International Monetary Fund Annual Report 1950

ANNUAL REPORT

1950

©International Monetary Fund. Not for Redistribution

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INTERNATIONALMONETARY FUND

.ANNUAL REPORT OF THEEXECUTIVE DIRECTORS FOR THE

FISCAL YEAR ENDED APRIL 30, 1950

WASHINGTON, U.S.A.




CONTENTS

Letter of Transmittal

I. The World Economic Situation

II. Exchange Policy and Par Values

III. Exchange Restrictions

IV. Gold Policy

V. Fund Transactions

VI. Membership, Organization, and Administration

APPENDICES

I. Summary of Exchange Rate Changes,September 1949 to April 1950

II. Report on External Transactions in Gold atPremium Prices

III. Summary of Fund Transactions from theBeginning of Operations to April 30, 1950

IV. Decisions on Monetary Reserves andRepurchase Obligations

V. Exchange of Letters on Poland's Withdrawal

VI. Membership, Quotas, Governors, and VotingPower

VII. Changes in Membership of the Board ofGovernors

VIII. Executive Directors and Voting Power

v

xi

1

28

55

70

75

79

88

90

96

99

102

104

109

112


CONTENTS (Continued)

IX. Changes in Membership of the Executive Board

X. Administrative Budget and ComparativeStatement of the Fund's Income

XL Interpretation of Article IX, Section 7,of the Fund Agreement

XII. Balance Sheet, Statement of Income and Expensewith Supporting Schedules, and Financial State-ments of Staff Retirement Fund

XIII. Schedule of Par Values

Index

VI

114

115

118

120

146

153


ANNUAL REPORT

1950




INTERNATIONAL MONETARY FUND

Executive Board

Camilla GuttChairman of the Executive Board

Executive Directors

Frank A. Southard, Jr.Sir George Bolton

Jean de LargentayeJagannath V. JoshiOctavio ParanaguaCarlos A. D'AscoliErnest de SelliersAhmed Zaki Bey SaadJohan W. BeyenLouis RasminskyStuart G. McFarlaneGuido CarliBohumil Sucharda

Alternate Executive Directors

John S. HookerLeslie Frederick CrickTsoo Whe GhuGuy de LavergneDattatraya S. SavkarWalter BlomeyerHector Santaella

Mahmoud Saleh El FalakiH. M. H. A. van cler ValkJoseph F. ParkinsonJohn M. GarlandGiorgio Cigliana-PiazzaMihailo Kolovic

Officers

Camille GuttManaging Director

A. N. Overby

Jan V. Mladek

Irving S. Friedman

George F. Luthringer

Andre van CampenhoutEdward M. BernsteinFrederick W. GrayOscar L. AltmanDavid H. WillsFrank Coe

Deputy Managing Director

Deputy Director, European andNorth American Department

Deputy Director, ExchangeRestrictions Department

Deputy Directo^ Latin American,Middle Eastern arid FarEastern Department

General CounselDirector, Research DepartmentTreasurerDirector, Office of AdministrationDirector, Office of Public RelationsSecretary

IX




LETTER OF TRANSMITTALTO THE BOARD OF GOVERNORS

July 7, 1950

My dear Mr. Chairman:

In accordance with Section 10 of the By-Laws of the Inter-

national Monetary Fund, I have the honor to present to the

Board of Governors the Annual Report of the Executive Direc-

tors for the fiscal year ended April 30, 1950,,

Yours sincerely,

A/GUTT

Chairman of the Executive Board

Chairman of the Board of Governors

International Monetary Fund

XI




THE WORLD ECONOMIC SITUATION

Background of the Devaluations

HE widespread devaluation of currencies that took place inSeptember 1949 was the most far-reaching in any comparable

period in recent times. Thirteen members agreed new par valueswith the Fund, most of them involving a devaluation of approxi-mately 30.5 per cent in relation to the U.S. dollar. Six membercountries with which the Fund has no agreed par value alsodepreciated their exchange rates, and similar action was taken byten other countries that are not members of the Fund. The coun-tries that devalued their currencies in September accounted forapproximately 65 per cent of total world trade as measured byworld imports in 1948. Exchange rates were adjusted on this vastscale in recognition of the great changes that have taken place inthe relative international economic position of large parts of theworld during the past ten years.

The basic cause of the devaluations was the postwar distortion ininternational payments. Some distortion had already begun toemerge before the war. Between 1930 and 1936, the structure ofexchange rates throughout the world underwent violent change.Under the impact of the great depression and its consequencesnearly every country changed the parity of its currency in relation

1

I

T


to gold. By 1939, there had been a considerable degree of adjust-ment to the new pattern of exchange rates. It was by no means asatisfactory pattern, however, and it required support at manypoints. Furthermore, in some countries the precarious paymentsposition necessitated policies that hampered the attainment of highlevels of production.

The war generated new forces that inevitably changed the tradeposition of many important regions, weakening some and strengthen-ing others. The development of synthetics affected the demand fornatural rubber and fibers, produced very largely in non-dollarcountries. During the war, new industries were established inunderdeveloped countries, partly to provide for military needs,partly to replace goods that could not be supplied by the countriesactively engaged in the war. In the Western Hemisphere, the pro-duction of foods and raw materials was expanded because of warneeds and the interruption of supplies from the Far East. Whilethese changes in production and trade were taking place, the coun-tries of Europe and many countries elsewhere were cut off for sixyears from the normal channels of trade, while their own produc-tion was perforce disturbed by war requirements.

There were similar disturbing changes in non-trade payments.The countries of Europe found it necessary to liquidate much oftheir foreign investments to meet the cost of the war and of post-war reconstruction. To finance overseas war expenditure the UnitedKingdom also incurred vast obligations in the form of foreign-heldsterling balances, and nearly all the countries of Western Europehad to borrow heavily in the United States and Canada duringthe early postwar years. European earnings from shipping werematerially reduced by wartime losses, although they have now beenlargely restored. Commercial, financial, and insurance services pro-vided large earnings for some Western European countries beforethe war. The recovery of these activities has been hampered by

2


the exchange controls instituted both in those countries and else-where.

The restoration of the payments position of the regions seriously

disrupted by the war has developed into a longer task than had

been hoped. The vast destruction in Europe made it necessary to

undertake large reconstruction programs with the aid of an import

surplus financed by the United States., Canada, and Latin America.

In Southeast Asia and the Far East, political disorders delayed

the resumption of production and export, and most countries in

these regions also required an import surplus, which was financed

in part by capital outflow from Europe and in part by the United

States. Even now, the tension and uncertainty in international

relations compel countries to devote to military purposes resources

that are urgently needed for consumption and investment and for

the restoration of better balance in international payments through

an expansion of exports..

War and postwar finance also brought about a considerable infla-

tion everywhere, but particularly in the countries seriously disrupted

by the war. The huge war expenditures, the wartime exactions ofthe occupying powers, the accumulation by some countries of ab-normally large balances owed to foreigners resulted in a largeexpansion of the money supply. This was increased by expendi-

tures for postwar reconstruction and development. Although prices

in some countries were more or less kept in check for a time by

price ceilings and rationing, the latent forces of inflation repre-sented by these large accumulations of money gradually broke

through the controls. The consequent relatively greater rise inprices and costs in Europe and in Asia impaired the ability of theseregions to compete in world markets, and similar difficulties were

encountered in many parts of Africa.

These far-reaching changes in the world economy made readjust-

ments of exchange rates inevitable. The uncertain question was not

whether such adjustments would take place, but when. As long as

3


there were serious shortages throughout the world, the inflatedprices of Europe and other regions did not prevent their exportsto Western Hemisphere countries from expanding with the growthin world trade, which was, however, still far from a position ofequilibrium. But as long as capacity to produce for export had notfully recovered, devaluation might be expected to generate addi-tional demands that in many countries could be satisfied only atthe expense of already severely rationed domestic markets. During1948 and 1949, however, this situation changed gradually. Pro-duction, particularly in Europe, had expanded greatly, but growthin dollar exports wras slackening or had halted. The expansion ofworld trade began to slow down. While there was, indeed, noserious decline in world trade in 1949, there was no further markedexpansion. The decline in U.S. imports was only a small factorin this change. It is more likely that the expansion came to atemporary halt largely because import demand was no longer sus-tained by substantial and widespread shortages in supply.

It would be a mistake to regard the devaluations as in anyfundamental sense caused by the mild recession in the United Statesbetween November 1948 and July 1949. For the whole year 1949,the index of industrial production was 8 per cent lower than thatfor 1948. Aggregate personal incomes were only 2 per cent lowerin 1949 than in 1948. The value of U.S. imports in 1949 was7 per cent less than in 1948. It is more significant that, while thef.o.b. value of U.S. imports from the Western Hemisphere fellabout 2.5 per cent ($100 million), the fall in the value of importsfrom other regions was 13 per cent ($390 million). In part, thiscontrast can be explained in terms of the commodity compositionand the prices of imports. In part, it can be explained by the run-ning down of inventories and the reduction of imports in anticipa-tion of devaluation. Much of it, however, was a reflection of the

weakening competitive position of countries outside the Western

4


Hemisphere which had developed as the world trade situationgradually changed.

European and Other Devaluations

In making the decision to devalue their currencies, the members

of the Fund had it in mind to help to bring about a situation

where a high level of trade could be maintained and a closer bal-

ance established in international payments with less reliance on

restrictions and discriminations and less dependence on extraordi-nary foreign aid. The general magnitude of this problem is indi-

cated by the balance of payments of the United States. The

surplus of the United States with the rest of the world for goods

and services in 1949 was $6.2 billion. This surplus, about half ofwhich represented the surplus with OEEG countries in Europe, was

distributed as follows:

U.S. surplus on goods and services in 1949with OEEC countries $3.1 billionwith other sterling area and OEEC dependencies 0.5with Latin America 0.7with Canada 0.5with the rest of world 1.4

Total $6.2 billion

In addition to these net payments for goods and services, therewere also unrecorded transactions which involved net payment indollars. These were offset by private donations and capital move-ments from the United States, so that the total compensatory offi-cial financing to meet the deficit of the rest: of the world with the

United States in 1949 was $6.2 billion.To regard the payments problem as wholly European would be

to underestimate the diversity and complexity of the economic

adjustments that must be made before balance can be restored in

the world economy. At most it can be said that Europe is the

focal point for many phases of the dollar problem. Many Western

Hemisphere countries other than the United States require payment

in convertible currency for their exports, and European deficits

5


with them have to be settled in dollars. The great trading nationsof Europe also provide the currency areas associated with themwith the dollars needed to cover their deficits with the UnitedStates and other dollar countries. The dollar requirements ofEurope, therefore, were considerably greater than the amount ofthe European deficit with the United States. Thus, net gold andU.S. dollar payments by European countries, other than to theUnited States and to each other, on their own behalf and onbehalf of associated currency areas, amounted to about $1.9 billionin 1949.

The U.S. dollars required to meet the deficit of the rest of theworld with the United States in 1949 were largely provided bygrants and credits from the United States:

U.S. Government grants $5.3 billionU.S. private donations 0.5U.S. private and Government investments 1.3Foreign capital and gold 0.1Errors and omissions (largely unrecorded capital movement

to the U.S.) -1.0

Total $6.2 billion

The payments situation was most serious in the first half of theyear, the deficit of the rest of the world with the United Statesfor goods and services rising from an annual rate of $7.1 billionin the first quarter to an annual rate of $8.1 billion in the secondquarter. There was clearly an urgent need for prompt and effec-tive measures to reverse this dangerous trend.

This deterioration in the dollar payments position was largely,although not entirely, concentrated on countries outside the WesternHemisphere. In the first half of 1949, the imports of countriesoutside the Western Hemisphere from the United States were at anannual rate of $9.0 billion, compared with 1948 imports of $8.3billion. At the same time, exports from these regions to the UnitedStates declined from $3.6 billion in 1948 to an annual rate of$3.3 billion in the first half of 1949. These developments brought

6


about the almost critical increase in the dollar deficits of many

countries which became evident by June 1949.

To meet these developing difficulties, imports from dollar coun-

tries were sharply reduced in the third quarter of 1949. For all

countries outside the Western Hemisphere, imports from the

United States in that quarter were at a rate 23 per cent less than

the rate in the first half of the year., The difference between the

two rates corresponded to a decline of imports at a rate of $2.1

billion a year. Even this sharp reduction of imports was inadequate

to halt the deterioriatiori in the dollar payments of the non-Western

Hemisphere countries. In the third quarter of 1949, exports to the

United States from Europe were one third less and from other

countries outside the Western Hemisphere one fourth less than in

the first quarter of 1949. Only a small part of this decline could

be attributed to the U.S., business recession. By far the greater part

was in anticipation of devaluation. In the meantime, there were

also large capital movements to the United States and other coun-

tries. A dangerous depletion of European reserves was evident.

The inability of Europe and other regions outside the Western

Hemisphere to expand dollar exports and to decrease their excep-tional dependence on dollar imports was largely due to their weak

competitive trade position. For most of the industrial countries ofWestern Europe, the index of export prices in terms of dollars was

well over 200 (1937 = 100) in August 1949, while the U. S.

index of export prices of manufactures was about 170. TheWestern European countries could not expect to increase their

exports to the Western Hemisphere unless their export prices could

be made more competitive with the prices prevailing in dollar

markets. In the Far East and the Middle East, the indexes of

wholesale prices in terms of dollars were generally above 250, while

the index of raw material prices in the Western Hemisphere was

about 210 (1937 = 100) in August 1949. Productive resources

were thus attracted to an excessive degree to meeting the demands

7


of the higher-priced home markets rather than the lower-priceddollar market. Disparities of the magnitude indicated in the com-petitive position of deficit and surplus areas could not in practicebe corrected without devaluation. The decision of the UnitedKingdom to devalue sterling was the signal for a general worldwideadjustment of exchange rates in relation to the U.S. dollar.

Because of the central position of the United Kingdom in worldtrade and the importance of sterling as an international currency,the timing and extent of sterling devaluation became a guide toother countries. For the United Kingdom, it was necessary thatdevaluation should so reduce prices in terms of dollars as to makeits exports sufficiently competitive to reach much wider markets inWestern Hemisphere countries. Furthermore, the depreciation hadto be sufficient also to provide incentives in the outer sterling areato shift productive resources from domestic goods to export goods.It was important, too, that depreciation should discourage theunauthorized use of sterling and the re-export of sterling area goodsby other countries to dollar markets. Consequently, when the newrate of U.S. $2.80 was agreed for sterling, most of the sterling areadepreciated their currencies proportionately. These countries sharea common dollar problem, and regarded it as in their interest tomaintain the traditional exchange rate with sterling. The countriesof northern Europe devalued their currencies to the same extent assterling, because their dollar problem was not fundamentally dif-ferent and because of the importance of their trade with the UnitedKingdom.

For countries, like Belgium and Canada, whose payments prob-lem was one of relatively large deficits with the United States andmore or less equivalent surpluses with Europe and other non-dollarregions, the problem presented by the devaluations was of a dif-ferent order. In their own interest, they wished to encourage aconsiderable expansion of their imports from the devaluing coun-tries. At the same time, their over-all payments position did not

8


require as large a devaluation as that of the deficit countries. Their

policy seems, on the whole, to have been reasonable: to depreciate

their currencies moderately with respect to the U.S. dollar and to

appreciate considerably with respect to sterling, other European

currencies, and the currencies of related areas.

The determination of the appropriate relative values of cur-

rencies cannot be a matter of simple mathematical computation.

The devaluations were necessary to restore a better balance in

dollar payments, and the general expectations of traders made it

desirable that this adjustment should take place without delay if

a dangerous disruption of international trade and payments were

to be avoided. Insofar as the payments problems of the devaluing

countries could be solved through devaluation, the extent of the

exchange rate adjustments actually made seems on the whole to

have been reasonably well adapted for this purpose. Only actual

experience, however, can show whether the devaluations and the

policies that accompany them will, in fact, restore a reasonably

satisfactory pattern of international payments.

First Effects in Europe

In almost every respect except dollar payments, the economic

situation in Europe continued to develop favorably during 1949.

Industrial production in the OEEC countries increased by about

6 per cent on the average in comparison with 1948. For most

OEEG countries, however, growth in industrial production began

to slacken as prewar levels were surpassed and normal industrial

efficiency restored. Agricultural production also increased, but

still remained just below the prewar average. Great progress was

made in dealing with inflation. Except in a few cases the money

supply of the OEEG countries was kept relatively stable, increas-

ing in most of the countries by no more than would be expected

from normal growth. Correspondingly, prices were no longer rising

9


in most of these countries,, except as they reflected the higher cost

of imports and the removal of subsidies.

Per cent increase Per cent increasein the money in wholesale

supply during prices during1949

Portugal —6 3United Kingdom 1 5Sweden 2 0Denmark 21 2Netherlands 3 5Norway 3L 2Ireland 5 0Belgium 6 —5Switzerland 8 —5Austria 12 29Italy 17 —5Western Germany 24 22France 25 12

1 Including time deposits.

With improvement in the supply and monetary situation, rationing

and other controls were relaxed. The groundwork has been laid

for monetary stability in Europe, although aggregate demand is

still excessive in comparison with home production and the main-

tenance of adequate supplies still depends on a large import surplus

financed by U.S. aid.

Especially noteworthy was the continued growth of exports from

Europe in 1949, despite the decline in exports to the Western

Hemisphere in the second half of the year. The dollar value of

exports from Western Europe increased about 6 per cent, and fromEastern Europe only slightly less. In these circumstances, it became

clearer that the payments problem of Europe was largely, althoughnot entirely, a matter of dollar payments. In 1948, the European

deficit for goods and services with the rest of the world, exceptthe United States, was $1.8 billion; by 1949, this deficit had been

transformed into a surplus of $200 million. On capital account,

however, there was still in 1949 a net movement of about $1.2

billion to non-European countries, excluding the United States.

10

19499


While this great change was taking place in payments with coun-tries other than the United States, the deficit of Europe with theUnited States remained quite large and in the months precedingdevaluation became a matter of increasing concern.

In seeking a remedy for their dollar payments through devalua-tion, the countries of Europe sought to improve their dollar posi-tion in three ways: first, to increase their exports to dollar marketsby reducing their export prices relative to those of the UnitedStates and of other countries which did not devalue or devaluedto a lesser extent; second, to decrease their imports from countriesrequiring dollar payment in response to the rise in prices in theircurrencies of goods imported from countries which did not de-value or devalued to a lesser extent; and third, through the changein relative export and import prices, to induce a shift in theimports of other countries to European sources of supply and toinduce a shift of their own imports to non-dollar sources of supply.

So far, export prices in terms of dollars have moved as expectedin those Western European countries for which data are available.In the United Kingdom, the unit value of exports, in terms ofsterling, in April 1950 was only a little more than 4 per cent higherthan before devaluation. In Norway, the unit value of exports inkroner had risen slightly more. In the Netherlands, the unit valueof exports in guilders was about 3 per cent higher than beforedevaluation. These unit values of exports in national currenciesthus indicate a considerable drop in export prices in terms ofdollars. Direct measurements of dollar prices of U.S. imports fromthe United Kingdom show an average reduction of 20 to 25 percent in landed cost since devaluation. On the other hand, in theUnited States and Switzerland the unit value of exports fell byabout 4 per cent between September 1949 and April 1950. InBelgium, which devalued by about 12 per cent, the unit value ofexports in francs was about 12 per cent lower than before devalua-tion. In Canada, which devalued by about 9 per cent, export price

11


data are not available, but wholesale prices in Canadian dollars

seem to have changed very little.

The exports from which these unit values for early 1950 have

been computed were still to a considerable extent based upon pre-

devaluation contracts and price quotations. Some further rise in

export prices may, therefore, be expected in the countries that

devalued, because of the higher costs of imported raw materials in

terms of their own currencies and of higher costs in some sectors

of their export industries in which output will be expanded. But if

the industrial countries that devalued are successful in holding

down a rise in costs, the dollar prices of their exports will be sub-

stantially reduced and their competitive position considerably

strengthened relative to the countries that did not devalue or that

devalued to a lesser extent.

It is probably too soon to see more than the first effects of de-

valuation on the exports of Europe to dollar markets. In order

to increase the dollar earnings of the devaluing countries in the

face of lower dollar prices for their exports, a very substantialincrease in the volume of European exports to the Western Hemi-

sphere will be necessary. The recorded movement in the monthly

average of such exports shows, so far, that the value of exports has

been approximately maintained.

Monthly averageJanuary/December 1948 $197 millionJanuary/September 1949 191October/December 1949 194January/March 1950 190

These figures indicate a considerable initial increase in the volume

of exports. The consolidation and further improvement of thistrend will be possible only as production and trade are geared to

larger sales in dollar markets.

The second reason for the devaluation was to reduce the demand

for imports requiring payment in dollars. Reduction in the imports

of Europe from dollar countries was made necessary by the actual

12


and prospective fall in dollar aid from the United States and theloss of gold and dollar reserves. The substantial reduction recordedin the monthly average value of these imports (f.o.b.) may be ex-plained in part as a response to the new pattern of exchange rateswhich has made dollar imports less attractive than formerly.


The European devaluations also brought about some improve-ment in the intra-European payments situation. There is no reasonwhy each country should aim at a balanced position in its Europeanpayments. The changes in the relative values of European cur-rencies have, however,, made possible in general a better balance inintra-European payments and some easing of intra-European traderestrictions. In 1948 the United Kingdom, France, Netherlands,Norway, Denmark, and Sweden, countries which devalued by 20or 30 per cent, had a trade deficit averaging $16 million a monthwith Belgium, Italy, and Switzerland, countries which devaluedlittle or not at all. In the five months following devaluation, thetrade deficit between the same groups of countries averaged $10million a month. For the former group, intra-European paymentsfor non-trade transactions have also shown considerable improve-ment.

In spite of their over-all favorable effects, the devaluations havesometimes engendered local difficulties. A case in point is that ofDenmark. There has been, of course, a large increase in the pricein kroner of Denmark's imports from the dollar area and to alesser degree of its imports from devaluing countries. On theother hand, prices in kroner of Denmark's main exports havefallen slightly since the devaluation. These unfavorable changesin its terms of trade have increased Denmark's balance of pay-ments difficulties.

The changes in the trade of Europe and of associated currency

13


areas have helped to increase Europe's gold and dollar reserves.This has been particularly important in the United Kingdom. In-creased earnings by the sterling area from dollar sales of wool,cocoa, rubber, and other raw materials helped to produce a con-siderable net gold and dollar surplus for the sterling area.

The reversal of the capital movements that took place beforedevaluation was responsible for part of this improvement. Theexpectation of devaluation had given a strong inducement to hastenremittances to and delay remittances from the countries that wereunlikely to devalue. Once depreciation had taken place, the largeloss of gold and dollar reserves that had occurred before devalua-tion was followed by compensating gains. In the third quarter of1949, for example, capital movements and unrecorded transactions

involved net payments of $550 million from the rest of the worldto the United States. In the fourth quarter of 1949, capital move-ments and unrecorded transactions involved net payments of $100million from the United States to the rest of the world, and at thesame time there was a change in the gold and dollar settlementsof European countries with countries other than the United States.

