C.

D il l o n ,

D e a r M r . S e c r e t a r y : Y o u have been kind enough to confirm to me your
agreement regarding the procedure to be followed in connection with borrowing
by the International Monetary Fund of Supplementary Resources from the Par­
ticipating Countries and Institutions.
I have the honour to inform you that I have received similar confirmations
from the Minister of Finance of Belgium, the Minister of Finance of Canada, the
President of the German Federal Bank, the Minister of the Treasury of Italy,
the Minister of Finance of Japan, the Minister of Finance of the Netherlands, the
Governor of the National Bank of Sweden and the Chancellor of the Exchequer
of the United Kingdom.
I should also like to confirm to you the agreement of the French Government
regarding the terms of my letter of December 15, 1961.
I am notifying the other participants, as well as the International Monetary
Fund, of the general agreement thus realized with respect to the understandings
reached during the recent discussions in Paris.




W .

B aum gartner.

SUMMARY INDEX
Agreement reached in Paris___________________________ ________________
5
Aiken, Senator George D., examination of witness, Hon. Douglas Dillonll 12-10
American Bankers Association, resolution of the_______________________
33
Balance of payments deficit_______________________________ I ___IIIl4~26,40,54
Factors constituting unfavorable U.S. position___________Z—
__ * ’ 20
Borrowing arrangement:
7
Advantage of, to United States____________________________________
Need for-------------------------------------------------------------------------------------51
Participants in________________________________________________55,59
Special report on__________________________________________________
45
Terms of-------------------------------------------------------------------------------------59
Budgetary effect of proposed amendment—____________________________
36
Capehart, Senator Homer E., examination of witness, Hon. Douglas
Dillon------------------------------------------------- ------------------------ -----------17, 2S-28,29
Carlson, Senator Frank, examination of witness, Hon. Douglas D illon.. 28-31,35
Charge of interest on loans_ _________________________________________
_
13
Clarification of proposed amendments_________________________ _________
7
Contributions by IMF members to the Fund____________________________
12
Countries affected by amendment_____________________________________
32
Countries participating in lending arrangement_____ ___________________
2
Countries which have borrowed from the IMF________________________ __
24
Currencies allowed to accumulate in balances in United States__________
40
Currency pool agreement----------------------------------------------------------------------40
Currency sales and repayments of the Fund------------------------ -----------------56
Exchange stabilization fund, role of-----------------------------------------------------36
Favorable U.S. balance of trade position-----------------------------------------------26
Foreign aid contributions of allies------------------------------ --------------------—
43
Fulbright, Senator J. W., examination of witness, Hon. Douglas Dil­
lon__________________________________________________ 2, 9-12, 26, 32, 34-56
Gold and foreign exchange holdings, 1951 and 1958-61_________________
52
Gold contributions to the Fund by the United States------- -------------------30
Gold loss of United States-----------------------------------------------------------------27
Great Britain's price level depreciation, study of----- ----------------------------42
IMF, agreement between the U.N. and----------------------------------- ------------17
Importance of proposed arrangement------------------------ ---------------------------- 8,11
Inter-American Bank--------------------------------------------------------------------------9
Interest on loans to the Fund---------------------------------------------- ----------------- 7,02
International Court of Justice--------------------------------------------------------------19,22
Lausche, Senator Frank J., examination of witness, Elgin Groseclose___ 39,40
National Advisory Council, special report on borrowing arrangements
o f the IMF-------------------------------- -----------------------------------------------------45
Nature o f appropriation request---------------------------------------------------------—
9
Need for proposed legislation------------------------------------------------------------ —
9
OECD, role of the_____________________________________________________
11
Operation of the Fund------------------------------------------------------------------------4
Opposition to legislation, reasons for---------------------------------------------------- 38,42
Opposition to the proposed amendment, comment on-------------------------------32
Political and moral reforms in underdeveloped countries-------------------------43
Possibility of inviting careless fiscal policies---------------------------------------30
Profltmaking status of the IMF-----------------------------------------------------------13
Purpose o f proposed arrangement------------------------------------------------------5
Purpose o f the International Monetary Fund-------------------------------------3
Ratification o f agreement, status of--------------------------- — — --------------36




73

74

SUMMARY INDEX
Faee

Reason for legislation request--------------------------------------------------------------- 25,28
Reserve resource, the Fund as a United States----------------------------------28
Reserves of the Fund------------------—-----------------------------------------------------13,55
Short-term capital:
Effect of, on balance of payments---------------------------------------------------53
Increase in movements of------------------------------------------------------------3
Stability of dollar essential to free world's economy and political sta­
bility______________________________________________________________
4, 38
Switzerland, relations of the Fund to__________________________________
35
Text of H.R. 10162, an act to amend the Bretton Woods Agreements Act—
1
12
Triffin plan and the Bernstein proposal------------------------------------------------Types of contributions contemplated by legislation------------------- --------------31
United Nations:
17
Agreement with IMF______ _____________________ _________________
Agreement with World Bank____________________ _________________
20
Fund’s affiliation with______________________________________ ____14
Possibility of World Bank investment in U.N. bonds__________------14
United Kingdom:
11
Importance of proposed arrangement to____________________________
Recent amounts borrowed by, from IMF____________________________
24
U.S. drawing rights on the Fund------------------------------------------------------------ 4,58
U.S. gold withdrawals_________________________________________________
31
25
U.S. transactions with the IMF__________________________ _____________
Vienna meeting of Board of Governors________________________________
5,49
11
Voting, system of, in the Fund__________________________________ _____
Wiley, Senator Alexander, examination of witness, Elgin Groseclose_ 39, 42-44
Withdrawals from, and loans to, the Fund, proposed procedure for___ _
6
World Bank:
Agreement with the U.N____________________________________ _____
20
Investments of___________________________________________________
15
Possible dividend payments by________________________________ .____
17
14
Possibility of investment in U.N. bonds___________________________
Profitmaking status and its reserves______________________________
14




o


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