First Effects in Asia and Africa

Serious payments difficulties were also the cause of several de-valuations outside Europe, for the most part in Asia and Africa.Before the war, these regions supplied a very important part of theworld's food and raw materials. Their export and import tradewas in approximate balance, and from some countries there werelarge net payments to Europe, which could be paid in dollarsbecause these regions, as a group, had a surplus in their dollar

accounts.

The situation is now very different. These underdeveloped coun-tries are still large exporters, although on the whole relativelysmaller than before the war. But their imports substantially ex-ceeded their exports in 1949, and reliable estimates indicate that

14


rather than being able to make large net payments in U.S. dollarsto Europe, they had a large net dollar deficit on their own account.

These financial changes are the consequence of significantchanges in the production and export of basic foods and rawmaterials in these regions. With few exceptions their share inworld production of basic foods and raw materials has declinedsince the war,, and in many cases their production of basic foodsand raw materials has declined in actual amounts. The develop-ment of synthetic rubber production in the United States hasreduced the share of these regions in total rubber production from98 to 76 per cent. Their share in world tin production has fallenfrom 85 to 79 per cent, of sugar production from 68 to 57 per cent,of zinc production from 52 to 38 per cent, of cotton seed produc-tion from 47 to 34 per cent, of tobacco production from 67 to 59per cent, of corn production from 35 to 28 per cent, and of leadproduction from 48 to 43 per cent. Wool, petroleum, copper, andlinseed are among the few exceptions to this general pattern ofdeclining relative production in these regions.

The failure to maintain the production and export of basic com-modities goes far toward explaining the great imbalance in thepayments of many countries in Asia and Africa and the exceptionaldependence of the rest of the world on Western Hemisphere sourcesof supply. The major political factor in this situation has been thedisruption in Asia caused by enemy occupation followed by civilwar or political disorder. An important economic factor is thestrong urge for economic development which has diverted resourcesfrom production for export to domestic investment., Finally, infla-tion in some of these countries has made production for the in-flated home market more profitable than production for export.Of the reduced volume of exports, moreover, a larger proportionwas sold for inconvertible currencies in markets outside the WesternHemisphere where prices were substantially higher than in dollarmarkets.

15


Devaluation in a country primarily engaged in producing rawmaterials tends, by raising the prices of export goods relative tohome goods, to encourage an expansion of exports, the extent ofwhich will depend upon both their elasticity of supply and theelasticity of foreign demand upon them. The basic commoditiesthat enter international trade are highly standardized, so that sup-plies from different sources are fully competitive, except as marketsare isolated by trade and currency restrictions. The immediateeffect of devaluation should be to lower dollar prices and raiseprices in terms of depreciated currencies. In general, the largerthe proportions of supply and demand coming from the countriesthat have not depreciated, the less will be the decline in dollarprices and the greater the increase in non-dollar prices. As thedomestic prices of goods which compete with export goods forproductive resources will not be affected except by a rise in domesticincome or a reduction of supply, there will be a strong tendencyfor productive resources to be shifted to the export sector.

It is not possible, of course, to isolate the effects of devaluationon the prices of raw materials. In some instances they are con-cealed by other factors affecting the supply and demand situationof individual commodities. In fact, for many commodities theexpansion of industrial production in the United States has madepossible a rise in dollar prices despite devaluation. The prices ofraw materials fell at irregular intervals immediately after the de-valuations. For the six most important primary commoditiesimported by the United States from the sterling area, the averagedollar price at the point of sharpest fall was about 12 per centbelow the immediate pre-devaluation level. Since then, however,this average has risen by 30 per cent. In the United Kingdom, theeffects of devaluation on raw material prices are obscured by long-term contracts for certain imports, and by the discrepancies betweenprices in dollar and sterling markets. Sensitive price indexes showthat sterling prices of food and raw materials rose by nearly 20 per

16


cent immediately after devaluation, and there appears to have been

a further rise of 5 per cent in these indexes since October.

The effects of devaluation on the production of goods for export

must be delayed longer for raw materials producing countries than

for the industrial countries that devalued. In the meantime, addi-

tional exports to the Western Hemisphere and particularly to the

United States must come largely from stocks or the diversion of

goods from home use and export to Europe. The monthly average

of the exports to the United States of all countries outside Europe

and the other countries of the Western Hemisphere did., however,

improve substantially in the second quarter following the devalua-

tions, although much of the increase reflects the rise of dollar prices

of important commodities from these areas:


The effect of devaluation on the imports of these regions has been

more marked. The relatively large change in export prices in

Europe, compared with those in the United States, offers a strongprice inducement for the substitution of European for UnitedStates sources of supply. Accordingly, the monthly average values

of the imports (f.o.b.) of these regions from the United States fellsharply after the devaluations:


The immediate effect of the devaluations has been to improve thedollar payments position of most of the countries of these regions.They were countries with large deficits, many of them in both dollarand non-dollar payments. The expansion of their dollar exportsand the contraction of their dollar imports has considerably changed

their dollar payments position. Even more striking is the change in

17


their non-dollar payments. The large rise in the prices of theirexport goods and the very moderate rise in the prices of the goodsthey import from Europe have improved their terms of trade. Thecountries in Asia and Africa that devalued their currencies havenearly all been able to add to their reserves in the half-year sincedevaluation. While their imports, particularly from Europe, mustbe expected to increase in the near future, their exports to theindustrial countries of Europe and the Western Hemisphere mayalso be expected to rise as production begins to be affected by thehigher prices.

United States, Canada, Latin America

Because the payments problem for most countries is essentiallya dollar problem, the measures taken in regions outside the WesternHemisphere to meet their payments difficulties have a direct impacton the Western Hemisphere countries. The ability of the WesternHemisphere countries to increase their imports from the countriesthat have devalued their currencies will be an important factor indetermining the effectiveness of the devaluations in solving the pay-ments problem. As many of the countries of the Western Hemi-sphere themselves have a deficit in their payments with the UnitedStates, they are necessarily concerned with the effect of the devalua-tions on their own dollar payments.

For the United States, the solution of the payments problem in-volves an adjustment to a much smaller surplus in its internationalpayments on goods and services, a surplus no larger than can rea-sonably be balanced by normal capital movements. There is noreason to doubt, however, that the adjustment can be made withoutserious effects on business in the United States. The reductionin the U. S. surplus on goods and services that had already takenplace by the end of 1949 was in fact greater than the reduc-tion that must still be made. In 1947, the U. S. surplus on goods andservices with the rest of the world exceeded $11 billion. In 1949,

18


this was reduced to just over $6 billion. There was thus a veryconsiderable decrease in exports and increase in imports,, as wellas a net change in service earnings, without a noticeable effect onthe economy of the United States.

If the devaluations are to be effective this trend must be con-tinued. The coincidence of the timing of the devaluations with therecovery in the United States has kept to a minimum any disturb-ing effect the devaluations might have had on business activity inthe United States. This has been helpful, too, in providing a morefavorable environment for the expansion of dollar exports by thecountries that devalued and for maintaining the dollar prices ofraw materials produced by them. The impact of devaluation onother Western Hemisphere countries was also eased by the recoveryof business in the United States, which facilitated an expansion ofexports to the United States at a time when their exports to thecountries that devalued were declining.

The payments difficulties of the sterling area and Europe havebeen a major element in the intermittent pressure that Canada hasexperienced in its dollar payments. To provide assistance to thesecountries in financing their imports, Canada made large grants andloans in the early postwar years. More recently, offshore purchasesunder the Marshall Plan, together with Canadian aid, have financedmuch of the deficit of these countries with Canada. Nevertheless,the continuance of the payments difficulties has led to a sharp re-duction in Canada's exports to the sterling area and the Europeancontinent. In the meantime, Canada's dependence on U.S. importshas been exceptionally great, reflecting both the non-availability ofimports from other countries and the expansion of production andincomes in Canada.

This problem has been met by Canada by a shift of exports to theUnited States and by limitation of imports from the United States.With the decline in industrial production in the United States andthe continued expansion in Canadian business, the policy could be

19


only partially successful. While the Canadian surplus on goods and

services with the sterling area and Europe declined slightly in 1949,

the deficit with the United States increased. Canada's ability todeal with its net dollar payments to the United States will depend

in large part on the improvement in the payments position of its

customers in Europe and the sterling area.

In September 1949, Canada devalued its dollar by about 9 per

cent. This involved a small depreciation with respect to the U.S.dollar and a larger appreciation with respect to sterling and other

European currencies. For Canada, these devaluations could be

most effective if they were to encourage a still greater shift of

imports to Canada from the sterling area and Europe, and of

exports from Canada to the United States. In the two quartersfollowing devaluation, the increase in Canadian imports from

Europe was still moderate. A much larger proportion of Canadian

exports went to the United States, with the U.S. dollar value some-

what above the 1948 level and considerably above the January-

September 1949 level. The Canadian deficit with the United Stateson goods and services in the two quarters following depreciationwas at an annual rate of about U.S. $220 million, much the lowest

in the postwar period.

The payments problems of the Latin American countries are as

diverse as their economies and their policies. Countries which de-pend on European markets have had difficulty in maintaining ex-

ports. This difficulty has been met partially by the accumulationby Latin American countries of clearing balances in European coun-tries, and in some instances by discrimination in favor of imports

from Europe. Even in countries with very large exports to the

United States, payments problems have arisen at various times. Ingeneral, this difficulty has been met by restrictions on imports and

by the accumulation of unpaid obligations to U.S. exporters. Inmost Latin American countries, the payments problem has been

aggravated by inflationary policies that have involved large bud-

20


getary deficits and monetary expansion to finance development. A

few Latin American countries have accumulated reserves as a re-

sult of favorable markets in the United States and of adequate

financial policies.

The value of exports of the Latin American members of the Fund

was about 7 per cent less in 1949 than in 1948, with nearly two-thirds of the decline occurring in Venezuela and Cuba., which remain

strong surplus countries. This reduction is attributable mainly to the

fall in dollar prices of metals and petroleum in the United States

during the first nine months of the year and increased restrictions

on imports by countries other than the United States. As inflation-

ary forces became stronger in several Latin American countries in1949, import demand remained high and more stringent restric-

tions were imposed. The exchange adjustments made in a fewLatin American countries were caused more by domestic policies

than by the need to conform to devaluations in other regions.

Insofar as Latin American import trade is with the United

States, lower European export prices in terms of dollars will makeit possible to substitute European for U.S. imports. This in turnmight enable Europe to increase its purchases in Latin America.

There has already been some increase in Latin American trade with

Europe. The devaluations in other raw materials countries had theimmediate effect of lowering dollar prices of some commoditiesproduced in Latin America. The payments position of LatinAmerican countries producing the same commodities may be im-paired if exports from the devaluing countries are substantially in-creased, but this effect could be largely offset if the demand for

these products continues to expand. The payments position ofLatin American countries will be determined in large measure bydomestic financial policies. With a moderate rate of economic de-velopment, financed by domestic savings and foreign investment,the recurrent inflation and payments difficulties can be avoided.

An important factor in determining the effectiveness of the devalu-

21


ations will be the demand in Western Hemisphere markets. The

outlook in this respect is favorable for the near future. Business in

the United States and Canada is expected to continue to expand.

The exports of Latin American countries to the United States mayreach the highest postwar level. The demand for imports throughout

the Western Hemisphere is unusually great and the opportunityfor other regions to secure a larger part of this market on a com-

petitive basis is favorable. The devaluations have begun to improve

the payments situation in all parts of the wrorld. Their full effects

have still to be realized.

Some indication of the general effects of the devaluations on

dollar payments may be seen in the changes in the balance of pay-

ments of the rest of the world with the United States. Whereas in

the last quarter of 1948 and the first quarter of 1949 the U.S.

surplus for goods and services was at an annual rate of $6.8 billion,in the last quarter of 1949 it was at an annual rate of $4.4 billion

and in the first quarter of 1950 at an annual rate of only $2.6billion. About half of this change was the result of the reduction

in the deficit of the OEEC countries and of the overseas areas asso-ciated with them, In the six months following devaluation, therest of the world acquired over $700 million in gold and dollarreserves from the United States.

Measures to Accompany Devaluation

The Fund has repeatedly stated that devaluation by itself can-not provide an adequate solution to the payments problem. The

devaluations can be only the beginning of a difficult process of

which the immediate purpose is to improve dollar payments and

the ultimate purpose is to establish convertibility of currencies,

with a view to extending as widely as possible the multilateral struc-

ture of world trade and the most economic allocation of the re-

sources of production. The measures that must still be taken are no

22


less urgent than were the devaluations. It is the duty of all govern-

ments, in both deficit and surplus countries, to see that the financialand trade policies necessary to expand trade and to secure better

balance in international payments are put into effect and resolutely

maintained.

In the industrial countries, devaluation has made possible reduc-

tion of their dollar export prices. There is still a danger that rising

costs may destroy this possibility. Prices in national currencies have

risen for all dollar imports and for many other imported foods and

raw materials in the countries that devalued. This has resulted in a

small increase in the cost of living. If the public insists that a rise

in prices must be followed by a rise in incomes, costs affecting ex-

port prices will also creep up. And if this attitude is carried to the

extreme where every rise in prices must be compensated by a cor-responding rise in incomes, the effect of devaluation in reducing

dollar export prices will be completely lost. A general increase in

incomes can add nothing to the aggregate supply of goods at this

time. Its adverse effects on costs would reduce the opportunity to

expand exports and to strengthen the payments of the countriesthat devalued.

The reduction of export prices has opened the way for a greatexpansion of demand for imports in dollar countries. To meet this

demand requires a corresponding expansion in the countries thatdevalued of the supply of goods suitable for export to the dollararea. The resources for this purpose can become available only byincreasing production or by diminishing consumption or invest-ment. Any increase in production in Europe is likely to be quite

moderate in the immediate future, and a large part of what isactually achieved will be needed to offset the fall in export prices

relative to import prices. The practical possibilities of further re-ducing consumption are limited. The most hopeful method of

freeing labor and materials for increased production of export;

23


goods is by reducing investment. Five years after the end of the

war it should be possible in most countries of Western Europe to

reduce the scale of reconstruction. It will still be necessary to

continue normal investment to expand productive facilities and toincrease productive efficiency; but if equilibrium in external pay-

ments is to be restored, investment cannot be allowed to exceed

greatly domestic savings.

The uncertainty whether the countries that have devalued will

realize fully the potentialities of their improved competitive posi-

tion arises from the threat of a recurrence of inflation. The danger

of inflation will persist as long as government expenditure and

private investment continue on the present scale. The continued

rise in defense outlay increases the difficulty of securing a net reduc-

tion in government expenditure. This is all the more reason for

putting into effect promptly, where necessary, a stringent mone-

tary policy and other measures to keep down investment. If con-

fidence in monetary stability were restored, the public wouldresume saving in the customary forms and facilitate the non-

inflationary financing of investment. The continued presence of

inflationary forces would impede further expansion of exports to

dollar markets.

The policies needed in the raw materials producing countries arealso related to the danger of inflation. The devaluations havebrought profound changes in the economies of these countries.

The prices of their exports in their own currencies have risen verysubstantially. For the time being, the prices of domestic goods and

services have not risen to any great extent. There is now a stronginducement to expand the production of export goods. The con-tinuation of an excessive level of investment would, however,hamper the transfer of resources to the export industries and againdistort the relation of home prices to export prices. With a more

moderate development policy these countries can secure continued

24


economic progress without the hardships entailed by inflation and

large payments deficits.

Whether the benefits from excessive investment can offset its

social costs in the shape of inflation, lower standards of consump-

tion, and misdirection of investment is very questionable. An

investment program should be possible that will combine reasonable

economic progress with relative economic stability. Furthermore,

it should not be assumed that an excessive concentration of devel-

opment in the industrial field is in the interest of the under-

developed countries. Industrial development requires very large

investment for each worker; the immediate cost in resources is high

relative to the number of people directly benefited. The great

majority of the people of these regions draw their incomes from

agriculture. The greatest improvement in their well-being wouldcome from increasing their productivity in agriculture. This should

not preclude greater industrialization in these countries, but policyshould be directed toward balanced development, to increase pro-

duction in agriculture as well as in industry.

Some external financing of development is essential to the

strengthening of the international payments of underdevelopedcountries. In the past few years, too much of the investment inAsia and Africa has been financed by inflationary means at homeand by drawing resources from deficit countries in Europe. This

has caused difficulties in their own payments and has increased thepayments difficulties of the deficit countries of Europe. With an

appropriate investment program and satisfactory fiscal and mone-tary policies, some of their development could be financed fromhome savings without inducing inflation. The import surplus, which

these regions will continue to need, must be financed in greater partby the surplus countries of the Western Hemisphere. At best, even

when their own payments position has been improved, the deficit

countries of Europe will for some time be able to provide only

25


limited financial resources for the underdeveloped countries.

It is to the interest of the United States and all other surplus

countries to aid the deficit countries in establishing a strong and

well-balanced pattern of international payments. The devaluations

have made it possible to bring this about by adjusting the relative

prices of goods and services in international trade. This is prefer-

able to the balancing of international payments through discrimina-

tory administrative action which may affect unduly particular in-

dustries in particular countries. Furthermore, the solution of the

payments problem, which has been made possible by the devalua-

tions and the other measures which should accompany devaluation,

permits the restoration of international balance by means of someexpansion of exports rather than entirely through a contraction of

imports.

How far the expansion of exports will in fact contribute to the

restoration of international balance will also depend on the sur-

plus countries. If they provide large and growing markets, if theyfacilitate imports and capital outflow, the possibility of establish-

ing a strong and well-balanced pattern of international payments

will be much greater. Higher incomes in the United States, Can-ada, and other Western Hemisphere countries would assure a de-

mand for imports from all parts of the world greater than at any

time since the end of the war. This should now be supplemented

by lowered tariffs and the removal of trade preferences and otherdevices that limit the ability of the surplus countries to achieve asubstantial increase in their imports.

Devaluation is not a process whose repeated use can yieldbeneficial effects. This is all the more reason why appropriate

policies should be applied to ensure the completion of the proc-

esses of international adjustment which were initiated by the 1949devaluations. These devaluations prepared the way for an improve-

ment in dollar payments. Whether this improvement will be

26


realized to the maximum possible extent will be determinedby the policies now being applied on bank credit and invest-ment, on wages and subsidies, on government expenditure andtaxes. The benefits from a balanced and expanded trade undera multilateral payments system will be worldwide. All countries,therefore, have an interest in ensuring that the devaluations areaccompanied by appropriate measures, in both deficit and surpluscountries, to facilitate the restoration of balance in internationalpayments.

27


II

EXCHANGE POLICY AND PAR VALUES

The Devaluations of September 1949

N September 18, 19, 20 and 21, 1949, the Fund consideredand concurred in proposals for changes in the par values of

the currencies of thirteen member countries and of some of theirdependent territories; it also approved exchange rate adjustmentsby several other member countries which had no agreed par value.A statement of these changes will be found in Appendix I. Thegeneral situation that has been sketched in Chapter I necessarilyaffected the position of each of these countries in somewhatdifferent ways.

The devaluation that had the most far-reaching effects was thatof sterling, the dollar rate for which was lowered from $4.03 to$2.80. The causes of the devaluation of sterling are to be foundboth in the United Kingdom itself and in other countries of thesterling area. Among the long-term factors that shaped the prob-lem of the United Kingdom in 1949 the most important were thesevere deterioration of its external position on capital accountcompared with ten years earlier, the deterioration in its terms oftrade, the difficulties of recapturing an adequate share of dollarmarkets, its abnormal dependence on dollar imports, the persistenceof inflationary pressures, and the existence of large sterlingbalances.

28

o


The net contribution made by interest and dividends fromoverseas towards meeting the cost of U.K. commodity imports hadfallen from 21 per cent in 1938 to less than 4 per cent in 1948.With the recovery of world agriculture lagging somewhat behind

the recovery of industry, the strong world demand for farm

products caused a progressive diminution of the purchasing powerof industrial production over farm commodities, which had special

importance for the United Kingdom, 90 per cent of whose imports

consisted of food, tobacco, and raw materials.Although the total volume of U.K. imports in 1947 was only

76 per cent of that in 1938, the proportion of imports from the

dollar area had risen to one third of total imports compared with

23 per cent in 1938; even after the imposition of severe restrictionson dollar imports the proportion in 1948 was about the same asprewar. And while the volume of U.K. exports in 1948 was 136

per cent of 1938, the proportion of U.S. imports which came from

the United Kingdom had dropped to 4 per cent against 6 percent in 1938. For Canada, the proportion fell to 11.4 per centfrom 17.6 per cent.

The conversion of the U.K. economy to peacetime purposes hadbeen speedily accomplished, and the postwar increase in production

had exceeded expectations; it was, however, insufficient to meetfully the demands made upon it. There was a great shortage ofinvestment goods, and government demands were substantiallyexpanded, chiefly on account of overseas expenditure and of largerresponsibilities for social security. The use of accumulated sterlingbalances and capital outflows further increased the overseas de-

mand for U.K. goods. Although policy was directed towardskeeping inflationary pressures under control, U.K. export prices

were not always easily adjusted to competitive conditions in worldmarkets, particularly at a time when an active domestic demandwas ready to absorb everything that was allowed to enter thedomestic market.

29


In the rest of the sterling area, which before 1938 had con-

tributed substantial dollar earnings to meet the U.K. dollar deficit,

there had also been a serious deterioration of dollar-earning ca-

pacity. For example, South Africa, which before the war had

been the largest net contributor to the reserves of the sterling area,

sold only small net amounts of gold to the United Kingdom after

the war. India and Pakistan, which together had earned a dollar

surplus in 1938, showed a considerable deficit in 1948, and the

earning capacity of Malaya was seriously affected by the wartime

destruction of its rubber and tin equipment and the development

of synthetic rubber production in the United States. Moreover,

heavy war expenditures and the high prices of raw materials had

increased money incomes in most of the sterling area countries, and,

as the United Kingdom was unable to satisfy fully the demands of

its traditional markets in these countries, they too became much

more dependent upon dollar imports.

As a result of all these converging influences, there had been a

substantial decline in the gold and dollar reserves of the United

Kingdom—from $2,696 million in December 1946 to $1,856 mil-

lion at the end of 1948—and there was a growing disposition to

regard sterling devaluation as a possibility in the near future. The

issue was brought to a head by two short-term influences. The first

was the recession in the United States in the early months of 1949.

At that time there was a possibility in the minds of many that this

would prove to be a turning point in the postwar boom, and in

consequence there was a tendency in the United States to hold

back from purchasing and to allow inventories to run down. At

the same time, U.S. exports to the sterling area rose sharply. The

deficit in the U.K. balance of payments was substantially larger

in the second than in the first quarter of the year, and it was not

clear that this might not be the precursor of a more serious balance

of payments threat. Confidence in the future of sterling was shaken,

30


and expectations of early devaluation were widespread. In the

three months April-June 1949, gold and dollar reserves fell 14 per

cent to $1,651 million. This was less than half the amount held

at the beginning of 1938, and less than a quarter of that amount

in terms of purchasing power, after making allowance for the in-

crease in U.S. prices in the intervening decade. Exporters to theUnited Kingdom sought to accelerate deliveries and to obtain pay-ment as quickly as possible. Importers from the United Kingdom

sought to hold back their orders and to defer payment in the ex-

pectation that sterling would presently be available on cheaper

terms. Importers and exporters in the United Kingdom were alsoaffected by these influences, which were probably reinforced by

short-term capital flight from the pound despite the existence of

exchange control. In the eleven weeks from June 30 to September

18 reserves declined further by nearly 20 per cent, to $1,340 mil-lion. Devaluation was thus seen to be an unavoidable step in orderto end a situation in which difficulties were being intensified by the

expectation of devaluation.

The choice of an appropriate new rate presented a most difficultproblem. Obviously, the lower the new rate was set, the more ex-pensive in sterling terms American imports would be, and thegreater, therefore, the difficulty of controlling increases in manu-facturing and living costs; in addition, the lower the rate, the

greater the difficulty of servicing the dollar debts of the UnitedKingdom. On the other hand, the disparity in export price levels

was such as to call for a drastic change. Perhaps even more im-portant was the need to establish a rate low enough to create ex-

pectations that the British Government would be able to maintainit. The United Kingdom therefore proposed, and the Fund agreed,

that a new parity of $2.80 should be established, involving a re-duction of 30.5 per cent in the dollar value of the pound. This

agreement covered an equivalent devaluation of the currencies ofthe non-metropolitan territories in respect of which the United

31


Kingdom had accepted the Fund's Articles of Agreement, except

the British Honduras dollar, which was subsequently devalued by

30 per cent on December 31, 1949.

The currencies of most other countries in the sterling area,

Australia, Iceland, India, Iraq, and the Union of South Africa, as

well as of Burma, Ceylon, Ireland, and New Zealand, which are

not members of the Fund, were devalued to the same extent as ster-

ling. The Pakistan rupee, whose pre-devaluation exchange rate has

been maintained, is an exception. The general dollar disequilibrium

of the sterling area affected its members in varying degrees, while

there was no such disequilibrium of the same order in relation to

sterling. Their trading and financial connections with the United

Kingdom are also so close that in nearly every instance their Gov-

ernments felt devaluation to the same extent as sterling to be desir-

able. The Fund agreed to the new parities proposed to it by these

sterling area countries.

A precise estimate of the extent to which sterling devaluation

has contributed to the solution of the United Kingdom's payments

problem is difficult, if only because the effects of short-term

capital movements cannot easily be disentangled from the slower

movements of trade. Nevertheless, even with due allowance for the

swing-back of capital following devaluation, the progress made

in reducing the dollar gap since September 1949 is a hopeful sign.

One indication of this progress is the recovery of the United

Kingdom's gold and dollar reserves to $1,688 million at the end

of the year and to $2,422 million at the end of June 1950.

The devaluation of sterling inevitably had important repercus-

sions in many parts of the world outside the sterling area. Though

no longer a member of the sterling area, Egypt is still closely linked

with it by the character of its trade and its large holdings of sterling

assets. Accordingly, the Egyptian pound was devalued at the

same time and to the same extent as the sterling area currencies.

32


Prices of cotton, the country's major export product, had tendedto decline prior to devaluation. Since devaluation, however, cottonprices in Egypt have risen substantially. The higher prices andincreased demand for cotton in the period immediately followingdevaluation appear to have produced an over-all trade surplus anda resurgence of inflationary pressures.

The movements in the exchange rates of Denmark, Finland, theNetherlands, and Norway, and of Sweden and Jordan, which arenot members of the Fund, were almost exactly parallel to that ofsterling, and new par values were also agreed with the Fund byBelgium, Luxembourg,, and Canada. Exchange rates or exchangesystems were adjusted before the end of September with the ap-proval of the Fund in France, Greece, Italy, and Thailand, mem-bers which at present have no par value agreed with the Fund, andamong non-members there were exchange rate adjustments inAfghanistan, Argentina, Israel, Portugal, Saudi Arabia, andWestern Germany.

In Denmark, the Netherlands, Norway, and Sweden, the com-mercial links with the United Kingdom are so close that the decisionto devalue sterling by 30.5 per cent made it practically inevitablethat the currencies of these countries should be devalued to thesame extent. The largest part of Denmark's agricultural exportsis sold in the United Kingdom; moreover, long-term contracts hadbeen made between the two countries with prices fixed in sterlingand fluctuating only within narrow limits. The devaluation of theNetherlands guilder (by 30.2 per cent, from 2.65285 guilders perU.S. dollar to 3.80 guilders per U.S. dollar) was designed to im-prove the country's payments position in relation to both the dollararea and the Belgium-Luxembourg Economic Union, as well as tomaintain its competitive position vis-a-vis the United Kingdom.Failure to devalue in Norway would have disrupted Norwegiantrade relationships with the sterling area and other devaluingcountries; it was especially important to maintain the competitive

33


position of the Norwegian merchant marine. The developmentsof recent years had raised some doubts in Sweden concerning theeffects of the appreciation in July 1946 of the Swedish krona. Inparticular, the contraction of the market for wood pulp in theUnited States had had serious consequences for the Swedish balanceof payments. Thus, in addition to preserving her competitiveposition in sterling markets, devaluation in September 1949 gaveSweden an opportunity to recover some of her dollar markets.

The position of Finland, which has no par value agreed withthe Fund, was in many respects similar to that of the othernorthern European countries. When on July 4, 1949 the Bank ofFinland had announced a devaluation of the currency by 15 percent from a rate of 136 markkas per U.S. dollar to a rate of 160markkas, the devaluation was declared to be necessary because ofthe difficulties facing Finnish export industries in world markets.The Fund recognized this change as a necessary step toward rec-onciling domestic and foreign prices without impairing domesticstability. The degree of devaluation thus approved was judged tobe sufficient to maintain Finland's position in European markets.Further devaluation at that time without similar action by otherEuropean countries might have had a dangerous inflationary im-pact on internal prices and wages. A second devaluation in Sep-tember, to the rate of 230 markkas per U.S. dollar, further ad-justed the Finnish exchange rate to competitive requirements inthe dollar area.

When the currency of Iceland followed sterling in the devalua-tion of September 1949, there was some question whether thisstep would be sufficient to correct the external disequilibrium of theIcelandic economy. After consultation in February 1950, theFund agreed to a further devaluation by 42.6 per cent which be-came effective on March 20 and changed the par value from9.34107 kronur per U.S. dollar, established in September 1949, to16.2857 kronur per U.S. dollar. The devaluation was accompanied

34


by measures intended to ensure necessary changes in the structure

of the Icelandic economy, including export duties on all principal

exports except quick-frozen fish, a capita] levy, and measures to

minimize increases in prices and wages.A devaluation of the currencies of Belgium and Luxembourg

from 43.8275 francs per U.S. dollar to 50.00 francs per U.S.

dollar, agreed to by the Fund on September 21, 1949, involved a de-

preciation of 12.3 per cent against the U.S. dollar and an apprecia-

tion of 26.2 per cent against sterling. As the Belgian Congo francwas maintained at par with the Belgian franc, it was devalued

to the same extent. These changes were designed to adjust the ex-

port and import price levels of the Belgium-Luxembourg EconomicUnion to the trend of world prices which was expected to followfrom the September devaluations, and to improve the payments

position of the Union vis-a-vis the dollar area. Since the end of thewar, the international financial position of the Union has been

strong. The deficit on current account with the dollar area has

been declining, while the surplus with other countries has increased

so as to make an over-all balance possible. During 1948 and 1949,however, as production elsewhere recovered, Belgian and Luxem-bourg exports encountered increased foreign competition. Theposition of the Belgian steel industry was relatively strong, but

if the parity of the Belgian franc had been maintained in the faceof general devaluations, the reduction that would have been nec-essary in Belgian export prices for textiles and many other im-

portant exports would in all probability have led to serious diffi-culties in export industries. It also appeared desirable to restrainthe demand for some dollar imports, and! the decline of importprices of goods coming from countries which devalued was expectedto offset the increase of dollar import prices and thus help to

keep stable the cost of living and the foreign cost element of exportindustries. These considerations led the Belgian Government to

adopt a middle course between the maintenance of the former

35


parity and devaluation to the same extent as sterling.The problem of the appropriate exchange rate for Canada was

dominated by two considerations. Had the rate been left un-changed, Canada would have been subjected to the strains aris-ing from the improved competitive position of the devaluingcountries, while still needing to lessen the imbalance in its tradewith the United States. On the other hand, a devaluation equalto that of sterling would not have assisted the expansion of importsinto Canada from the devaluing countries which was required ifsuch countries were to correct the serious disequilibrium in theirpayments position vis-a-vis Canada. In the light of these con-siderations, the Canadian dollar was devalued by 9.1 per cent.

Following the devaluation of sterling, France also consultedwith the Fund on a proposal to unify her exchange system on thebasis of the free market dollar rate. In the system previously inforce, the U.S. dollar, the Swiss franc, the Belgian franc, thePortuguese escudo,, and the Djibouti franc were dealt with on a"free" market. The free rate applied only to non-trade transactionsin these currencies,, For commercial transactions the daily averageof the free rate and the fixed official parity of 214.392 francs perU.S. dollar was used. Financial as well as commercial transactionsin all other currencies except the lira were conducted at ratesbased on this average dollar rate. Since April 1949 the lira-francrate had been determined monthly on the basis of the free dollarrate. The rates for financial transactions were therefore at apremium of approximately 20 per cent above the rates for commer-cial transactions of the currencies dealt with on the "free" market.The lira was also at a similar premium vis-a-vis all other currencieswith respect to commercial transactions and vis-a-vis the currenciesnot dealt in on the "free" market with respect to financial trans-actions.

In September 1949, the French Government proposed to unifythis system. For commercial transactions, the proportion of ex-

36


change receipts whose sale was permitted on the "free" market,and of exchange needed for payments abroad which could bepurchased on this market, was to be raised from 50 to 100 percent. The free market rate would then become the effective ratefor all transactions in currencies dealt in on the "free" market. As inthe past, orderly cross rates between members' currencies were tobe maintained on the "free" market. The monthly quotation ofany currency not dealt with on the "free" market was to be deter-mined on the basis of official cross rates with the free dollarquotations. By maintaining unchanged the system in force for thedetermination of the lira-franc rate, the premium previously en-joyed by that currency was eliminated. The French Governmentdid not feel, however, that it was possible to declare a new parvalue for the franc. The uniform rate was still to be determinedby the fluctuations of the dollar rate in the "free" market. TheFund welcomed the modifications proposed by the French Govern-ment, considering them a measure of unification of the French ex-change system.

These modifications were accompanied by a further deprecia-tion of the franc against the U.S. dollar. After the exchange ad-justment of October 1948, the limits between which the freedollar rate fluctuated had been narrow, ranging from a low of312.80 francs in October 1948 to a high of 330.80 francs in thefirst half of September 1949. On September 20, 1949, the dollarrate was allowed to rise to 350.000 francs. This involved a de-preciation of 5.7 per cent vis-a-vis the dollar with respect to finan-cial transactions, and a 21.8 per cent depreciation for commercialtransactions. Between September 20,, 1949 and May 1950, therange of fluctuation was less than 0.3 per cent. The combinedeffect of the unification of the rate structure, of the slight in-crease in free market rates, and of the devaluation of other cur-rencies was an appreciation of the French franc of 12.5 per centvis-a-vis sterling, and a 10 per cent depreciation for commercial

37


transactions vis-a-vis the Belgian franc. These adjustments in thevalue of the franc have produced a more satisfactory relationship

between the prices of domestic and dollar goods, while the rate

applicable to invisible earnings and capital movements to or from

the dollar area has not been substantially modified.Modifications were also made in the exchange systems of some

French Overseas Territories. The par value of the franc of the

French Possessions in the Pacific (CFP) was suspended, the CFPfranc being pegged instead to the French franc at the rate of 5.50

metropolitan francs per one GFP franc. The dollar rate for the

CFP franc therefore now fluctuates in the same way as for the

metropolitan franc. The Fund did not object to this action. It

concurred too in a change of the par value of the rupee of the

French Possessions in India, which was depreciated to the same

extent as the Indian rupee.

The Government of Italy introduced into its exchange system

some comparatively minor changes which had been contemplated

for some time. A decree of September 19, 1949 prescribed that the

official dollar rate would henceforth be determined daily instead

of monthly on the basis of the average daily quotations of thepreceding month, This measure reduced the possible spread be-

tween the rates at which exporters sell the two halves of theirexchange earnings, one being the official rate as determined above,the other the daily rate. Transactions at the latter rate have to becompleted within 60 days of receipt of exchange proceeds by theexporter. In the event of violent fluctuations in the daily rate, themeasure would also permit more rapid adjustment of the officialrate to the daily rate. The fluctuations have in fact continued tobe moderate. The free dollar rate rose to an average of 631.86lire during the period September 19 to September 30 and thendeclined in the last two months of 1949 to an average of 624 lire.This corresponds to a devaluation of the lira by about 8 per cent

in terms of dollars and an appreciation against sterling of about32 per cent.

38


The devaluations of September were followed by a capital out-flow from Switzerland. The discount on the dollar in the freemarket, where most non-commercial transactions had been takingplace, disappeared, and the free rate, which on September 17 hadbeen 3.965 Swiss francs per U.S. dollar, rose above the officialselling rate for commercial transactions of 4.315 francs. On Sep-tember 23, the Swiss Government announced the abolition of allcontrols over dollar exchange transactions., and the Swiss NationalBank was authorized to buy and sell dollars for all transactions atits official rate. The dollar rate has since been maintained be-tween the buying rate of 4.285 Swiss francs and the selling rate of4.375 Swiss francs.

The Government of Greece on September 22 changed the ef-fective exchange rates for the drachma to 15,000 drachmas perU.S. dollar and 42,000 drachmas per pound sterling, and the Fundrecognized with approval the establishment by this decision oforderly cross rates. The depreciation with respect to the dollar was33.3 per cent.

The devaluation of Western Germany's currency from a con-version rate of 30 U.S. cents to 23.8095 cents per Deutsche Mark,or by about 20.6 per cent, was announced on September 29, 1949.,with retroactive effect from September 19, 1949. Before themonetary reform of June 1948, multiple "conversion factors"(ranging from 30 to 80 U.S. cents per Deutsche Mark) had beenused for exports and imports, which corresponded roughly to theratios between foreign and controlled domestic prices. It ap-pears that these implicit rates often, and perhaps generally, werenot an active factor in the price mechanism. The monetary reform,together with the extensive removal of price controls, freed theeconomy from the price-distorting influences of repressed in-flation and facilitated the adjustment of prices to world marketconditions. The conversion rate of 30 U.S. cents to one DeutscheMark was then applied to an increasing number of transactions.The rate adjustment of September, made in the light of anticipated

39


changes in domestic and foreign prices, facilitated further adjust-

ments in the domestic price structure,

After consultation and with the approval of the Fund, Austria,

which thus far has no agreed par value, introduced extensive

modifications into its exchange system on November 22, 1949.

The exchange rate for the Austrian schilling, 10 schillings per U.S.

dollar, introduced soon after the end of the war, had not been an

effective instrument for reintegrating the Austrian economy with

that of the rest of the world, and a complex exchange system had

developed, which entailed the existence of numerous daily chang-

ing multiple rates and many special devices designed to keep ex-ports moving. To prepare the ground for ultimate unification of

the exchange structure, the official basic exchange rate was changed

on November 22., 1949 to 14.40 schillings per U.S. dollar. Onepremium rate of 26 schillings was established and a single retention

quota of 60 per cent instituted, which is used to calculate the ef-

fective export rate, 21.36 schillings per U.S. dollar. The effective

export rate is applied to all exports transacted in foreign exchange.For import transactions there are three main rates, the official

basic rate for certain essential commodities, the equivalent of the

effective export rate for the majority of imports, and the premium

rate of 26 schillings for nonessentials, and the former complicated

system of compensation transaction and other devices has not been

entirely eliminated. All transactions in invisibles are conductedat the premium rate. The Fund approved these modifications asinvolving a considerable simplification of the exchange system and

as a first step toward the establishment of a uniform exchangerate.

The countries of Eastern Europe, whose economic systems are

similar to that of the Soviet Union, have not devalued their cur-rencies. On the contrary, the U.S.S.R., by a decree of February 28,

1950, appreciated the exchange rate of the ruble as against theU.S. dollar by 32.5 per cent, as of March 1, 1950. The foreign

40


trade of these countries is to a varying extent insulated from theirinternal economy by a foreign trade monopoly, whose externalselling or buying prices are not necessarily directly related to thedomestic price-cost structure. The traditional function attributedto the exchange rate of a national currency may thus lose much ofthe significance which it has in economies whose foreign trade isorganized on other principles, and the volume and geographicaldistribution of their foreign trade may be little affected by theirexchange rates. The extent to which the process of insulation hasbeen carried may vary from country to country and could bedetermined only after a more intensive examination than is

practicable at present.

Exchange Trends in Latin America, the Far East, and theMiddle East

Some of the primary producing countries—a group in whichthe greater part of Latin America, the Far East, and the MiddleEast is included—have already been mentioned in their relationto the devaluations of September 1949. In general, exchangedevelopments during the year in these regions have been con-ditioned by two forces, inflation and changing trends in worldcommodity markets. A major cause of inflation has been thefinancing of economic development, both public and private, on avery large scale, which in many countries has given rise both to anexcess of government expenditure over revenue and to demandsfor increased private credit. In view of the low level of savings andthe absence of well-developed capital markets or fiscal systems,extensive use has been made of monetary expansion as the mostconvenient means of financing development expenditures on thescale that is widely desired. Inflation in turn has kept the demandfor imports at a high level, notwithstanding the fact that thedeferred demand of the war years must now be regarded as havingbeen largely satisfied.

In the readjustment from a sellers' to a buyers' market, which

41


was itself an important factor in the devaluations of September1949, there had been substantial declines in many of the com-modity prices which are of greatest importance for the countriesin these regions, though the movement was not uniform. Amongthe groups mainly affected are metals, cereals, vegetable oils, andpetroleum. The cocoa market recovered only slightly during thelatter part of the year from the sharp drop in late 1948 and early1949. For coffee, on the other hand, the gradual depletion ofBrazilian stocks brought into clear relief the consequences of thefact that for some years demand had been in excess of production,and coffee prices have risen sharply.

In an attempt to deal with balance of payments disequilibria,a number of these countries, particularly in Latin America, havefor some time made use of multiple rate systems. The Fund hasindicated its general position on multiple currency practices inprevious Annual Reports. It views them as temporary devices andbelieves that the unification of exchange rate structures by mem-ber countries should be undertaken as rapidly as possible. At thesame time, it realizes that the economic circumstances of somecountries make it likely that this process will be gradual. To aconsiderable extent, the difficulties encountered are of the samecharacter as those which are responsible for the slow progress inthe elimination of other types of restrictions on imports and there-establishment of convertibility. In dealing with proposals forchanges in multiple currency practices, the Fund has sought todetermine whether they represent steps toward simplification andgradual unification of the exchange system or at least are part ofa broader program for the creation of an economic environmentconsistent with eventual unification on stable foundations.

The devaluations of September 1949 considerably influencedthe timing of the actions taken in the exchange field by othercountries. These devaluations, and particularly the devaluations of

42


the currencies of the overseas dependencies of European countries,

had a direct effect on countries whose products compete in world

markets with those of the areas whose currencies were devalued, and

strengthened the pressure for exchange adjustments in these

countries. The modifications made in the exchange rates and

exchange systems of the various countries in this group were,

however, also conditioned by independent economic factors operat-

ing in each country, and the changes that were made therefore

varied in content, extent, and timing.

In Mexico, the problem of the exchange rate had become acute

more than a year before the devaluations of September 1949. Ex-

change transactions at the official rate were suspended in Mexico

in July 1948, as was reported in last year's Annual Report, and

for almost a year the Bank of Mexico allowed the peso to fluctuate

in the free market. Mexico is one of the few member countries

that have not availed themselves of the transitional period arrange-ments authorized in Article XIV, Section 2, of the Fund Agree-

ment. In the face of its serious exchange difficulties it refrained

from imposing exchange restrictions, but found it necessary to

intensify trade restrictions. Primarily, however, it sought to cor-rect its sustained balance of payments deficit by devaluation, sup-ported by credit and fiscal measures. After the announcement ofJuly 1948, the Mexican exchange rate, which had been 4.855 pesosper U.S. dollar, followed a declining trend, reaching a level in theneighborhood of 8.50 pesos per U.S. dollar in May 1949. Follow-ing extensive consultations with the Fund, the Mexican Govern-ment proposed a new par value of 8.65 pesos per U.S. dollar, inwhich the Fund concurred on June 17, 1949. The change in-volved a depreciation of the exchange value of the peso of 43.9 per

cent from the initial parity. During the second half of 1949,

Mexico's balance of trade showed a marked improvement, andtourists appear to have been attracted by the new rate. There has

43


been a substantial increase in Mexico's gold and foreign exchange

reserves, and Mexico has been able to repay a major part of its

drawings made during 1947-48 under the stabilization agreement

with the United States.During the year under review, Colombia, whose par value was

changed in December 1948 (as reported in last year's AnnualReport), moved its rate structure for exports further upward by

increasing the range of export commodities eligible for the exchangecertificate market. This did not cause any marked downward

movement of the certificate rate. Colombia found itself able toliberalize some of its restrictions, particularly on imports, through

relaxation of quotas and modifications in the multiple currency

practices applicable to capital goods imports. These developments,however, were not so much a result of the earlier devaluation of

the peso by roughly 10 per cent as of the favorable developments

in the market for coffee.

The rise in the world price of coffee obviously tended to easethe exchange position of coffee-producing countries, though the

practice of advance contracts in many cases has tended to deferthe full effects of price movements on exchange receipts. Moreover,

the effects have been offset to some extent by the reduced crops

that were in part the cause of the upturn in prices and, in some

countries, by the declining prices of other export commodities.Thus the need has continued strong for measures to meet thepressures that have been developing over the past years. Moreover,in many of the countries concerned, there has been a considerable

depletion of reserves, or foreign obligations have substantially in-creased in recent years. To the extent that they are benefited bythe current market situation, this would appear to be an oppor-tune time for such countries to pursue policies that would lead to astrengthening of their reserve positions.

In Costa Rica, there has for several years been pressure on thebalance of payments, and an increasing backlog of unpaid obli-

44


gations for imports. After consultation with the Fund, significantrevisions in the exchange system were adopted on April 1, 1950.Transactions in all types of foreign exchange instruments wereauthorized in the free market, to which formerly only U.S. dollarnotes had been legally admitted. The proceeds of most invisiblereceipts may now be sold in the free market, although exportproceeds must, as in the past, be surrendered at the official rate.A specified minimum percentage of the export exchange so ac-quired must be sold by the Central Bank in the free market orused for the liquidation of arrears. Exchange for all but preferentialimports and for some invisible payments has to be obtained in thefree market, and exchange for imports is further subject to steeplygraduated surcharges. The surcharge is lowest on the most essentialimports, which receive exchange through official channels. TheFund did not object to this plan, which was explicitly introduced asa temporary measure and is to remain in effect; for not longer thanone year. The Costa Rican Government has invited further co-operation of the Fund, and consultation is to be continued.

Nicaragua, another country whose most important source offoreign exchange is coffee, found its exchange receipts adverselyaffected in 1949 by an unusually unfavorable coffee crop. Follow-ing the visit of a Fund mission early in the year, Nicaragua tighten-ed direct controls on imports and prohibited the use of free marketexchange for imports, and was thus able to avoid a further drainon its reserves during the year. A number of modifications in theexchange system were also made toward the end of 1949 to relievethe position of other export products, such as rice and sesame,whose prices had moved adversely, and to stimulate exports ingeneral. The effect of these changes was to expand the free marketand raise the effective rates for exporters. A limited system ofcompensation transactions was instituted by which the proceedsfrom minor exports could be used, up to specified percentage limits,for the importation of essentials, and an exchange certificate

45


market was created in which 20 per cent of the proceeds of all

exports may be sold to importers of nonessential goods. Nicaragua

has agreed to continue consultations with the Fund with a view

to arriving at a satisfactory and effective exchange system.Ecuador has been seriously affected by price declines for its lead-

ing export products—rice and cocoa. In an attempt to arrest thedrain on its reserves, steps were taken toward the end of 1949 which

were in line with Ecuador's past policy of placing reliance primarily

upon multiple exchange rates to effect adjustments in its balanceof payments position. An exchange subsidy of 3.87 sucres per U.S.

dollar was granted, to apply until April 30, 1950, for rice exports,

making the effective rate for such exports 17 sucres per U.S. dollar.

A general export subsidy was later introduced which made the

effective rate for all other exports 15 sucres per U.S. dollar. Com-

pensation transactions for a limited number of marginal exportswere also authorized. The rate structure for imports was made

more restrictive by substantial shifts of commodities from preferredcategories to those subject to higher effective rates. To reinforce

this measure, the procedure of calculating customs duties was

amended so as to take account of the actual effective exchange

rates applicable to imports. The emergency law on which Ecuador's

multiple rate system is based expires in June 1950, and Ecuador andthe Fund both believe that the system should be reviewed.1

The most important exporter of agricultural products in Latin

America, Argentina, is not a member of the Fund. Its trade andexchange policies are, however, of considerable concern to Fund

members, many of whom have close and important economic re-lations with Argentina. Moreover, Argentina's policies have a

direct effect on some neighboring countries which produce similar

commodities for export. Argentina made significant adjustments

in its exchange rate structure on October 1, 1949. Pressures had

1 In June 1950 the Fund agreed to the extension until November 30 ofthe above-mentioned emergency law to allow the completion of the legal andadministrative steps necessary for its replacement.

46


been developing for some time which forecast such action, thoughthe timing was undoubtedly influenced by the September de-valuations. The effects of continued inflation and of the moreplentiful world supply of Argentina's principal export commoditieshad placed an increasing strain on the Argentine balance of pay-ments, and in particular had caused a serious shortage of dollars andother currencies. Argentina effected a partial devaluation againstthe U.S. dollar by a sweeping revision of its multiple rate system,which changed existing rate classifications, added new ones,greatly widened the over-all spread of the rate system, and in-volved a considerable depreciation of the rates for invisibles. Ratesapplying mainly to exports to the dollar area were devalued themost, and favorable treatment was granted to industrial andminor exports. No change was made in the rate for the basic ex-ports which go mainly to Europe and the sterling area. The ratesapplicable to imports in general were sharply increased, but therates for certain imports supplied mainly by the sterling area werenot changed. Consequently, over a wide export field the Argentinepeso was appreciated against the devalued pound sterling.

Among Fund members the countries which felt themselves mostimmediately concerned with the Argentine exchange measureswere Uruguay and Paraguay. The position of Uruguay was alsodirectly affected by the September devaluations. Earlier marketchanges affecting manufactured and semi-manufactured productshad already created difficulties for its exports, and within a fewdays of the Argentine action, Uruguay proceeded to make similaradjustments in her multiple rate system. Favorable internationalprice and demand conditions for wool, and the absence of anychange in the Argentine export rates for meat, enabled Uruguayto maintain its basic export rate, though the range of commoditiescovered by it was reduced. Two other export rates were aban-doned, and a new and higher one made applicable to certain semi-processed and manufactured products. For rionessential imports,

47


a new rate was established higher than any of the previously exist-

ing ones. The Fund, having been consulted by Uruguay on these

measures, expressed no objection, on the understanding that con-

sultations would continue for the purpose of unifying Uruguay's

rate structure and agreeing on a par value.

The efforts of Paraguay during recent years to adjust effective

rates to meet increasing inflationary pressures at home and changes

in market conditions abroad had created a very complex exchange

system. In addition to several fixed buying and selling rates and

a number of combinations of these rates, the system was encum-

bered with compensation and other special arrangements. Para-

guay's close commercial ties with Argentina called for immediateadjustment to the Argentine measures. After the visit of a Fund

mission to Paraguay, substantial modifications were made in the

exchange system. Though the par value of 3.09 guaranies per U.S.dollar was maintained, it ceased to be used for export transactions

and was limited to a reduced category of essential imports. The

compensation system was abandoned and the free market became

illegal. In general, there was an upward revision of rates, es-

pecially of export rates, and a tightening of exchange controls.

Since the measures represented a first step in the simplificationof the Paraguayan exchange system, the Fund did not object to

them, and consultations on further improvements in the systemhave continued.

The general conditions which have been described above forced

Peru during 1949 to move increasing percentages of exports fromthe official to the certificate market. The weakening of certainmarkets created special problems for metal exports, and theaccumulation of more sterling than could be used under the

existing system of import prohibitions caused difficulties for ex-ports to the sterling area. In August 1949 the proceeds of sterling

exports and of all exports of metals were therefore given full access

to the certificate market, and import prohibitions on sterling im-

48


ports were relaxed. For other exports, a system instituted at theend of 1948 was maintained, under which export receipts weresold partly at the official rate and the remainder through thecertificate market. In November 1949 the exchange system wasfurther modified. Exporters now receive exchange certificates forthe full value of their exports, and exchange for all imports mustbe acquired through the certificate market. Import prohibitionson specified dollar goods are continued. The legal free marketapplicable to the major part of invisibles has been retained. Al-though the par value of the sol is now no longer used for any ex-change transactions, Peru has so far felt unable to propose a newpar value to the Fund. With the understanding that the purposeof Peru's action was the establishment of a unitary exchange sys-tem on a more appropriate level, the Fund did not object to theuse of the system described as a temporary measure.

The steep decline in world metal markets, and especially in themarket for copper, placed Chile in a difficult position in the secondhalf of 1949. Inflation had already made the existing rate structureinadequate to stimulate minor exports and had placed increasingpressure on the import controls. In January 1950, with the ap-proval of the Fund, a series of exchange measures was introducedwith the ultimate objective of unifying the Chilean exchange sys-tem around a new rate of 60 pesos per U.S. dollar. Completeunification, however, required negotiations with the foreign miningcompanies operating in Chile; customs duties were to be reducedand subsidies for certain essential imports introduced in order tominimize the effect of the exchange rate change on the cost ofliving. Some minor exports were to be subjected to export taxes,and a few others were to be subsidized. Until legislative approvalfor these reforms was forthcoming, differential rates would con-tinue to apply to the imports and exports for which the supple-mentary measures mentioned above had been planned. The newrate was to apply immediately to the bulk of imports and to the

49


minor exports, except those which would later be subject to exporttaxes. The par value of 31 pesos per U. S. dollar was retainedfor the time being. It was agreed that a Fund mission wouldassist Chile in working out a program of financial stabilization. InApril 1950, the Chilean Government proposed the substitutionof a rate between 50 arid 54 pesos to the U.S. dollar, for the60 pesos rate proposed earlier. The new rate was to become theparity and, modified by minor export taxes and subsidies and importsubsidies, was to apply to all transactions except those subject tothe legal free market. The Fund advised Chile against the adop-tion of this plan, as it believed that a reduction of the basic ratefrom 60 to 54 or less would be prejudicial to exports and wouldplace an excessive pressure on import controls. This advice wasaccepted and the system instituted in January maintained. Chilereiterated its determination to continue in its efforts to undertakea financial stabilization program.

Declining prices in the markets for metals, and especially fortin, have been the dominating influence in the exchange positionof Bolivia. There has also been a heavy and persistent demandfor imports which has imposed a growing strain on import andexchange controls. Following a decline of world market pricesof certain metals, a system was introduced by which export pro-ceeds from minerals other than tin were afforded relief througheffective exchange rates varying in relation to the situation ofeach metal. Incentives for increased tin production were also putinto effect, and import restrictions gradually tightened. A so-calledfree market rate, subject to change by the authorities from timeto time, was introduced for certain non-trade transactions andnonessential imports, and as an element in the composite ratesapplicable to exports other than tin. The currencies of some otherimportant tin producers in the Far East were included in theSeptember 1949 devaluations, and after the sharp decline in theprice of tin which began at that time, a further series of measures

50


was taken by Bolivia in February 1950 by which the rate ap-

plicable to tin exports was raised from 42 bolivianos per U.S. dollar

to 60. A considerable number of commodities were also shifted

from the import classifications subject to lower rates to the more

restrictive categories, and a number of nonessential imports wereprohibited. The par value of 42 bolivianos thus applied to only a

relatively small group of essential food imports and to government

transactions. In April 1950 Bolivia proposed and the Fund con-

curred in a change in the par value from 42 bolivianos per U.S.,

dollar to 60. The newT par value applies to the majority of both

export and import transactions. At the same time steps have been

taken to achieve better control over exchange availabilities. These

measures have to some extent diminished the complexities of the

exchange system and established a more realistic pattern of rates.

During the course of the year a Fund mission visited Bolivia, andBolivia and the Fund are continuing to study further measures

which may contribute to stabilization.

Shortly after the major devaluations of September 1949,

Thailand depreciated its official exchange rate by 20 per centagainst the U.S. dollar and thus appreciated the rate against

sterling by about 14.3 per cent. The official exchange rate ap-plies to a limited range of transactions, including the portion of

export proceeds of tin and rubber which exporters must surrender,and the transactions of the Government Rice Monopoly. In viewof the country's relatively favorable balance of payments position,and with the object of minimizing inflationary repercussions, it wasdecided not to follow the devaluation of sterling to the full extent.Devaluation against the dollar was considered necessary, however,

to counteract the effects of unfavorable developments in the priceof rubber and of the pressure on the price of tin which began to

make itself felt after the devaluation of sterling. It was expected

that the sterling price of rice would improve following sterlingdevaluation, though actually it has remained unchanged. Most of

51


Thailand's other exchange transactions take place in a free market,

where the rates registered little change after devaluation, and

cross rates moved closer to an orderly pattern. Early in 1950

Thailand made further modifications in its exchange system. It

reduced the surrender requirement applicable to exchange proceedsfrom tin exports, and relegated most of the exchange requirements

of the Tobacco Monopoly and some minor imports to the freemarket. The Fund accepted these modifications and is continuing

its consultation with Thailand respecting other aspects of theexchange system.

In Iran, which derives the major portion of its exchange re-

ceipts from the exploitation of its oil resources, the par value of

the rial was not changed at the time of the September devaluation.

These receipts arise from royalty payments and exchange sales to

cover the foreign oil company's local currency expenditures, and

since royalty payments are specified in gold, and currency for local

expenditures must be purchased by the oil company at the official

exchange rate, the devaluation of sterling has resulted in a cor-responding increase in the amount of sterling accruing to Iran from

these sources. For most other trade transactions there has, however,been a de facto appreciation of Iran's currency during the period

under review. Trade transactions are subject to an exchange cer-tificate system, and the market price for certificates was broughtdown by about 13 per cent between April and October 1949. At

the same time Iran was able to liberalize its import licensing andexchange control policy.

In Syria and Lebanon, the official rates of exchange have re-mained unaltered during the past year. A part of their exchangereceipts is derived from foreign oil companies which must purchase80 per cent of their local currency requirements at the official

rate; devaluation of their currencies would presumably havediminished these receipts. Moreover, all trade transactions areconducted at the rates prevailing in the local free markets. Follow-

52


ing sterling devaluation the free market rate for sterling in termsof local currency declined, so that there has been in fact anappreciation of the Syrian and Lebanese pounds against sterling.The decline of the free market rate has, however, not gone beyond15 per cent, so that cross rates have been closer to an orderlypattern. Exports have increased, as neighboring countries such asIraq and Jordan have found it more advantageous to purchasefrom Lebanon and Syria than from other adjoining countries(e.g., Iran and Turkey) whose currencies have appreciated moresignificantly in relation to> devalued currencies. The exchange andcustoms union between Syria and Lebanon was for the timebeing terminated in March 1950.

Although Ethiopia did not change its par value, it introducednew exchange control regulations effective September 11, 1949,under which all exchange receipts must be surrendered at theofficial rate. Exchange for imports and other licensed trans-actions is also to be allocated at the official rate. These measuresimplied an appreciation of the effective rate of exchange, sincemost transactions had hitherto taken place in a free market with asubstantial premium on foreign exchange. The new regulationswere designed primarily to assure the collection of export proceedsin the currency of ultimate destination, to control imports, and toprovide the Government with its foreign exchange requirements.In carrying out this policy in the face of widespread devaluation,Ethiopia has been aided by the favorable trend in world prices forcoffee. Though the prices of other Ethiopian export products havedeclined, exports have been moving in satisfactory volume. Anumber of internal measures have been adopted to facilitate theflow of exports. Moreover, by a change in the note cover, someexchange has been released to meet the country's essential importrequirements.

Prior to the establishment of Indonesia as an independent state,the official exchange rate of that area had been kept at par with

53


that of the Netherlands since shortly after the end of the war.

Accordingly, the Indonesian guilder was devalued in September

1949 to the same extent as the Netherlands guilder. As a result

of the unfavorable price situation of its major exports and of sus-

tained inflationary pressure, this devaluation proved to be in-adequate, however, and in March 1950 an exchange certificate

system was introduced which resulted in a multiple rate structure

with substantially higher effective rates. Exporters are required to

surrender their exchange proceeds at the official rate and receive

for one half of the value of their export proceeds an exchangecertificate, which can be sold in a "free" market, over which the

Javasche Bank can exercise a considerable measure of control.

Importers must obtain exchange certificates for the full amount oftheir imports. Since the market price of certificates has been in

the neighborhood of 200 per cent of their face value, the new

system has resulted in an effective export rate 100 per cent abovethe official rate, and an import rate 200 per cent higher than the

official rate. At the same time a currency reform was imposed,which reduced by one half the circulation of Javasche Bank andTreasury notes of more than five guilders. Bank deposits weretreated similarly,, with certain exemptions for small amounts.

54


Ill

EXCHANGE RESTRICTIONS

Conditions Precedent to Convertibility

N its First Report on Exchange Restrictions, dated March 1,1950, the Fund considered in some detail the problems involved

in the establishment of a multilateral system of payments in respectof current transactions between members and in the eliminationof foreign exchange restrictions. However, in view of the impor-tance of these problems to the world economy and, more particu-larly, in the light of recent developments, some further examina-tion of the conditions precedent to convertibility is included here.

It is well recognized that in the effort to establish and maintainthe full convertibility of currencies account must be taken not onlyof monetary and financial considerations but also of wider economic,political, and social developments. Some of the conditions underwhich full convertibility could be established and maintained withrelative ease and safety by the countries concerned are the restora-tion of productive capacity, a well-balanced flow of internationaltrade, appropriate relations between the price-cost structures of themain trading countries, and freedom from undue inflationary ordeflationary pressures of the kind likely to destroy these relations,an active international capital market, and adequate monetaryreserves. It will, moreover, be difficult to maintain convertibilityunless the rigidities which are characteristic of many economies

55

I


today are substantially modified. The fact that the full realization

of these conditions is not yet in sight should not, however, be

interpreted as meaning that no progress can reasonably be expected

toward the relaxation of exchange restrictions. Some countries may

make more rapid progress than others in satisfying these conditions

to an extent sufficient to justify making their currencies fullyconvertible. Concerted action by all the countries concerned isnecessary if the most effective use is to be made of the opportunities

that present themselves.

At the end of the war most of these conditions were not satisfied.

As long as production in Europe and other regions affected by thewar was still below prewar levels, large dollar deficits were difficultto avoid. Imports, financed through aid from the United States,

Canada, and other countries, were necessary for reconstruction.

Inflation was a worldwide problem, and the volume of private

international investment was small. Gold and dollar reserves ingeneral were inadequate and generally declining, and other condi-

tions necessary to maintain convertibility were lacking. Underthese circumstances currencies could not safely be made convertible.It was therefore understandable that in many countries restrictionshad to be maintained on most imports, and discriminations imposed

against dollar imports.

The world economic situation has improved in the past fewyears, although progress has varied considerably from country tocountry. Production has greatly increased. Goods for export fromthe deficit countries are more plentiful, and the abnormal need forimports for reconstruction is much smaller. In most countries, thepressure of excessive demand has been reduced, and inflationary

tendencies have become more moderate as credit expansion andbudget deficits have been curbed. In some countries, these improve-ments have made it possible to achieve an over-all balance of pay-ments equilibrium, but not without the support of exchange andimport restrictions and, in many cases, of extraordinary outside aid.

56


The devaluations of September 1949 have provided a basis forfurther progress toward the goal of convertibility. The realignment

of currencies has corrected many of the distortions in international

price relations that were the result of varying degrees of inflation

in different countries. The improvements brought about by the

devaluations, however, have not, for the most part, been followed

by measures that would have the effect of a decisive, general freeingof the flow of trade and payments. Most currencies are still not

convertible into gold or U.S. dollars, and many of the non-dollarcurrencies are inconvertible into each other. The transferability or

convertibility permitted under the terms of payments agreements

still involves an extent of administrative discretion that interferes

with the ordinary course of trade and payments. Many countries

still use restrictions as a means of avoiding the gold or dollar settle-ments for which many payments agreements provide after certain

prescribed credit limits have been reached.

Although the progress made has been substantial, many economic

difficulties remain that must be overcome before countries can,without facing serious risks, remove restrictions and assume the

obligations of convertibility. Inflationary pressures are now undermuch more effective control in most parts of the world, but itremains to be seen whether the stability achieved can be main-tained. The correction of international price distortions is still farfrom complete. While the strengthening of reserves is progressing,it is still too early to judge how far this can be regarded as a resultof more or less permanent factors and how far merely as a swing-back after the abnormal pressure upon reserves that was a con-

sequence of expectations of devaluation. General confidence in

currencies has not yet been restored to the point where the risk ofcapital flight ceases to be a problem in connection with con-

vertibility, although the Fund's Articles of Agreement permit themaintenance of such controls as are necessary to regulate inter-

national capital movements. In many countries there are rigidities

57


arising from widely accepted political and social objectives or from

the general structure of the economy, business and labor practices,

and other factors, which make it difficult to take the measures

sometimes needed to achieve monetary stability.

The ability of countries to compete in the U.S. market, and to

compete with U.S. goods in other markets, is still limited despite

evident improvement during the year. This hinders progress towardconvertibility and prompts countries to continue restrictions, espe-cially where the maintenance of protected markets at home and

abroad provides outlets for relatively high-cost output, and hence

contributes some degree of balance to their international accounts,at least in the short run. Moreover, the expansion of international

trade continues to be unduly hampered by barriers such as tariffs,

quotas, and customs procedures. The tariff negotiations undertaken

by the GATT, the program of trade liberalization undertaken by

the OEEC, and the bill for customs simplification pending before

the U.S. Congress are examples that show that action in this fieldis under serious consideration. But the process should continue,

and it is particularly important in the case of the United States,

in order to assure the freest practicable flow of purchases from

abroad so as to maximize dollar earnings.

Uncertainties about the future treatment of sterling balances andother financial obligations that certain countries have incurred inthe past, and about the future of private international investment,are further obstacles to the removal of restrictions and the restora-tion of convertibility. The problem of sterling balances is stillimportant, although recent changes in the volume and distributionof these balances have diminished its magnitude. Because of thenature of short-term agreements that regulate the volume of andconditions for the release of sterling balances, sterling debtors can-

not be certain of their longer run future commitments on thisaccount, and sterling holders of the longer run availability of theirforeign exchange assets. This tends to create doubt whether, as

58


long as the potential demand to release balances is unknown, the

United Kingdom can safely expose itself to the risks involved in

the general removal of restrictions. The holders of sterling may also

feel uncertain how far such balances will be available to financeimbalance in their international accounts.

Another important obstacle is the reserve situation of many coun-

tries. It is generally recognized that the dollar reserves of mostcountries are low at present. A healthy reserve position is, however,

rather a symptom of a healthy payments situation than something

that can be assessed independently by reference to some mathemati-

cal formula. Unless the dollar payments problem is well on the

way to solution, the availability of large reserves at any point of

time would be no guarantee that convertibility could be main-

tained. Even very large reserves can be quickly depleted when

countries are in difficulties with their dollar payments. On theother hand, if a strong and well-balanced pattern of international

payments has been established, moderate reserves will be sufficient

to fill any gaps left by the ebb and flow of receipts and paymentsand thus ensure confidence in continued convertibility. The Fund

is intended to provide a second line of reserves to help its membersmeet such temporary payments difficulties.

When all of these considerations are taken into account, gen-erally speaking, no very convincing case can be made out, on thebasis of the economic conditions actually prevailing at the presenttime, for pressing members of the Fund to abandon their restric-tions forthwith and assume at once the obligations of convertibility.This is not to argue that substantially more progress than has beenmade in the past in this direction is not now feasible. The improve-ment in the world economic situation in recent months would seemto imply that the past trend of expanding restrictions is capableof being reversed. It may be asked to what extent the partial

relaxation of restrictions would help to generate forces that wouldaccelerate the adjustments required for the further relaxation and

59


ultimate elimination of restrictions. Consideration of this question

suggests the importance and even urgency of reversing the trend

and relaxing restrictions, given the accepted need for the ultimate

elimination of controls. The danger must be recognized that the

continuation of restrictions may create a situation in which someimportant condition precedent to convertibility will always be

absent and thereby any effective move toward the relaxation of

restrictions will be prevented.

There is indeed an inherent tendency in restrictions to perpetuate

themselves. To the extent that they are protective, they themselves

reduce competitive ability and therefore appear to maintain the

conditions that originally made them necessary. Trade conducted

on a bilateral or limited market basis maintains the high costs and

prices of the countries concerned. Even when several countries

are associated in a group connected by payments agreements, the

costs of the group as a whole may diverge significantly from the

international cost structure, especially as trade and exchange restric-

tions will inevitably limit trade with countries outside the group.In an equally important sense the existence of either exchange or

trade restrictions in some countries may prevent their eliminationelsewhere. Many countries, particularly the smaller countries, hesi-

tate to act in relaxing restrictions as long as other countries main-

tain theirs.

A specific illustration of the problem raised by these questions isthe dilemma confronting many countries that, on the one hand,

could greatly benefit from a larger and steadier flow of privateinvestment as a means of easing their balance of payments pressures,while, on the other hand, these very pressures seem to necessitaterestrictions that discourage the needed flow of private investment.The expectation that proceeds from investments, old or new, can-not be transmitted abroad is a serious deterrent to the entry ofprivate capital into such exchange control countries, although therecan, of course, be no guarantee that the elimination of restrictions

60


would, by itself, ensure the desired inflow of private capital. Somecountries have already taken action to assure investors of reasonablefacilities for remitting earnings from their investments, and ex-change controls in general might well be re-examined from thispoint of view.

Restrictions and discriminations against the exports of countriesin the dollar area have placed many of these countries in a posi-tion where they, in turn, feel obliged to apply restrictions anddiscriminations against dollar imports. For example., when a coun-try with an export surplus in trade with Europe has to providecredits or accumulate inconvertible currencies in order to maintainits exports, its own payments position is threatened. If the use ofits European export receipts is limited or restricted, it is compelledto impose unwanted restrictions and uneconomic discriminationsin its own import trade.

The currency of a major trading country cannot be kept incon-vertible indefinitely without economic cost to that country. Incon-vertibility encourages high costs and the undesirable and unfavor-able allocation of resources. Trade and currency restrictions toprotect an inconvertible currency may weaken the competitiveposition of the country that maintains them. Importers must directtheir purchases to markets where inconvertible currencies can beused, and as long as currencies are inconvertible they are unableto buy in the cheapest and most attractive markets. In thesecountries, the cost of producing goods for export to dollar marketsmay thus remain significantly higher notwithstanding the devalua-tions. It is easy for restrictions to be maintained for other thanbalance of payments reasons, after their original justification hasdisappeared. Countries cannot hope, however, to establish indus-tries capable of competing in dollar markets unless they are willingto subject their industries to competition.

In view of the undesirable consequences of the continued main-tenance of exchange restrictions, countries cannot afford to wait

61


until all the risks or difficulties involved in relaxing or removing

their restrictions have been completely or satisfactorily resolved or

eliminated. Under appropriate conditions, progress in the removalof restrictions may itself help to create a situation in which con-

ditions of greater freedom of trade and payments can more easily

be maintained. It may well be that the improvement in world

economic conditions so far achieved is insufficient to justify ageneral movement toward the rapid elimination of all currency

restrictions. It is nevertheless also true that caution may be carriedtoo far, and that a firm insistence that no further movement toward

convertibility is possible until all obstacles in the path have beenremoved might become the most effective means of ensuring that

the path will always remain blocked. In the light of all these con-siderations, the Fund intends to press forward its continuing exami-

nation of the need for and the effects of existing exchange restric-tions in order to make sure that no reasonable opportunity for

their removal is lost.

Developments in Exchange Restrictions and

Trade and Payments Agreements

No satisfactory means is available for estimating statistically the

extent: to which world trade as a whole is at any time becoming moreor less restrictive. Nevertheless, although the record of individual

countries has shown considerable variation, and some countrieshave taken significant measures to relax restrictions, a survey ofthe twelve months reviewed in this Report justifies the conclusionthat there has been no general trend toward the relaxation ofexchange restrictions and the elimination of bilateral trade agree-ments. There has been no addition to the list of Fund memberswho have accepted in full the general obligation to avoid restric-tions on current payments and discriminatory practices, nor hasthere been any appreciable shift from trade conducted under

bilateral trade agreements to trade conducted under freer con-

ditions.

62


As described in Chapter II, some countries have reduced certain

restrictions and others have considerably simplified their exchangepractices. During the past year, the OEEG countries have relaxed

their quantitative import restrictions on considerable sections of

their imports on private account from other OEEC countries.In many instances, these relaxations have been extended in whole

or in part to countries outside the OEEG. Belgium has achieved aconsiderable degree of convertibility, largely as a result of sound

financial policy that gave her a strong competitive position in

Europe and because external aid facilitated the conversion of

European currencies into dollars. The payments agreement betweenBelgium and Switzerland was allowed to lapse on November 13,

1949, and the official exchange market in Belgium was subse-

quently reopened for authorized transactions in Swiss francs and

U.S. dollars. A very large proportion of inter-Benelux trade has

been freed from restrictions, and the Netherlands has relaxed restric-

tions on certain "invisibles," such as tourism. In France and.

Italy, in addition to relaxation of quantitative and exchange restric-

tions by administrative action, controls have been modified with a

view to encouraging foreign investors to undertake additional in-vestment. Denmark, Sweden, Norway, and the United Kingdomhave taken steps to facilitate payments among themselves in respect

to "invisibles" (e.g., larger allocations of exchange for personaltravel and larger grants of exchange for family remittances), and in

respect to capital items. Several countries have increased allow-ances for the importation and exportation of bank notes and have

taken other measures to encourage tourism. In Canada, theemergency import restrictions, originally imposed in 1947, wereconsiderably reduced during 1949, and exchange restrictions ap-

plicable to tourist expenditures were greatly relaxed with respect

to travel in Western European countries.

On the other hand, new restrictions have also been imposed and

existing restrictions expanded, and new bilateral agreements have

63


been undertaken. The sterling area countries decided at the Lon-

don Conference in the summer of July 1949 to increase restrictions

so as to reduce imports from the dollar area by 25 per cent below

the 1948 level. Ethiopia began to apply a system of exchange

restrictions. The Philippine Republic imposed exchange restric-tions as from December 9, 1949, with a view to preventing a

further deterioration of the reserve position and arresting a flight

of capital that had begun to manifest itself. India and Pakistanmodified the scope of their open general licenses for imports fromsoft currency areas. During the year South Africa's system of

restrictions became the subject of consultation between the coun-

tries concerned and the Contracting Parties to the General Agree-

ment on Tariffs and Trade, and the Contracting Parties also

initiated consultation with the Fund on these issues according to

Article XV, par. 2 of the General Agreement.

The Intra-European Payments Plan and the EPU

As was indicated in last year's Annual Report, the Agreement

for Intra-European Payments and Compensations for the periodJuly 1, 1948-June 30, 1949, while allowing a high level of intra-

European trade, had continued the bilateral character of the pat-tern of trade and payments. There were also large discrepancies

between the drawing rights granted under the Agreement and thoseactually needed, so that some drawing rights remained unutilized

while in certain directions increased trade restrictions had to be

imposed.

In order to remedy these defects, at least partially, a new Intra-

European Payments Agreement was adopted on September 7, 1949

for the period July 1, 1949-June 30, 1950, which added some

elements of flexibility to the previous arrangements. Henceforth,

a debtor country was to be authorized to use 25 per cent of its

drawing rights to cover a deficit that might arise with any of the

participating countries, and the corresponding conditional dollar

aid was set aside to be allotted to the country against which the

64


multilateral drawing rights were used. Because Belgium's large

expected net credit position in Europe exceeded its estimated dollardeficit, Belgium extended $112.5 million of special multilateral

drawing rights and the equivalent of $87.5 million in long-term

credits to France, the Netherlands, and the United Kingdom. The

total amount of local currencies at the disposal of European coun-tries to pay for their intra-European deficits was the equivalent of$875.7 million, an amount slightly larger than that in the previous

fiscal year. In addition, the Payments Agreement included explicitprovisions for review and revision at least twice a year.

The extent to which drawing rights were used in July and August1949 showed that there was still a large disequilibrium in intra-

European payments. After the devaluations of September 1949,

a more balanced payments position permitted the compensation of

appreciable amounts through the mechanism of the PaymentsAgreement which was administered by the Bank for International

Settlements. As the drawing rights were expressed in U.S. dollars,

the devaluation of most of the currencies of the participating coun-tries increased in certain cases the amount available in nationalcurrencies above the actual needs. The impact of the devaluationson the pattern of intra-European trade and payments was, how-ever, difficult to ascertain accurately, and though some drawingrights were again not used, no adjustments were made at that time.

The recovery of production and the stabilization of internal

finance in the countries of Western Europe, however, made possible

the first coordinated efforts to remove a part of the complicated

network of direct and indirect trade restrictions which had devel-oped since the war. Reference has been made above to the partial

removal of quantitative restrictions on imports on private account

undertaken at the request of the OEEC. The existence of special

balance of payments difficulties made it impossible, however, for

some countries to apply the same degree of liberalization in everydirection, and they maintained their previous restrictions againstsome of their European creditors. In some cases, quantitative trade

65


restrictions have been used more as protective devices againstforeign competition than for balance of payments considerations;

any benefits which might be expected from their suppression would

in such circumstances be destroyed if they were merely replaced

by prohibitive customs duties or by regional cartels.

Following the September devaluations., the countries in the

OEEG began discussion of a new payments arrangement for theWestern European region and related currency areas, and the Fund

attended the discussions as an observer in the OEEC Payments

Committee. After considering the broad questions of policy that

were raised by the proposals for a European Payments Union, the

Fund on March 14 approved the following as guides for its repre-

sentatives in the Paris discussions:

1. The Fund should give its assistance in the formulation of asatisfactory payments arrangement compatible with the purposes ofthe Fund.

2. Regional payments arrangements should be so formulated as tofacilitate the attainment of convertibility of currencies. Any featureswhich may be likely to foster tendencies toward a closed monetary areashould be avoided.

3. While inflation remains a threat, the element of credit, par-ticularly of long- and medium-term credit, in the settlement of intra-European current balances should be moderate. Settlement in gold ordollars should be increased now and become the rule whenever possible.

4. The Fund mission should stress that the conditions generallyregarded as necessary for convertibility, including reduction of inflation,progress on the problem of sterling and ways of increasing monetaryreserves, are also necessary for the most effective functioning of a satis-factory payments agreement. The Fund mission should explore andassist in the formulation of programs designed to achieve these condi-tions.

At the time this Report was completed it appeared that theWestern European countries would shortly arrive at an agreementfor a payments union, but riot all of the arrangements had beenfinally agreed and the text of the agreement was still in preparation.

Fund Activities Regarding Exchange Restrictions

The responsibility for creating the environment in which ex-change restrictions can be more rapidly relaxed rests in the first

66


place with the member countries concerned. There is, however,ample scope for consultation and collaboration between the Fundand member countries with regard to the steps necessary for theremoval of restrictions, and it is one of the most important pur-poses of the Fund to encourage concerted action to alleviate diffi-culties that are beyond the exclusive control of the countriesparticularly affected by them. In some cases, the risks associated

with the relaxation of restrictions might appear less threatening ifFund members could have the assurance that its resources wouldbe available to them as an effective second line of reserve.

In the twelve months under review, the Fund has continued toconsult with various members regarding the form and effects ofthe restrictions that they have felt obliged to impose. In somecases, as mentioned elsewhere in this Report, there has been

effective cooperation between the Fund and its members for thesimplification of their multiple currency practices. A continuousconcern of the Fund has been to assist progress toward the inter-national economic environment necessary for the removal of

restrictions and the establishment of convertibility. In particular,the Fund has advocated the control of inflation and facilitated theadjustment of exchange rates. It has also participated in the dis-cussions in Paris and elsewhere of financial arrangements for themultilateralization of trade and payments among the OEEC

countries.

In accordance with Article XIV, Section 4, of the Fund Agree-

ment, which requires the Fund., not later than three years after

the beginning of its operations, to report on the restrictions still

in force, the First Report on Exchange Restrictions was published

by the Fund on May 22, 1950. This Report: presents official

information on the structure of controls as of December 31, 1949,

and deals with the impact of exchange restrictions on both the

domestic economy and international trade. It emphasizes that

formal differences between the types of restriction are frequently

not very important in that their economic effects are similar; trade

67


and payments are not made freer by substituting one device foranother.

The Fund's interest in the relaxation of restrictions on inter-national trade is further indicated in its continued cooperation withthe Contracting Parties to the General Agreement on Tariffs andTrade (GATT). The terms of the GATT place upon the Contract-ing Parties (most of which are members of the Fund) numerousobligations with regard to commercial policy. Several of these obli-gations directly or indirectly affect the external financial situation ofthe participating countries which together account for the major partof world trade, and as modifications in commercial policy mayprofoundly affect the achievement of the Fund's objectives, theconsultations for which the General Agreement provides are ofvital importance to the Fund. The provisions relating to consulta-tions between the Contracting Parties and the Fund are set forthin Article XV (Exchange Arrangements) of the GATT.

During the year, the Fund's representatives participated in theThird (Annecy) and Fourth (Geneva) Sessions of the ContractingParties. Both sessions were much influenced by uncertaintywhether the International Trade Organization would be estab-lished within a reasonable period. At the Fourth Session, there wasabundant evidence of the progress made by many contractingparties in restoring internal stability and of their willingness totake further measures looking toward multilateral, nondiscrimina-tory, competitive trade. In view of the generally inadequate levelof monetary reserves, the need for additional dollar earnings anddollar savings continues to be a common justification for discrimi-natory restrictive measures. The Contracting Parties made seriousattempts to make an inventory of trade restrictions and to appraisetheir effects. In the course of these sessions the Fund's attentionwas centered upon problems, both of substance and of procedure,connected with consultation on quantitative restrictions that havebeen instituted to safeguard the external financial position of con-

68


tracting parties. Both general policy problems in connection withthe application of trade restrictions (including their discriminatory

aspects) and problems connected with the employment of quanti-

tative restrictions in individual countries have been considered atthese sessions. The Fund has participated and is continuing to

participate in consultation on the import policy of the Union ofSouth Africa, and will also participate in consultations concerning

recent changes in the import policies of Australia, Ceylon, Chile,India, New Zealand, Pakistan, Southern Rhodesia, and the United

Kingdom in connection with the Fifth (Torquay) Session of theContracting Parties.

The Fund has also participated in the work of drafting the text

of a special exchange agreement which, pursuant to the terms ofthe GATT, contracting parties that are not members of the Fund

must adopt. The provisions of the special exchange agreement,as far as obligations in respect to exchange rates and exchangerestrictions are concerned, have been drafted along the lines of the

Fund Agreement. The first special exchange agreement has been

signed by Ceylon, and came into force on April 2, 1950.

The future activities of the Fund in the field of exchange restric-

tions will, as in the past, be directed toward helping to achieve the

objectives of the Fund in a manner consistent with the interests of

its members and in a spirit of understanding of their situation and

problems. As indicated in the First Report on Exchange Restric-

tions, under the assumption that the present trends of improvement

in world economic conditions continue, it is expected that in the

period ahead the Fund will take an increasingly active role in

encouraging the relaxation of exchange restrictions. In this way

it will both fulfill its obligations under its Articles of Agreementand aid its members by assisting them in the establishment of amultilateral system of payments and in the elimination of foreignexchange restrictions which hamper the growth of world trade.

69


IV

GOLD POLICY

The Fund's Gold Policy

N June 18, 1947 the Fund addressed to all its members a let-ter in which it deprecated international transactions in gold

at premium prices and recommended that they take steps to pre-vent such transactions. During the last three years the Fund hasreceived the support of many of its members in carrying out itsgold policy. Several members have consulted the Fund beforeintroducing changes in their gold practices.. In spite of the factthat comparatively large quantities of gold have continued to flowinto private hoards, the amount thus absorbed would probablyhave been much larger had Fund members and some non-membersnot cooperated toward making this policy effective.

At the Fourth Annual Meeting of the Board of Governors, theGovernor for the Union of South Africa introduced a resolutionto permit members to sell up to one half of their newly-mined goldin any market at premium prices, provided that the remainder be

sold to monetary authorities or to the Fund at the official price.On September 16, 1949 this resolution was referred to the Executive

Board for the study of all relevant considerations and report to the

Board of Governors. Subsequently the Executive Board instructed

the Staff to prepare a draft study for its consideration. After care-

ful examination of the findings of the Staff, the Executive Board

concluded that a change in policy under existing circumstanceswould be undesirable, and recommended to the Board of Governorsthat the resolution of the Governor for South Africa should not

70

o


be adopted. The Fund's Report on External Transactions in Gold

at Premium Prices was made public on May 3. It is reproduced in

Appendix II.In reaching its decision the Executive Board was of the opinion

that, at a time when many countries are faced with large interna-

tional payments deficits which have to be met by Intergovernmental

grants and credits, any change in the Fund's gold policy that might

divert additional amounts of gold from monetary reserves intoprivate hoards would be undesirable. Moreover, as there exist in

many parts of the world markets in which foreign exchange is

dealt in at off-parity rates, any extension of premium gold transac-

tions would be likely to encourage a greater volume of such ex-

change dealings. This would not only be unsatisfactory from the

point of view of exchange stability, but would also cause a distor-tion of the normal pattern of trade that might affect adversely the

commercial interests of a number of countries.The Executive Board also studied the question whether there

should be a uniform change in the par values of all member

country currencies. In its view there was no economic justification

for recommending such a change to the Board of Governors. Someof the arguments for and against a uniform change in par valueswere outlined in the Annual Report for the year ended April 30,

1949. It may be noted that, since the publication of that Report,

exchange rate adjustments in a large part of the world have ma-

terially improved the position of many gold-producing countries.

In view of these considerations, it is believed that there is no

reason to change the Fund's existing gold policy. It is expected

that members will continue their efforts to collaborate with the

Fund in making this policy effective. Besides collecting current in-

formation regarding production, prices, transactions, markets, con-

trols, and practices in various countries, in order to keep abreast of

current developments relating to gold, the Fund continues to ex-amine the economic aspects of gold in relation to the worldeconomy, and to evaluate the practical effects of its gold policy.

71


During the year under review, Belgium notified the Fund that

the arrangement governing the limited internal gold market in

Belgium, which was established in June 1949, had been extended

to include the Belgian Congo and Ruanda Urundi. Sales in these

markets are limited to Belgian Congo and Ruanda Urundi gold

producers, while buyers must be bona fide dentists, industrialists, or

goldsmiths residing in Belgium, the Belgian Congo, or Ruanda

Urundi. The Reserve Bank of India effected certain domestic gold

sales which did not involve any withdrawal from central reserves.

Gold Prices in Free and Black Markets

After placing a ban on all gold transactions in April 1949, and

following some temporary arrangements, the Government in Hong

Kong sanctioned gold trading in bars less than .950 fine from July

1949. The Hong Kong market was active on a declining scale

until January 1950, when the volume of trading became very small.

However, there has been a recent revival of activity, though on a

much reduced scale compared with 1949. The price of gold in

Hong Kong converted into U.S. dollars reached approximately $69

per fine ounce on May 25, 1949, but by May 31, 1950 it had fallen

to approximately $37.50, whereas the price for gold dealt in directly

in U.S. dollars, for which irregular quotations are available in

various trading centers, reached a high of $55 during May 1949

and was quoted at $36.25 during May 1950.

The general direction of gold prices in nearly all gold markets

has been downward since the summer of 1949. A notable exception

is Bombay, where the price has remained stable. Quotations in the

Paris market did not follow the general trend until after the devalu-

ations of the autumn of 1949, but by the end of May 1950 the

price of bar gold there was the equivalent of approximately $38.50per fine ounce.

The decrease in the price of gold on free and black markets was

72


in large part due to several factors affecting the current demandand supply of gold.

The Chinese demand for hoarding, which from 1946 to 1948 wasestimated at about three million ounces yearly., disappeared in1949, and, instead of being the principal importing country forprivate holding, China became a net exporter of gold.

In several other countries of the Far East and the Middle Eastthere exists a traditional demand for gold hoarding. Inasmuch assuch demand is linked with the national income, its amount interms of dollars was bound to decrease in response to the devalua-tions of September 1949. These devaluations and the depreciationof the currencies on free and black markets which preceded themreduced the national income expressed in terms of dollars andconsequently the part of that income available for gold purchases.

On the other hand, the current supply of gold seems to haveincreased as a result of serious leakages into the hoarding marketof gold originally destined for industrial and artistic purposes.

The effect on gold prices of such changes in the current demandand supply was amplified by capital transactions. Improved eco-nomic conditions in certain countries, such as France or Italy, haveincreased confidence in the local currencies and reduced the incen-tive for gold hoarding. The devaluations of September 1949 havealso increased the prospective stability of currencies and have con-tributed to lessen gold hoarding or to bring about actual dishoarding.

Gold Production

World production of gold (exclusive of the U.S.S.R.) continuedto increase during 1949. Valued at $35 per ounce, the estimatedtotal output reached approximately $835 million, compared with$808 million in 1948. Although output has shown a steady increasesince 1945, the present annual production is still only about 65per cent of the peak output of 1940.

The postwar recovery in gold mining has been slow owing tosubstantial increases in operating costs, including mine labor, sup-

73


plies, and equipment, which, taken in conjunction with the fixed

price of gold, reduced the profitability of gold mining. In many

countries, difficulties in recruiting skilled labor have been an im-

portant retarding factor. In order to encourage gold production,

several countries have sought ways and means of giving assistanceto their gold mines. The methods employed have included the

reduction of taxes, the payment of subsidies, and the sale of newly-

mined gold, in whole or in part, in free markets.The devaluation of sterling and certain other currencies in

September 1949 brought about a rise in the official price of gold

in terms of these currencies. This greatly improved the profit posi-

tion of gold mining in South Africa and other devaluing countries

which together account for about 80 per cent of world gold out-

put outside the U.S.S.R. The rise in the official price of gold

caused by devaluation was greatest in sterling area countries, where

it amounted to 44 per cent. In the Belgian Congo it was 14 per

cent, and in Canada 10 per cent.

Although the full effects of devaluation on the output of gold

will not be apparent for some time, the great improvement in the

profit position of the gold mines will probably make possible a

steady expansion, even when allowance is made for increases in

wages and other operating costs, for higher taxes and smaller sub-

sidies, and for the tendency to lower the average grade of ore milled.

Devaluation has also accelerated the development of new mining

properties, and the Orange Free State mines now being developed

may be expected to come into production in a few years.

Certain gold-producing countries that, after consultation with

the Fund, had resorted to the use of gold-mining subsidies have,

since the devaluation of September 1949, either canceled their sub-

sidy payments or decided to reduce the scale of such assistance.Australia and Southern Rhodesia have canceled their gold-miningsubsidies, and Canada has notified the Fund that its gold subsidyprogram has been substantially curtailed.

74


V

FUND TRANSACTIONS

Exchange Transactions of the Fund

URING the fiscal year ended April 30, 1950, the Fund com-pleted five purchases and sales of foreign exchange, ag-

gregating the equivalent of $51.8 million, with four members.Each of the five transactions involved a sale of U.S. dollars bythe Fund. In the previous fiscal year, the total of the Fund's ex-change transactions had aggregated the equivalent of $119.5 mil-lion. Between March 1, 1947, when the Fund commenced opera-

tions, and April 30, 1950, the Fund had effected exchange trans-

actions totalling the equivalent of $777.3 million, on behalf ofnineteen members, and gold transactions totalling $6.2 million.

As a result of the payment by Yugoslavia of its subscription,

adjustments in the subscriptions originally paid in gold and cur-

rency on a provisional basis by three other members, repurchases

with gold by two members, and the payment of service and other

charges in gold, the Fund's holdings of gold increased during the

year ended April 30, 1950 from $1,439.3 million to $1,459.5

million. On April 30, 1950., its holdings of currencies, including

non-negotiable, non-interest bearing notes, amounted to the equiva-

lent of $5,548.7 million, of which $1,299.5 million was in U..S.dollars.

The following is a tabulation of the purchases of foreign ex-

75

D


change from the Fund during its 1949-50 fiscal year. Further

details summarizing the results of the Fund's transactions since

the beginning of its operations are shown in Appendix III.

CURRENCIES PURCHASED FROM THE FUND

DURING FISCAL YEAR ENDED APRIL 30, 1950

(In U. S. Dollars)

Purchased byAustralia $20,000,000Brazil 22,500,000Ethiopia 300,000Yugoslavia 9,000,000

$51,800,000

At various points of time since the Fund started operation, ex-

change transactions have raised the Fund's holdings of the cur-

rencies of eleven members above their quotas. These members have,

therefore, become subject to the appropriate charges prescribed in

the Fund Agreement.During the year ended April 30, 1950, some members with

monetary reserves lower than one half of their quotas have availed

themselves of the opportunity provided in the Fund Agreement to

pay in their own currencies a portion of the Fund's charges

which are normally payable in gold. Such payments are acceptedprovisionally and, in some cases, require adjustment after the

amount of the monetary reserves of the member involved has beendetermined.

Under the provisions of the Agreement, a member that has,

with the approval of the Fund, changed its par value by depreciat-ing its currency in relation to gold, must pay to the Fund withina reasonable time an amount of its own currency equal to thereduction in the gold value of its currency held by the Fund. Thefourteen members whose currencies are held by the Fund and

whose agreed par values were changed during the past financial

year have made the necessary additional payments in their owncurrencies to the Fund. In addition, one member for which there

76


is no agreed par value but which had reduced the foreign ex-

change value of its currency to a significant extent also arrangedfor a supplementary payment of its own currency to the Fund, in

conformity with the relevant provisions of the Agreement.In accordance with the Articles of Agreement, as supplemented

by the Rules and Regulations of the Fund, each member has been

allowed to deposit non-negotiable, non-interest bearing notes in

place of that part of the Fund's holdings of its currency which

exceeded ten per cent of its quota. These rules were amendedearly in 1950 to permit acceptance by the Fund of such notes,

provided that a minimum balance of at least one per cent of a

member's quota was maintained in the Fund's operational ac-

count held in the member's currency. Several members have

availed themselves of this provision.

Repurchases and Repurchase Obligations

On the basis of data supplied by the members, repurchase obliga-

tions have been calculated for one member as of both April 30,

1948 and April 30, 1949, and for three other members as of April

30, 1949. Two members, Belgium and Costa Rica, discharged

their repurchase obligations as of April 30, 1949 during the fiscal

year.

Two members, Costa Rica and Nicaragua, wishing to reduce

the Fund's holdings of their currencies to 73 per cent of their

quotas, tendered U.S. dollars to the Fund. The Fund accepted

these payments provisionally, pending a decision whether under

the Articles of Agreement voluntary repurchases could be made

which would bring the Fund's holdings of a currency below the level

of 100 per cent of the member's quota, and whether means of

payment other than gold are acceptable in discharge of voluntaryrepurchases.

The following is a tabulation of all repurchase transactions

during the 1949-50 fiscal year.

77


REPURCHASES BY MEMBERSOF THEIR CURRENCIES HELD BY THE FUND

DURING THE FlSCAL YEAR ENDED APRIL 30, 1950(In U. S. Dollars)

with Gold with DollarsBelgium $9,460,423.29 $12,125,283.46Costa Rica 77,000.00 2,046,269.64Nicaragua 500,000.00

$9,537,423.29 $14,671,553.10

During the past financial year, six members reported or com-pleted monetary reserves information as of February 28, 1947 andApril 30, 1948. In one case this involved the establishment of arepurchase obligation. Monetary reserves data as of April 30, 1949were received from twenty-nine members, but some delay or diffi-culty was experienced in obtaining from a small number of membersthe full information necessary for the computation of monetaryreserves. Contact with these members is being maintained and itis hoped that these difficulties may soon be removed.

The computation of monetary reserves and of repurchase ob-ligations, which was explained in last year's Annual Report, hasraised many new problems and required a number of decisionsconcerning the interpretation of the provisions of the Fund Agree-ment. These decisions made by the Executive Board are re-produced in Appendix IV. Since the calculation of repurchaseobligations and the calculation of monetary reserves, which to aconsiderable extent determine or affect repurchases, in some cases

involve difficult questions, the Fund will issue to its members inthe near future an explanatory circular on these matters. Thiscircular will set forth and explain the relevant provisions of theFund Agreement and all of the interpretations of them adopted bythe Executive Board to date.

78


VI

MEMBERSHIP, ORGANIZATION, AND ADMINISTRATION

Membership and Organization

HAIL AND became a member of the Fund on May 3, 1949,

with a quota of $12.5 million.The application of Pakistan for membership was approved by

the Board of Governors on February 1, 1950.1

The period in which Haiti, whose application for membershipwas approved by the Board of Governors at its Fourth AnnualMeeting, and Liberia may accept membership was extended by theExecutive Directors to September 30, 1950,

Effective March 14, 1950, Poland withdrew from membershipin the Fund. The notice of withdrawal and the Fund's reply arecontained in Appendix V.

On December 11, 1948 the Terms of LFnion of Newfoundlandwith Canada were signed in Ottawa. This Union took effect onApril 1, 1949. Accordingly the Fund was notified by the UnitedKingdom that Newfoundland was not to be considered afterMarch 31, 1949 as a territory on whose behalf the United King-dom has accepted the Articles of Agreement.

The Fund was notified by the Netherlands that, as a result ofthe transfer of sovereignty to the Government of the Republic of

1 Pakistan accepted membership on July 11, 1950.

79

T


the United States of Indonesia on December 27, 1949, the territoryof the United States of Indonesia could no longer be regarded as aterritory on whose behalf the Netherlands has accepted the Articles

of Agreement.The members of the Fund, their quotas, voting power, Governors

and Alternate Governors are shown in Appendix VI. Changes inthe membership of the Board of Governors during the last year

are shown in Appendix VII.The Executive Directors of the Fund and their voting power as

of April 30, 1950 are shown in Appendix VIII. Changes in mem-bership of the Executive Board during this year are shown in

Appendix IX.

Consultation with Members

During the year the Fund has kept in close contact with mostof its members, holding many discussions with their representativesin Washington and sending staff representatives of the Fund tovisit twenty-six of the member countries. The purposes of thesevisits varied from consultations of comparatively limited scope,such as the improvement of statistical data, to missions with broadterms of reference charged with conferring with the member onits entire exchange and monetary situation. The work of some of

these missions has been referred to in connection with the ex-

change measures taken by certain members. Mention may also be

made of technical missions, such as those which went to Austria,

Costa Rica, Ecuador, Ethiopia, Guatemala, Honduras, the Philip-

pines, and Thailand during the year to consult with the authorities

and give technical assistance on various financial and exchange

problems. As one example of the kind of assistance given, the

missions to Honduras aided the monetary authorities in drafting a

broad program of legislation for the reform of the country's system

of money and banking, including legislation for a Central Bank.

In all these consultations the Fund has received excellent co-

80


operation from the monetary authorities of the members. The valueof these contacts in supplementing the work of the ExecutiveBoard has been emphasized in previous reports. The field ofactivity with which the Fund has to deal is constantly changing,and frequent direct contact with the monetary authorities mainlyconcerned is necessary to enable the Fund to understand the prob-lems and come to decisions that will be most helpful to themembers.

Relations with Other International Organizations

The Fund continues to have close relations; with the InternationalBank for Reconstruction and Development., There has also beenactive cooperation between the Fund and other international or-ganizations. Not only has regular liaison with these agencies beenmaintained through attendance at each other's meetings, butalso in a number of cases close relations have been established oncontinuing work of common interest.

Chapter III has made reference to the Fund's relations with theGATT and the OEEC. Fund representatives have participated inmeetings of the United Nations General Assembly, the Economicand Social Council, the Economic Commission for Europe, theEconomic Commission for Latin America, the Economic Commis-sion for Asia and the Far East, the Economic arid EmploymentCommission, several United Nations Sub-Commissions, and theAdministrative Committee on Coordination and its subordinatebodies. The Fund was represented at the Fifth Session of theFood and Agriculture Organization, the Annual General Meetingof the Bank for International Settlements, the Second Congressof the Inter-American Statistical Institute, the Second Meeting ofCentral Bank Experts of the American Republics, and a numberof other international meetings.

The Fund has prepared staff studies for the use of several UNagencies, including the regional economic commissions and some

81


ECOSOG sub-commissions. These studies have treated such sub-jects as terms of trade in specific countries or areas, domesticfinancial institutions, and regional payments problems and tradepatterns.

During the year there was initiated the Expanded Program ofTechnical Assistance in which the international agencies are co-operating to carry out the Point IV proposals put forward by thePresident of the United States in 1949. One important part of theFund's regular work from its inception has been the rendering oftechnical assistance to member governments, and this program hasbeen, and is being, steadily extended. The Fund is particularlyqualified to provide expert technical help in relation both tocountries' external financial problems, such as the balance of pay-ments, exchange rates, and exchange restrictions, and to the closelyrelated internal financial problems including monetary credit andfiscal policy, and its concern also extends to the institutional ma-chinery needed to carry out the policies. Accordingly the Fund'srepresentatives have assisted at the various stages of development

of the Expanded Program. However, since this work is financedout of the Fund's regular budget, the Fund will not have to makeany call on the resources which are made available for theExpanded Program of Technical Assistance and is, therefore,not a "participating agency." The Fund is, however, vitally in-terested in the Program and sits as an observer on the inter-agencyTechnical Assistance Board that has been established.

The Executive Board has been concerned with the emergence ofproblems caused by the overlapping of activities of internationalagencies in the sphere of finance. The Fund has been workingand will continue to work with the United Nations, the Inter-national Bank, and other agencies to eliminate and prevent suchoverlapping, which inevitably has detrimental effects on the inter-national agencies and their members.

82


Informati.on

A continuous objective of the Fund is to serve as a source ofup-to-date, accurate, and objective financial and monetary informa-tion through its publications and through studies on specific inter-national financial problems undertaken either at the request of amember or on the initiative of the organization.

The monthly bulletin, International Financial Statistics, con-tinues to be published in Washington, but in order to speed de-livery to subscribers in Europe and the Middle East is now printedin both Washington and Paris. Publication of the second Balanceof Payments Yearbook is planned for July 1950. Distribution ofInternational Financial News Survey, the weekly review of currenteconomic and financial news, has steadily expanded. A new pub-lication, Staff Papers, has been added this year. It makes availableto the public some studies prepared by members of the staff. It ishoped that this publication will constitute a useful contribution tothe discussion of current monetary affairs. The views presented inthe papers are personal and are not to be interpreted as indicatingthe position of the Executive Board or of the officials of the Fund.

Administration

STAFF. At the end of the fiscal year, the staff numbered 441persons, 46 of whom held temporary appointments. There werenationals of 30 member countries on the staff. During the year,85 appointments were made of nationals of 22 member countries,the net increase in staff for the year being 20.

REORGANIZATION. During the year, the Executive Board ap-proved a plan of staff reorganization. The underlying principlesof the reorganization were to achieve a better balance among thevarious Departments, to remove any overlapping of activities ofDepartments, and in particular to obtain a more logical distribu-tion of responsibilities between the functional and area Depart-ments. The staff was divided into six Departments and three

83


Offices as follows: European and North American Department;Exchange Restrictions Department; Latin American, MiddleEastern and Far Eastern Department; Legal Department; Re-search Department; Treasurer's Department; Office of Adminis-tration; Office of Public Relations; and Office of the Secretary.

TRAINING. The Executive Board has approved a general train-ing program for able young nationals of member countries whonormally, upon completion of their training, would be expectedto return to serve their countries; a specialized training program,which at the outset would be directed primarily to training em-ployees of member governments in the preparation and analysisof balance of payments data; and individual arrangements for seniorstaff officers of Central Banks and Treasuries of member govern-ments.

The general training program is planned to commence in Jan-uary 1951 and the trainees will be selected from countries whoseneed for technically trained personnel is most acute. Trainees willbe at Fund Headquarters for approximately eleven months. It isexpected that approximately ten trainees will be selected for thisprogram.

The balance of payments training program will be conducted incooperation with the U.S. Department of Commerce, which offerstwo courses a year in balance of payments techniques, each cover-

ing a three-month period. Not more than five trainees will beselected at any time for this program.

The arrangements for senior staff members of Central Banks

and Treasuries of member governments are designed to increase

their knowledge of the operations of the Fund through directparticipation in its activities for limited periods of time.

Administrative Budget

An Administrative Budget for the period May 1, 1950 to April

30, 1951, as approved by the Executive Directors, is presented in

84


Appendix X. In accordance with the request of certain Gov-ernors, a tabulation is attached which sets forth a comparison ofthe Administrative Budget for the Fiscal Year 1951 with theBudget and actual expenditures for the Fiscal Year 1950. A com-parative statement of the Fund's income is presented in AppendixX.1

Staff Retirement Plan

Since July 1, 1948,, when the Staff Retirement Plan becameeffective, operations have proceeded in accordance with the pro-visions of the Plan, with only minor amendments. The benefitsprovided under the Plan and the rates of contribution by partici-pants and the Fund remain unchanged. Exclusive of administra-tive expenses, the Fund's contribution is approximately two-thirdsthe cost of operating the Plan. As of April 30, 1950, the totalassets of the Staff Retirement Fund amounted to approximately$956,000, of which $938,000 had been invested. Audited financialstatements of the Staff Retirement Fund are presented in Appen-dix XII.

Audit Committee

Upon the request of the Executive Directors, Mr. G. S. Ran,Director of Audits and Accounts, Office of the Comptroller andAuditor General of India, Mr. J. G. de Weger, Jr., Chief of the Gen-eral Audit Department of the Netherlands Ministry of Finance,and Mr. P. J. Curtis, Deputy Director of Audit in the Exchequerand Audit Department, were respectively nominated by India, theNetherlands, and the United Kingdom to serve as members of theAudit Committee. The report of the Committee is siibmitted sep-arately. The Auditors' Certificate, with the audited balance sheetas of April 30, 1950, and the audited statement of income andexpense, with supporting schedules, are presented in Appendix XII.

1The Executive Board's interpretation of Article IX, Section 7, of the FundAgreement, relating to Fund communications, is reproduced in Appendix XI.

85




APPENDICES


APPENDIX I

SUMMARY OF EXCHANGE RATE CHANGES

SEPTEMBER 1949 TO APRIL 1950 x

Values in Terms of U.S. Dollars

ILS, Cents perCurrency Unit

Country

AFGHANISTANAUSTRALIABELGIUMBOLIVIABURMACANADACEYLONDENMARKEGYPTFINLANDFRANCEGERMANY, WESTERNGREECEICELAND

INDIAIRAQ

Date ofAnnounce-

ment

Oct 19 1949~ Sep 18 1949.- Sep 21 1949

Apr 24 1950Sep 18 1949Sep 19 1949Sep 18 1949Sep 18 1949Sep 19 1949Sep 19 1949Sep 20 1949Sep 29 1949

- Sep 22 1949Sep 20 1949Mar 20 1950Sep 18 1949Sep 20 1949

Currency New Rate

AfghaniPoundFrancBolivianoRupeeDollarRupeeKronePoundMarkkaFrancMarkDrachmaKronaKronaRupeeDinar

5.952224.000

2.0001.667

21.00090.90921.00014.478

287.1560.4350.286

23.8100.007

10.7056.140

21.000280.000

Old Rate

7.143322.000

2.2822.381

30.225100.00030.22520.838

413.3000.625

b

30.0000.010C

15.41110.70530.225

403.000

Currency Units perU.S. Dollar

New Rate

16.800a

0.44650.00060.0004.7621.1004.7626.9070.348

230.000350.000

4.20215,000.000

9.34116.2864.7620.357

Old Rate

14.0000.310

43.82842.000

3.3091.0003.3094.7990.242

160.000 b

3.33310,000.000°

6.4899.3413.3090.248


IRELANDISRAEL*JORDANLUXEMBOURGNETHERLANDSNEW ZEALANDNORWAYPORTUGALSWEDENTHAILAND6

UNION OFSOUTH AFRICA

U.S.S.R.UNITED KINGDOM

SepSep

—Sep•—' Sep

SepSepSepSepSepSep

SepFebSep

18192223201818191827

182818

1949194919491949194919491949194919491949

194919501949

PoundPoundDinarFrancGuilderPoundKroneEscudoKronaBaht

PoundRublePound

280280280

226

280

.000

.000

.000

.000

.316

.00014.000308

2800

280

.478

.193

.000

.000

.250

.000

403403403

237

40320

40

.000

.000

.000

.282

.695

.000

.150

.000

.27810.000

403.0000

403.189=000

000

50307

285

12

040

.357

.357

.357

.000

.800

.357

.143

.750

.180

.500

.357

.000

.357

0.2480.2480.248

43.8282.6530.2484.963

25.0003.600

10.000

0.2485.3000.248

During the period under review there has been no change in the par values or exchange rates of the followingcountries: Brazil, Bulgaria, Cuba, Czechoslovakia, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras,Hungary, Japan, Mexico, Pakistan, Panama, Philippine Republic, Poland, Rumania, Switzerland, Turkey, UnitedStates, Venezuela, and Yugoslavia.

In the following countries there have been changes in the exchange system without the establishment of adefinitive new par value or exchange rate: Argentina, Austria, Chile, Colombia, Costa Rica, Ecuador, Ethiopia,Indonesia, Iran, Italy, Lebanon, Nicaragua, Paraguay, Peru, Spain, Syria, and Uruguay. Brief descriptions ofmost of these changes will be found in Chapter II.

" Official buying rate.b See page 36.c Before September 1949 the effective sterling rate was about 32,000 drachmas.d The effective dollar rate before September 19 had been around $3.03, while the sterling rate was at par, so

that there was at that time a depreciation of about 7 per cent in terms of the dollar and no change in the ster-ling rate. There has subsequently been a further decline in the effective dollar rate.

e The official rate applies mainly to the portion of export proceeds surrendered to the exchange authorities.Most exchange transactions take place at the free market rate, which on April 29 was 22.18 baht to the dollarand 57.70 baht to the pound.

1


APPENDIX II

REPORT OF THE EXECUTIVE BOARD OF THE INTER-NATIONAL MONETARY FUND ON EXTERNAL TRANS-

ACTIONS IN GOLD AT PREMIUM PRICES

On June 18, 1947, the Executive Board of the InternationalMonetary Fund issued a statement which was communicated toall of its members. The statement said in part:

"Exchange stability may be undermined by continued and in-creasing external purchases and sales of gold at prices which di-rectly or indirectly produce exchange transactions at depreciatedrates. From information at its disposal, the Fund believes thatunless discouraged this practice is likely to become extensive,which would fundamentally disturb the exchange relationshipsamong the members of the Fund. Moreover, these transactionsinvolve a loss to monetary reserves, since much or< the gold goesinto private hoards rather than into central holdings. For thesereasons, the Fund strongly deprecates international transactionsin gold at premium prices and recommends that all of its mem-bers take effective action to prevent such transactions in goldwith other countries or with the nationals of other countries."

At the Fourth Annual Meeting of the Board of Governors ofthe International Monetary Fund, the Governor for the Unionof South Africa introduced a resolution concerning sales of newly-mined gold at premium prices. On September 16, 1949, theBoard of Governors adopted the following resolution relating tothe South African proposal:

WHEREAS, the Governor of the Union of South Africa hasproposed the following resolution;

WHEREAS, the Committee has considered the resolution ofthe Governor of South Africa and has explored the relatedproblems of the gold-producing countries; and

WHEREAS, the resolution proposes a basic modification ofthe policy respecting sales of gold at premium prices which hasbeen adopted by the International Monetary Fund and mayinvolve questions of interpretation of several provisions of theArticles of Agreement; and

90


APPENDIX II (Continued)

WHEREAS, the considerations which are raised are so com-plex and important as to require extensive study;

BE IT RESOLVED, that the said resolution of the Governorof the Union of South Africa be referred to the Executive Di-rectors of the Fund for study of all relevant considerations andreport to the Board of Governors.

Resolution Proposed by Union of South Africa

WHEREAS, it is the desire of all members of the Interna-tional Monetary Fund to persevere in their endeavour to secureinternational co-operation in monetary and foreign exchangematters on the basis accepted by the Brctton Woods Confer-ence, and

WHEREAS, it would be unreasonable to attempt to securesuch co-operation on the basis of disproportionate sacrifice bymembers producing gold, and

WHEREAS, the price for gold used for monetary purposesin terms of Article IV, Sec. 1, of the Articles of Agreement ofthe International Monetary Fund has remained unchangedsince the inception of the Fund, and

WHEREAS, the prices of other commodities have in themeantime increased by substantial margins, and

WHEREAS, the maintenance of stable exchange rates is thereason for fixing the price of gold at the same figure over con-siderable periods of time, and

WHEREAS, the maintenance of the price at present fixedin terms of the Fund Agreement has, in the face of the sub-stantial increase in the price-level of other commodities, onlybeen secured at heavy, disproportionate and unjustifiable costto countries producing gold, and

WHEREAS, it is permissible in terms of the Fund Agreementto sell newly-mined gold in any market,

SO THEREFORE, it is now Resolved by the Governors ofthe International Monetary Fund that nothing in the Articles

91



of Agreement of the Fund shall be interpreted to prevent thesale, by the Government of any member, of newly-mined goldin any market at such premium prices as may be ruling in thatmarket provided the said member sells to the Fund or to oneor more members of the Fund, or transfers to its own monetaryreserves at least fifty per cent of its newly-mined gold at theprice from time to time current in terms of the Articles ofAgreement of the Fund.

The Executive Board has given thorough consideration to theSouth African resolution and has reviewed the Fund's policy asexpressed in the statement of June 18, 1947, on external trans-actions in gold at premium prices. The staff of the Fund studiedat length the various problems involved and the Executive Boardcarefully considered the findings of the staff and the arguments forand against a change in the present policy. After full discus-sion the Executive Board concluded that a change in the presentpolicy is not desirable.

In considering all economic aspects of the present policy, theExecutive Board noted that comparatively large quantities ofgold have continued to go into private hoards. The ExecutiveBoard also took note of arguments that a relaxation of the Fund'sgold policy would increase only to a small degree, if at all, theflow of gold now going into private hoards, and would have thebeneficial effect of eliminating the premium on gold in terms ofdollars and of reducing to some extent the premium in terms ofinconvertible currencies.

The Executive Board took the view, however, that in presentcircumstances the freer international movement of gold into pri-vate hoards in certain countries in the Middle East, the Far Eastand other regions, could absorb substantially more of the currentforeign exchange receipts of these countries and further impairtheir monetary reserves. At a time when many countries havelarge deficits in their international payments which must be metby inter-governmental grants and credits, and when severe ex-change and import restrictions are maintained to avoid a break-down in international payments, large external transactions in

92



gold at premium prices must increase the difficulty of restoringinternational balance and the severity of the exchange and importrestrictions that are maintained.

Furthermore, it is inevitable that external transactions in goldat premium prices will direct!)' or indirectly give rise to exchangetransactions at depreciated rates. These exchange transactionsare often in violation of the laws of the countries concerned and.in any case, encourage evasion of the requirements that exportproceeds be sold at the official exchange rate. Such exchangetransactions at a discount from official rates may affect adverselyand unfairly the trade of other countries.

In the nearly three years since the Fund's policy was announcedmembers have endeavored to conform to it as closely as practi-cable. The Fund has been in active consultation with them tominimize the flow of gold into premium markets. Although asizeable quantity of gold has continued to flow into these mar-kets, the amount has been less than it would have been if Fundmembers and some non-members had not been concerned to makethe Fund's policy effective.

The South African proposal to modify the present policy toallow half of the newly-mined gold to go to premium marketswould result in an increase in the flow of gold to premiummarkets and add to the loss of current exchange receipts and re-serves by gold absorbing countries. Moreover, this proposal woulddestroy the basic distinction between the supply of gold for mone-tary purposes and the supply for non-monetary purposes. Itshould be noted that since the South African resolution was pro-posed, the change in exchange rates in a large part of the worldhas materially improved the position of many gold producingcountries.

The Executive Board has also studied, together with manyother relevant factors, the question of whether there should bea uniform change in the par values of all currencies. In itsview there is no economic justification for recommending such achange to the Board of Governors.

93



The Executive Board, therefore, recommends that the Board ofGovernors do not adopt the resolution of the Governor for SouthAfrica. It has also decided that there is no reason to change thepolicy expressed in the Fund's Statement on External Gold Trans-actions at Premium Prices on June 18, 1947. (Attached) Theytrust that members will continue to collaborate with the Fund ingiving effect to the policy outlined in the Fund's statement.

TRANSACTIONS IN GOLD AT PREMIUM PRICES1

The International Monetary Fund has given consideration tothe international gold transactions at prices substantially abovemonetary parity which have been taking place in various areas ofthe world. Because of the importance of this matter the Fundhas prepared this statement of its views.

A primary purpose of the Fund is world exchange stability andit is the considered opinion of the Fund that exchange stabilitymay be undermined by continued and increasing external pur-chases and sales of gold at prices which directly or indirectly pro-duce exchange transactions at depreciated rates. From informa-tion at its disposal, the Fund believes that unless discouraged thispractice is likely to become extensive, which would fundamentallydisturb the exchange relationships among the members of theFund. Moreover, these transactions involve a loss to monetaryreserves, since much of the gold goes into private hoards ratherthan into central holdings. For these reasons, the Fund stronglydeprecates international transactions in gold at premium pricesand recommends that all of its members take effective action toprevent such transactions in gold with other countries or withthe nationals of other countries.

It is realized that some of these transactions are being con-ducted by or through non-member countries or their nationals.The Fund recommends that members make any representationswhich, in their judgment, are warranted by the circumstances tothe governments of non-member countries to join with them ineliminating this source of exchange instability.

1This statement was communicated by the Fund to all members in aletter dated June 18, 1947.

94



The Fund has not overlooked the problems arising in connec-tion with domestic transactions in gold at prices above parity.The conclusion was reached that the Fund would not object atthis time to such transactions unless they have the effect of estab-lishing new rates of exchange or undermining existing rates ofother members, or unless they result in a significant weakening o[the international financial position of a member which mightaffect its utilization of the Fund's resources.

The Fund has requested its members to take action as prompt-ly as possible to put into effect the recommendations containedin this statement.

95


APPENDIX IIISUMMARY OF FUND TRANSACTIONS

FP.OM THE BEGINNING OF OPERATIONSTO APRIL 30, 1950

(In Millions of U.S. Dollars)

Country

1

AUSTRALIAAUSTRIABELGIUMBOLIVIABRAZILCANADACHILECHINACOLOMBIACOSTA RICACUBACZECHOSLOVAKIADENMARKDOMINICAN REPUBLICECUADOREGYPTEL SALVADORETHIOPIA

Currencypurchasedby memberagainst own

currency2

20.0

33.0

37.5

8.8

1.2

6.010.2

3.0

0.6

Member'scurrency sold

by Fund toother

members fortheir currency

or gold3

11.4

Member'scurrency re-purchased bymember withconvertible

currencyor gold

4

21.6

2.1

Member'scurrency

used for re-purchasesby othermembers

5

Effect ofoperationson Fund'scurrencyholdings(Columns

2 & 5minus 3 & 4)

6

20.0

37.5

8.8

—0.9

6.010.2

3.0

0.6

Fund'sholdings

of members'currencies onApr. 30, 1950,expressed aspercentageof quota

7

106.

75

10075

100

757575

103106

75758975

109


FINLANDFRANCEGREECEGUATEMALAHONDURASICELANDINDIAIRANIRAQITALYLEBANONLUXEMBOURGMEXICONETHERLANDSNICARAGUANORWAYPANAMAPARAGUAYPERUPHILIPPINE REPUBLICSYRIATHAILANDTURKEYUNION OF SOUTH AFRICAUNITED KINGDOMUNITED STATESURUGUAYVENEZUELAYUGOSLAVIA

125.0

100.0

22.575.40.59.5

5.010.0

300.0

9.0

777.2

125.0

100.0

22.575.4

0.5 0.09.5

5.010.0

6.0 294.0766.0 14.7 —751,3

9.0

783.41 24.22 14.7 —15.7

—109

—757575

11875

100

—9497

10010275941075877597

—8785

10447

75102

1 $777.2 million sold for currency and $6.2 million for gold.2 $14.7 million repurchased with convertible currency and $9.5 million with gold.




APPENDIX IV

DECISIONS ON MONETARY RESERVES ANDREPURCHASE OBLIGATIONS

Executive Board Decision No. 486-2

Subject: Repurchase Obligation

(a) Before any exclusion of the proceeds of long-term ormedium-term loans can be made under Schedule B, para-graph 3, of the Fund Agreement, it is necessary to identifythat part of a member's holdings which can be regardedas representing the proceeds of such loans.

(b) Where the loan can be spent only for a specific project orpurpose, the proceeds can be regarded as unspent only tothe extent that the special project or purpose has not beencompleted and paid for. The formality of payment of theproceeds into a special or general account would not as arule be considered a significant factor.

(c) Where the loan is not contracted for a special project orpurpose, the proceeds of that loan which may be deductedshould, as a rule of thumb, and in the absence of otherevidence of identification, be determined as follows: (1)the member's lowest holdings of the currency in questionbetween the date of receipt of the proceeds of the loan andthe end of the financial year shall be determined, (2) thepart of such lowest holdings which shall be excluded willbe the proportion which the proceeds of the loan bear tothe sum of the member's holdings of the currency as of thedate of receipt of the proceeds of the loan plus other re-ceipts in the same currency between that date and the dayof the lowest holdings.

[A member has contended] that where, under a payment agree-ment, the other contracting party held [its currency and themember] held the currency of the other party, the full amount ofthe holdings [of the member's currency] should not be deductedbut the two amounts should be offset for the purposes of calcu-lating deductible currency liabilities under Article XIX (e). It

99


APPENDIX IV (Continued)

is determined that the meaning of the term "currency liabilities"under Article XIX (e) cannot be restricted in this way. It mustbe applied in the gross sense to include all of the holdings of amember's currency by another party under a payment agreement.


Subject: Monetary Reserves—Currency Liabilities

1. The currency liabilities of a member are the liabilities rep-resented by the holdings of its currency by the Treasuries, cen-tral banks, stabilization funds, similar fiscal agencies, other of-ficial institutions or other banks of other members, or of suchnonmernbers as have been specified by the Fund.

2. Currency liabilities are not confined to convertible cur-rencies.

3. The deductibility of currency liabilities does not depend onwhether the holder's currency is convertible.

4. "Currency" in the concept "currency liabilities" means"without limitation coins, paper money, bank balances, bankacceptances, and government obligations issued with a maturitynot exceeding twelve months."

5. A blocked balance is not a currency liability.


Subject: Repurchase Obligations

In applying the provisions of Schedule B, paragraph 3 to thecalculation of members' repurchase obligations, the followingprinciples shall govern:

1. Where exclusions have been made at the end of one yearfor holdings which are the proceeds of long-term or medium-term loans contracted during the year or for holdings whichhave been transferred or set aside for the repayment of a loanduring the subsequent year, the exclusion continues to be madein the monetary reserve figures for the beginning of the suc-ceeding year.

2. Where an exclusion has been made in respect of currencywhich became convertible during the year, this currency is in-

100


APPENDIX IV (Continued)

eluded in the monetary reserve figures for the beginning of thesubsequent year.

3. If the member indicates that certain holdings are the pro-ceeds of loans or currency set aside, the reasonable implicationis that the member wishes paragraph 3 to apply to such hold-ings. If the member does not provide such data, the implica-tion is that it is not taking advantage of the provision.


Subject: Repurchases—Allocation of Obligations

If part of a member's gross repurchase obligation for any finan-cial year is allocated to a currency which the Fund cannot acceptbecause of Article V, Section 7 (c) (iii), that part of the grossobligation is abated for that year under Schedule B, Paragraph1 (c), and is not required to be discharged in gold or some othercurrency.

101


APPENDIX V

EXCHANGE OF LETTERS ON POLAND'S WITHDRAWAL

March 13, 1950

Honorable Camille GuttChairman of the Board of Executive Directorsand Managing Director ofThe International Monetary Fund,Washington, D. C.

Sir:On behalf of the Government of the Republic of Poland I have

the honor to inform you as follows:The International Monetary Fund was created for the purpose

of promoting international monetary cooperation and to facili-tate the development of international trade, which should serveto promote and maintain a high level of employment and realincome as well as the development of the productive resources ofall members. Moreover the Fund through its activity was ex-pected to promote exchange stability, to give confidence to mem-bers by making the Fund's resources available to them and byassisting them to correct maladjustments in their balance of pay-ments. All member countries had the right to expect that theInternational Monetary Fund would give them aid in solvingpostwar economic difficulties in the field of exchange, and thatthe activity of the Fund would be directed toward the attainmentof the aims contained in Art. 1 of the Articles of Agreement.

Practice however has shown, that the International MonetaryFund has failed to fulfill its duties. The Fund became instead asubmissive instrument of the Government of the United States,whose economic and political expansion is in direct contradictionto the purpose to be served by the Fund. Due to its attitude inrespect to the selfish policy of the United States Government, theFund cooperated with the United States Government, whichlately forced upon a number of member countries the devaluationof their currencies.

By continuing to be a member of the International MonetaryFund, the Polish Government would take upon itself the respon-

102


APPENDIX V (Continued)

sibility for the policy of the Fund, which this Government severaltimes severely and justly criticized in the hope that it would un-dergo a change.

In view of the above, the Government of the Republic of Po-land sees no possibility of continued cooperation with the Inter-national Monetary Fund and announces i ts withdrawal frommembership in accordance with Art. XV, Section 1.

Accept, Sir, the assurances of my highest consideration.

MJ. WlNIEWICZ

Ambassador of Poland

March 15, 1950Sir:

In the name of the International Monetary Fund, I have thehonour to acknowledge receipt of your communication datedMarch 13, 1950.

I have noted that the Government of the Republic of Polandannounces its withdrawal from membership in accordance withArt. XV, Section 1. I have informed the Executive Board of theFund, and I shall notify the Board of Governors accordingly.

I do not accept the reasons adduced by the Polish Governmentto explain its reasons for withdrawing, but I do not regard it asnecessary to enter into a detailed refutation, inasmuch as thehistory and actions of the Fund, together with its published state-ments, particularly its annual reports, are an ample answer toyour Government's letter.

Accept, Sir, the assurances of my highest consideration.

/vGUTT

Managing Director andChairman of the Board

His Excellency Mr. J. WiniewiczAmbassador of PolandWashington, D. C.

103


APPENDIX VIMEMBERSHIP, QUOTAS, GOVERNORS, AND VOTING POWER

as of April 30, 1950QUOTA VOTES

Member

Australia

Austria

Belgium

Bolivia

Brazil

Canada

Chile

China

Colombia

Costa Rica

Amount(000,000's)

$200.0

50.0

225.0

10.0

150,0

300.0

50.0

550.0

50.0

5.0

Per Centof Total

2.52

0.63

2.84

0.13

L89

3.79

0.63

6.94

0.63

0.06

GovernorAlternate

Arthur William FaddenN. J. O. MakinHans RizziFranz Stoeger-MarenpachMaurice FrereHubert AnsiauxHector Ormachea ZallesJaime Gutierrez GuerraFrancisco Alves dos Santos -FilhoOctavio ParanaguaDouglas Charles AbbottGraham F. TowersArturo MaschkeFernando IllanesChia Kan YenTe-Mou HsiEmilio ToroIgnacio Copete-LizarraldeAngel CoronasMario Fernandez

Number1

2,250

750

2,500

350

1,750

3,250

750

5,570

750

300

Per Centof Total

2..47

0..82

2.7.5

0.3.8

1.92.

3.57.

0.82.

6.32.

0.82.

0.33.


Cuba

Czechoslovakia

Denmark

Dominican Republic

Ecuador

Egypt

El Salvador

Ethiopia

Finland

France

Greece

Guatemala

Honduras

Iceland

50.0

125.0

68.0

5.0

5.0

60.0

2.5

6.0

38.0

525.0

40.0

5.0

0.5

1.0

0.63

1.58

0.86

0.06

0.06

0.76

0.03

0.08

0.48

6.63

0.50

0.06

0.01

0.01

Felipe PazosJose Antonio GuerraLeopold ChmelaPavel EislerHolger KoedEinar DigeJesus Maria TroncosoAmbrosio Alvarez Ay barGuillermo Perez-ChiribogaPedro L. NunezAhmed Zaki Bey SaadMahmoud Saleh El FalakiCatalino HerreraManuel Melendez V.Jack BennettVacantSakari TuomiojaKlaus War isPierre Mendes-FranceWilfrid BaumgartnerXenophon ZolotasAlexander CouclelisManual Noriega MoralesLeonidas AcevedoRafael Heliodoro ValleRene CruzAsgeir AsgeirssonThor Thors

750

1,500

930

300

300

850

275

310

630

5,500

650

300

255

260

0.82

1.65

1.02

0.33

0.33

0.93

0.30

0.34

0.69

6.05

0.71

0.33

0.28

0.29


APPENDIX VI (Continued)

MEMBERSHIP, QUOTAS, GOVERNORS, AND VOTING POWERas of April 30, 1950

QUOTA VOTES

Member

India

Iran

Iraq

Italy

Lebanon

Luxembourg

Mexico

Netherlands

Nicaragua

Norway

Amount(000,000's)

400.0

35.0

8.0

180.0

4.5

10.0

90.0

275.0

2.0

50.0

Per Centof Total

5.05

0.44

0.10

2.27

0.06

0.13

1.14

3.47

0.03

0.63

GovernorAlternate

Sir Chintaman DeshmukhN. SundaresanAbol Hassan EbtehajMocharraf NaficyAbdullah Ibrahim BakrAbdul-Ghani Al-DalliGiuseppe PellaUgo La Mali aGeorges HakimJoseph OughourlianPierre DupongHugues Le GallaisRamon BetetaCarlos NovoaP. LieftinckM. W. HoltropGuillermo Sevilla SacasaRafael Angel HuezoGunnar JahnOle Colbjornsen

Number1

4,250

600

330

2,050

295

350

1,150

3,000

270

750

Per Centof Total

4,67

0.66

0.36

2.25

0.32

0.38

1.26

3.30

0.30

0.82


Panama

Paraguay

Peru

Philippine Republic

Syria

Thailand

Turkey

Union of South Africa

United Kingdom

United States

Uruguay

Venezuela

Yugoslavia

0.5

3.5

25.0

15.0

6.5

12.5

43.0

100.0

1,300.0

2,750.0

15.0

15.0

60.0

0.01

0.04

0.32

0.19

0.08

0,16

0.54

1.26

16.41

34.72

0.19

0.19

0.76

Rodolfo F. HerbrugerJulio E. HeurtematteJuan R, ChavesVictor A. PaneClemente de AlthausEmilio G. Bar re toMiguel CuadernoEmilio AbelloFaiz El-KhouriHusni A. SawwafPrince ViwatKajit KasemsriNurullah Esat SumerBulent YaziciNicolaas Christiaan HavengaJohn Edward Hollow aySir Stafford CrippsSir Ernest Rowe-DuttonJohn W. SnyderJames E, WebbFermin Silveira ZorziMario La Gamma AcevedoJ. J. Gonzalez GorrondonaFelix MirallesMarijan DermastiaUgo Zunjevic

255

285

500

400

315

375

680

1,250

13,250

27,750

400

400

850

0.28

0.31

0.55

0.44

0.35

0.41

0.75

1.37

14.57

30.51

0.44

0.44

0.93

$7,921.5 100.00 90,965 100.OO2

1 Voting power varies on certain matters with use by members of Fund resources.2 These figures do not add to 100% because of rounding.




APPENDIX VII

CHANGES IN MEMBERSHIP OF THE BOARD OFGOVERNORS

Changes in the membership of the Board of Governors betweenMay 1, 1949, and April 30, 1950, have been as follows:

Clemente de Althaus succeeded Francisco Tudela Varela asGovernor for Peru May 12, 1949.

Marijan Dermastia appointed as Governor for Yugoslavia June10, 1949.

Ugo Zunjevic succeeded Dragoslav Avramovic as Alternate Gov-ernor for Yugoslavia June 10, 1949.

Miguel Cuaderno succeeded Joaquin M. Elizalde as Governorfor the Philippine Republic June 21, 1949.

Emilio Abello succeeded Miguel Cuaderno as Alternate Gover-nor for the Philippine Republic June 21, 1949.

Felipe Pazos succeeded Guillermo Belt as Governor for CubaJune 30, 1949.

Jose Antonio Guerra succeeded Jose A. Rodriguez Dod as Alter-nate Governor for Cuba June 30, 1949.

Prince Viwat appointed as Governor for Thailand July 11,1949.

Kajit Kasemsri appointed as Alternate Governor for ThailandJuly 11, 1949.

Rafael Heliodoro Valle succeeded Julian R. Caceres as Gover-nor for Honduras July 18, 1949.

Rene Cruz succeeded Jorge Fidel Duron as Alternate Gover-nor for Honduras July 18, 1949.

Ramon Beteta succeeded Carlos Novoa as Governor for MexicoJuly 21, 1949.

Carlos Novoa succeeded Luciano Wiechers as Alternate Gov-ernor for Mexico July 21, 1949.

Nicolaas Christiaan Havenga succeeded John Edward Hollo-way as Governor for the Union of South Africa August 5, 1949.

John Edward Holloway succeeded Michiel Hendrik de Kock asAlternate Governor for the Union of South Africa August 5, 1949.

Frank Morrice, Jr. succeeded Aquilino Vallarino as AlternateGovernor for Panama August 15. 1949.

109


APPENDIX VII (Continued)

German Rojas succeeded Ruben Benitez as Alternate Governorfor Paraguay August 18, 1949.

Jack Bennett succeeded George A. Blowers as Governor forEthiopia August 26, 1949.

William L. Clayton resigned as Alternate Governor for theUnited States August 27, 1949.

Georges Hakim succeeded Charles Malik as Governor forLebanon August 30, 1949.

Joseph Oughourlian succeeded Georges Hakim as AlternateGovernor for Lebanon August 30, 1949.

Abdullah Ibrahim Bakr succeeded Ahmed Izzet Mohammed asGovernor for Iraq September 5, 1949.

Hubert Ansiaux succeeded C. Duquesne Wathelet de laVinelle as Alternate Governor for Belgium September 6, 1949.

Leopold Chmela succeeded Josef Goldmann as Governor forCzechoslovakia September 6, 1949.

Pavel Eisler succeeded Ladislav Biel as Alternate Governorfor Czechoslovakia September 6, 1949.

Giuseppe Pella succeeded Gustavo Del Vecchio as Governor forItaly September 6, 1949.

Abdul-Ghani Al-Dalli succeeded Amin Mumayiz as AlternateGovernor for Iraq September 11, 1949.

N. J. O. Makin succeeded J. B. Chifley as Governor forAustralia September 13, 1949.

S. G. McFarlane succeeded N. J. O. Makin as Alternate Gov-ernor for Australia September 13, 1949.

J. B. Chifley succeeded N. J. O. Makin as Governor for AustraliaSeptember 30, 1949.

N. J. O. Makin succeeded S. G. McFarlane as Alternate Gov-ernor for Australia September 30, 1949.

Julio Pena, Governor for Costa Rica, died November 20, 1949.Juan R. Chaves succeeded Juan Plate as Governor for Paraguay

December 14, 1949.Victor A. Pane succeeded German Rojas as Alternate Gover-

nor for Paraguay December 14, 1949.

110


APPENDIX VII (Continued)

Chi-Yu Kwaii succeeded Kan Hsu as Governor for China De-cember 28, 1949.

Arthur William Fadden succeeded J. B. Cliifley as Governorfor Australia January 17, 1950..

James E. Webb appointed as Alternate Governor for theUnited States January 18, 1950.

Angel Coronas appointed as Governor for Costa Rica February11, 1950.

Mario Fernandez succeeded Angel Coronas as Alternate Gov-ernor for Costa Rica February 11, 1950.

Holger Koed succeeded Carl Valdemar Bramsnaes as Gov-ernor for Denmark February 20, 1950.

Rodolfo F. Herbruger succeeded Octavio Vallarino as Gov-ernor for Panama March 16, 1950.

Julio E. Heurtematte succeeded Frank Mornce, Jr. as AlternateGovernor for Panama March 16, 1950.

Chia Kan Yen succeeded Chi-Yu Kwan as Governor for ChinaMarch 22, 1950.

Ill


APPENDIX VIII

EXECUTIVE DIRECTORS AND VOTING POWERas of April 30, 1950

DirectorAlternate

CastingVotes of

Votes byCountry

Total Per CentVotes1 of Total

APPOINTEDFrank A. Southard, Jr. United States 27,750 27,750 30.63

John S. Hooker

Sir George Bolton United King- 13,250 13,250 14.63Leslie Frederick Crick dom

Vacant ChinaTsoo Whe Chu

Jean de Largentaye FranceGay de Lavergne

J. V. JoshiD. S. Savkar

ELECTEDOctavio Paranagua

(Brazil)Walter Blomeyer

(Brazil)

Carlos A. D'Ascoli(Venezuela)

Hector Santaella(Venezuela)

India

5,750 5,750 6.35

5,500 5,500 6.07

4,250 4,250 4.69

BoliviaBrazilChileDominican

RepublicHondurasNicaraguaParaguayPeruUruguay

ColombiaCosta RicaCubaEcuadorEl SalvadorGuatemalaMexicoPanamaVenezuela

3501,750

750

300255270285500400

750300750300275300

1,150255400

4,860 5.36

4,480 4.95

112


APPENDIX VIII (Continued)

EXECUTIVE DIRECTORS AND VOTING POWERas of April 30, 1950

Director Casting Votes byAlternate Votes of Country

Ernest de Selliers Belgium(Belgium) Denmark

Vacant Luxembourg

Ahmed Zaki Bey Saad Egypt(Egypt) Ethiopia

Mahmoud Saleh El IranFalaki (Egypt) Iraq

LebanonPhilippine

RepublicSyriaTurkey

J. W. Beyen Netherlands(Netherlands) Norway

H. M. H. A. van derValk (Netherlands)

Louis Rasminsky Canada(Canada) Iceland

/. F. Parkinson(Canada)

S. G. McFarlane Australia(Australia) Union of

/. M. Garland South Africa(Australia)

Guido Carli (Italy) AustriaGiorgio Cigliana- Greece

Piazza (Italy) Italy

Bohumil Sucharda Czechoslovakia(Czechoslovakia) Finland

Mihailo Kolovic Yugoslavia(Yugoslavia)

2,500930350

850310600330295

400315680

3,000750

3,250260

2,250

1,250

750650

2 ,,050

1,500630850

Total Per CentVotes1 of Total

3,780 4.17

3,780 4.17

3,750 4.14

3,510 3.87

3,500 3.86

3,450 3.81

2,980 3.29

90,5902 100.00 3

1 Voting power varies on certain matters with use by members of Fund re-sources.

2 This total does not include the votes of Thailand since that country was nota member when the last election of Executive Directors was held.

3 These figures do not add to 100% because of rounding.

113


APPENDIX IXCHANGES IN MEMBERSHIP OF THE

EXECUTIVE BOARDChanges in the membership of the Executive Board between

May 1, 1949, and April 30, 1950, have been as follows:James Vincent Bailey served as Temporary Alternate Executive

Director to Sir Greorge Bolton from May 17, 1949 throughJuly 8, 1949.

H.M.H.A. van der Valk was appointed Alternate ExecutiveDirector to J. W. Beyen, succeeding Willem Koster, May 23, 1949.

O. Bulhoes served as Temporary Alternate Executive Directorto Octavio Paranagua from May 31, 1949 through June 1, 1949.

Donald Gordon served as Temporary Alternate Executive Di-rector to Louis Rasminsky August 17, 1949.

Bernard de Margerie resigned as Alternate Executive Directorto Jean de Largentaye November 15, 1949.

Guy de Lavergne was appointed Alternate Executive Directorto Jean de Largentaye, succeeding Bernard de Margerie, Novem-ber 16, 1949.

Henry J. Tasca resigned as Alternate Executive Director toFrank A., Southard, Jr. December 22, 1949.

John S. Hooker was appointed Alternate Executive Directorto Frank A. Southard, Jr., succeeding Henry J. Tasca, effectiveJanuary 3, 1950.

B. K. Madan resigned as Executive Director for India January10, 1950.

J. V. Joshi was appointed Executive Director for India, suc-ceeding B. K. Madan, effective January 11, 1950.

Geoffrey Howson Tansley resigned as Alternate ExecutiveDirector to Sir George Bolton, effective February 5, 1950.

Leslie Frederick Crick was appointed Alternate ExecutiveDirector to Sir George Bolton, succeeding Geoffrey HowsonTansley, February 6, 1950.

Yee-Chun Koo resigned as Executive Director for China March26, 1950.

Antonio Dore served as Temporary Alternate Executive Di-rector to Guido Carli March 17, 1950.

Jean C. Godeaux served as Temporary Alternate ExecutiveDirector to Ernest de Selliers March 24, 1950.

114


APPENDIX X (i)

ADMINISTRATIVE BUDGET

LETTER OF TRANSMITTAL

July 7, 1950Dear Mr. Chairman:

The administrative budget of the Fund lor the Fiscal Yearending April 30, 1951, as approved by the Board of ExecutiveDirectors, is presented for the information of the Board ofGovernors in accordance with Section 20 of the By-Laws.

The presentation has been expanded to include the actualexperience for the Fiscal Year 1948-49 and 1949-50 as comparedwith the administrative budget for the Fiscal Year 1950-51.

I should like to repeat again this year that previous experi-ence has shown that it is impossible to predict whether the Fundwill require precisely the amounts budgeted. The amountsestimated are an expression of present administrative plans with-out provision for unforeseen contingencies or inauguration ofextraordinary programs. Should such contingencies arise orpresent plans change materially, the amounts now budgeted mayhave to be changed.

Yours sincerely,/v

GUTT

Chairman of the Executive Board

Chairman of the Board of GovernorsInternational Monetary Fund

115


APPENDIX X (ii)

ADMINISTRATIVE BUDGETFISCAL YEAR ENDING

APRIL 30, 1951

As Approved by the Executive BoardCompared With the Actual Expenditures

of Fiscal Years 194849 and 1949-50

Category ofExpenditures

Personal ServicesContributions to Staff

BenefitsTravelCommunicationsOffice Occupancy ExpenseBooks and PrintingSupplies and Equipment.Meetings of the Board of

Governors .Miscellaneous

Total AdministrativeExpense

ActualExpendituresF.Y. 1948-49

$2,319,529.90

450,095.20 2

256,399.6577,038.02

399,780.4877,966.56

122,641.62

81,738.9730,245.67

$3,815,436.07

F.Y. 1949-50

Budget1

$2,739,500.00

270,500.00348,000.00

97,200.00413,500.00148,300.00137,500.00

80,000.0028,900.00

$4,263,400.00

ActualExpenditures

$2,552,663.46

242,141.10296,059.90151,040.62385,387.39115,527.8397,811.08

100,941.9829,255.18

$3,970,828.54

BudgetF.Y. 1950-51

$2,963,315.00

270,000.00389,500.00119,100.00404,600.00170,100.00103,500.00

230,900.0053,300.00

$4,704,315.003

1 Presented in the Annual Report 1949.2 This sum includes $227,000 reappropriated to cover the Fund's contribution under

Staff Retirement Plan for service prior to July 1, 1948, the date on which the StaffRetirement Plan was put into effect.

3 Includes $31,600 for liquidation of prior year commitments.

116


APPENDIX X (iii)

COMPARATIVE STATEMENTOF INCOME

Values expressed in United States dollars on the basis ofestablished parities

INCOME:

10 Months Year Yearended ended ended

Apr. 30,1948 Apr. 30, 1949 Apr. 30, 1950

Service ChargesReceived in gold $4,080,000.00 $ 895,787.88 $ 343,500.00Received in members'

currencies 45,000.00

Total $4,080,000.00 $ 895,787.88 $ 388,500.00

Charges on Fund's hold-ings of members' cur-rencies and securities inexcess of quotas

Received in gold 83,820.89 485,864.38 1,246,542.25Received in members'

currencies 20,540.01 412,007.12 672,282.82

104,360.90 897,871.50 1,918,825.07

Sales of Fund'sPublications 810.00 6,490.52 13,076.67

528.90 806.71 638.23

TOTALINCOME

TOTALADMINISTRATIVEEXPENDITURE

$4,185,699.80 $1,800,956.61 $2,321,039.97

$2,628,918.89 $3,815,436.07 $3,970,828.54

117

Miscellaneous Income

Total


APPENDIX XI

INTERPRETATION OF ARTICLE IX, SECTION 7

WHEREAS the Executive Director for the United States hasraised certain questions of interpretation of the provisions of Sec-tion 7 of Article IX of the Articles of Agreement of the Fund asto the treatment to be accorded by a member of the InternationalMonetary Fund to official communications of the Fund, whichquestions of interpretation are set forth below;

WHEREAS the said Executive Director has requested that theExecutive Directors, in accordance with Article XVIII of saidArticles, decide such questions of interpretation;

NOW THEREFORE, the Executive Directors hereby decidesuch questions of interpretation as follows:

Question No. 1:

Does Section 7 of Article IX of the Articles of Agreement ofthe Fund apply to rates charged for official communications ofthe Fund?

Decision on Question No. 1:

Yes. Section 7 of Article IX applies to rates charged for offi-cial communications of the Fund.

Question No. 2:

If a member exercises regulatory powers over the rates chargedfor communications, is it relieved of the obligation of Section 7,Article IX, by reason of the fact that the facilities for transmit-ting communications are privately owned or operated or both?


No. A member which exercises regulatory powers over therates charged for communications is not relieved of its obligationunder Section 7 of Article IX by reason of the fact that the facili-

118


APPENDIX XI (Continued)

ties for transmitting such communications arc privately owned

or operated or both.

Question No. 3:

Is the member's obligation under Section 7 of Article IX satis-

fied if official communications of the Fund may be sent only at

rates which exceed the rates accorded the official communications

of other members in comparable situations? For example, wouldthe obligation of member "a", under Section 7 of Article IX,

be satisfied if the rate charged the Fund for its official commu-

nications from the territory of member "a" to the territory of

member "b" exceeds the rate charged member "b" for its official

communications from the territory of "a" to that of "b"?


No. The obligation of a member under Section 7 of Article

IX is not satisfied if official communications of the Fund maybe sent only at rates which exceed the rates accorded the official

communications of other members in comparable situations. Forexample, the obligation of member "a", under Section 7 of Arti-cle IX, would not be satisfied if the rate charged the Fund for

its official communications from the territory of member "a" to

the territory of member "b" exceeds the rate charged member"b" for its official communications from the territory of "a" to

that of "b".

119


APPENDIX XII (i)

BALANCE SHEET, STATEMENT OF INCOME ANDEXPENSE AND SUPPORTING SCHEDULES

Letter of Transmittal

July 7, 1950

My dear Mr. Chairman:In accordance with Section 20 (b) of the By-Laws of the Fund,

I have the honor to submit for the consideration of the Board ofGovernors a balance sheet and statement of income and expenseof the Fund for the year ended April 30, 1950, together with theAuditors' Certificate, as well as audited financial statements ofthe Staff Retirement Fund.

In conformity with the By-Laws, the external audit of theFund has been performed by an Audit Committee consistingof auditors nominated by three member countries. At theFund's request, India, the Netherlands and the United Kingdomnominated auditors to serve on this Committee. They respec-tively nominated Mr. G. S. Rau, Director, Audit and Accounts,Office of Comptroller, and Auditor General of India; Mr. J. G.de Weger, Jr., Chief of the Central Audit Department, Nether-lands Ministry of Finance; and Mr. P. J. Curtis, a Deputy Di-rector of Audit in the Exchequer and Audit Department of HisMajesty's Treasury. The auditors thus nominated were con-firmed by the Executive Directors.

It will be noted that, in the period under review, expenditureexceeded income by $1,650,323.67, and that the total excess ofexpenditure over income from inception to April 30, 1950, is thusincreased to $3,809,703.05.

The detailed report of the Audit Committee is being sub-mitted separately to the Board of Governors.

Yours sincerely,N

GUTT

Chairman of the Executive BoardChairman of the Board of GovernorsInternational Monetary Fund

120


APPENDIX XII (ii)

AUDITORS' CERTIFICATE

"We have made an independent examination of the BalanceSheet of the International Monetary Fund as at April 30, 1950,of the Statement of Income and Expenditure for the fiscal yearended that date, and of the schedules related to such financialstatements. Our examination was made in accordance with gen-erally accepted auditing standards and included all procedureswhich we considered necessary in the circumstances. In thatconnection we have examined or tested, to the extent deemedappropriate, the accounting records of the Fund and other sup-porting evidence of its financial transactions; we have ascertainedgenerally and to the extent practicable that financial trans-actions have been conducted in compliance with the Fund'srequirements; and we have obtained from the officers and staffof the Fund such information and representations as we haverequired in connection with the foregoing. We have also made ageneral review of the accounting methods and system of internalcontrol.

"In our opinion, based on our examination, such BalanceSheet and related Statement of Income and Expenditure, to-gether with the notes appearing thereon, present fairly thefinancial position of the International Monetary Fund as at April30, 1950, and the results of its operations for the year ended thatdate, and were prepared in conformity with generally acceptedaccounting principles applied on a basis consistent with that ofthe previous fiscal period from May 1, 1948 to April 30, 1949."

/s/ G, S. RAU(India)

/s/ J. G. DE WEGER, JR.(Netherlands)

/s/ P., J. CURTIS(United Kingdom)

121


APPENDIXBALANCE

April 30,

Values expressed in United States dollars

ASSETSGold with Depositories $1,459,516,486.09

(Fine ounces 41,700,471.031 at$35.00 per ounce)

Currency and Securities withDepositories

Currency $ 745,710,007.56(In members' currency)

Securities 4,802,959,131.94 5,548,669,139.50(Non-negotiable, non-interest bearingdemand obligations payable at facevalue by members in their currencies)

Currency Adjustment Receivable 16,330,761.75(Due from one member as perArticle IV, Section 8(b))

Subscriptions to Capital—Receivable

Balances due $ 10,448,950.00(Members whose par valueshave been established)

Balances not due 882,296,500.00 892,745,450.00(Members whose par valueshave not yet been established)

Other Assets 728,196.14(Other cash, receivables, etc.)

TOTAL ASSETS $7,917,990,033.48

(sgd.) FREDERICK W. GRAY, Treasurer(sgd.) CHARLES M. POWELL, Comptroller and

Asst. Treasurer

See Notes on page 124, which are an integral part of this Statement.

122


XII (iii)SHEET

1950

on the basis of established parities

CAPITAL, RESERVES, AND LIABILITIESCapital

Authorized Subscriptions ofMembers:

Subscriptions at April 30,1949 $8,034,000,000.00

Subscription of a new mem-ber 12,500,000.00

$8,046,500,000.00Reduction due to with-

125,000,000.00 $7,921,500,000.00

Deduct: Excess of Expendi-ture Over Income

From inception to April 30,1949 $ 2,159,379.38

For Year ended April 30,1950 1,650,323.67 3,809,703.05

$7,917,690,296.95

ReservesReserve for potential cost of

turning certain gold into newbars $ 66,360.70

Reserve for potential cost ofconverting purchased goldinto currency 21,438.91

Withdrawing member's settle-ment account 12,500.00 100,299.61

Liabilities 199,436.92(Accounts payable, deferred income, etc.)

TOTAL CAPITAL, RESERVES, ANDLIABILITIES $7,917,990,033.48

(sgd.) GUTT, Managing Director

123

drawal of a membe


APPENDIX XII (iii) (Continued)

NOTES TO BALANCE SHEET1 The established parities for members' currencies represent par values in re-

lation to the United States dollar as agreed to by the Fund and the membersconcerned, with the following exceptions: (a) As from September 20, 1949,the French franc has been computed for bookkeeping purposes at a provi-sional rate of 340.000 French francs per United States dollar in place of theprevious provisional rate of 2 61.701. (Appropriate adjustment of the Fund'sholdings of French francs has been made to sustain the value thereof at thenew provisional rate.) (b) Peru has introduced a new exchange system but,no new par value having been agreed, the Peruvian sol is provisionally com-puted at the original par value of 6.50000 soles per United States dollar.

2 Gold with the United States depository of the Fund includes 7,918 bars,.995 fine or higher, which are not U. S. Assay Office unmutilated bars. Areserve is provided to meet the potential cost of turning certain of these barsinto U. S. Assay Office bars. The amount of gold shown in this balancesheet does not include 1,368.933 fine ounces with the United States deposi-tory which are earmarked by the Fund for certain members in respect oftheir excess payments of charges.

8 Repurchases actually effected during the financial year are shown on Page 136.In addition, determination of repurchase obligations will be necessaryin respect of the last two financial years for nine other members when therequired information regarding those members' monetary reserves is madeavailable by them.

4 The By-Laws of the Fund provide that Governors, Directors, Alternates,and staff shall, in addition to basic salaries and allowances, be compensatedfor national income taxation thereon. Provision has beei. made, at April 30,1950, for all known claims. While some liability is considered to exist forunascertained claims it is not practicable to estimate the amount for balancesheet purposes. In addition, the Fund has a substantial contingent liabilitywith respect to prospective claimants whose claims will not arise until theyare required to make their tax payments under existing laws.

124


APPENDIX XII (iv)

STATEMENT OF INCOME AND EXPENDITURE

Year ended April 30, 1950

Values expressed in United States dollars on basisof established parities

INCOME

Income from OperationsService charges on exchange

transactions $ 388,500.00Charges on Fund's holdings of

members' currencies and se-curities in excess of quotas . 1,918,825.07 $2,307,325.07

Other IncomeSale of Fund's publications. . . $ 13,076.67Miscellaneous income 638.23 13,714.90

TOTAL INCOME $2,321,039.97

EXPENDITURE

Current AdministrationPersonnel Outlays:

Salaries and wages $2,361,534.76Compensation for national

income taxation 168,617.20

$2,530,151.96Expense allowance for Man-

aging Director 10,000.00Installation allowances 12,511.50(for establishment of res-idence by staff personnel)Fund's contributions for staff

benefits:Staff Retirement FundHealth and hospitalization 11,766.37Other contributions 914.45 $2,794,804.56


125

229,460.28


APPENDIX XII (iv) (Continued)



Values expressed in United States dollars on basisof established parities,

TOTAL INCOME (brought forward) $2,321,039.97CURRENT ADMINISTRATION

CONTINUED (brought forward) $2,794,804.56Travel:

171,164.2740,818.07

Travel for Fund's business. .Appointment travel(bringing personnel toseat of Fund on appoint-ment)Repatriation travel(returning personnel tohomeland on separation)Home leave travel

Communications:Telegraph and cable servicesTelephone servicesPostal services

Office Occupancy Expense:Space rentals and mainte-

nance servicesBuilding alterations

40,847.81

43,229.75 296,059.90

81,011.2539,958.1830,071.19

378,482.236,905.16

Books, newspapers and periodicals.Printing, by contract

Carried forward

151,040.62

385,387.39

26,653.3888,874.45

$3,742,820.30

126

$

$

$





Values expressed in United States dollars on basisof established parities

TOTAL INCOME (brought forward) $2,321,039.97CURRENT ADMINISTRATION

CONTINUED (brought forward) $3,742,820.30Equipment and supplies:(including rentals, repairs,and maintenance)

Equipment $ 55,028.92Consumable supplies 42,782.16 97,811.08

Miscellaneous expenses:Insurance $ 12,770,92External Audit 4,889.57Actuarial expense regarding

Staff Retirement Fund. . . 1,710.42Other miscellaneous expense 9,884.27 29,255.18

TOTAL EXPENDITURE FOR CUR-RENT ADMINISTRATION.

Meeting of Board of Governors:Fourth Annual Meeting 95,868.31(Sept. 13 to Sept. 16, 1949)

TOTAL ADMINISTRATIVE EX-PENSE $3,965,754.87

Other Expenses:Handling charges of depository in connection

with gold of Fund

TOTAL EXPENDITURE 3,965,756.49

EXCESS OF EXPENDITURE OVER INCOME FORPERIOD $1,644,716.52

ADJUSTMENTS NOT RELATED TOINCOME AND EXPENDITURE OF PERIOD

AdditionExpense of Past Annual Meetings of Board

of Governors, paid this year $ 604.91Expense of Fifth Annual Meeting of Board

of Governors, paid this year 4,468.76Exchange Adjustments—Net 533.48

NET ADJUSTMENT 5,607.15

DECREASE IN NET CAPITAL FOR YEAR ENDEDAPRIL 30, 1950 $1,650,323.67

(carried to Balance Sheet)

127

$3,869,886.56

.622



NOTES TO STATEMENT OFINCOME AND EXPENDITURE

1 The established parities for members' currencies represent par values in re-lation to the U. S. dollar as agreed to by the Fund with the members con-cerned, with exception of the French franc and the Peruvian sol which forbookkeeping purposes are computed at a provisional rate of 340.000 francsper U. S. dollar and the former par value of 6.50000 soles per U. S. dollar,respectively. See also Note 1 to Balance Sheet.

2 Income from operations represents charges levied against members. Suchcharges are payable in gold except under certain conditions specified inArticle V, Section 8(f) of the Fund Agreement.

3 Travel in connection with meetings of the Board of Governors is includedin the expense of such meetings.

4 It continues to be the policy of the Fund to write off the cost value of allfurniture, office equipment, and automobiles by establishing full depreciationreserves against the assets and to charge the cost value of consumable sup-plies to expense of the fiscal year in which purchased.

5 The net debit for exchange adjustments is the result of bookkeeping entriesdue to the expression in U.. S. dollar values of transactions in gold and mem-bers' currencies, which involves the use of fractional computations. The netdebit does not represent a true loss such as may arise in dealing in foreignexchange at fluctuating rates.

128


APPENDIX XII (v)

GOLD WITH DEPOSITORIES

April 30, 195

Valued at U. S. $35 per fine ounce

Ounces Equivalent ValueDepositories (.995 fine or higher) in 17. S. Dollars

Banque de France 2,324,039.231 81,341,373.09

Reserve Bank of India 785,327.246 27,486,453.61

Bank of England 15,099,712.620 528,489,941.70

Federal Reserve Bank of NewYork 23,491,391.934 822,198,717.69

41,700,471.031 1,459,516,486.09

NOTE:See Note 2 of the Balance Sheet regarding gold with the Federal ReserveBank of New York. The gold shown above with that depository doesnot include 1,368.933 fine ounces which are earmarked by the Fund forthe following members in respect of excess payments of charges:

Australia 8.829 Mexico 234.435Brazil 1.08Chile 29.385 Nicaragua 8.026Denmark 201.502 Norway 369.864Ethiopia 28.445 Turkey 109.388

129

Netherlands 377.9744


APPENDIX XII (vi)

CURRENCIES AND SECURITIES WITH DEPOSITORIES—April 30, 1950

Equivalent values in United States dollars are based on exchange rates for established par values

Depositories

Commonwealth Bank of AustraliaBanque Nationale de Belgique, S. A.Superintendencia da Moeda e do

Credito (Brazil)Bank of CanadaBanco Central de ChileBanco de la Republica de Colom-

biaBanco Central de Costa RicaBanco Nacional de CubaNational Bank of CzechoslovakiaDanmarks NationalbankBanco Central de la Republica

DominicanaBanco Central del EcuadorThe Treasury of EgyptBanco Central de Reserva de El

SalvadorState Bank of EthiopiaBanque de FranceBanco de GuatemalaGeneral Treasury of the Republic

(Honduras)The National Bank of IcelandReserve Bank of IndiaBank Melli IranRafidain Bank (Iraq)

NationalCurrencies

PoundsFrancs

CruzeirosDollarsPesos

PesosColonesPesosKorunyKroner

PesosSucresPounds

ColonesDollarsFrancsQuetzales

LempirasKronurRupeesRialsDinars

Amounts of Currency and Securities(In Units of National Currencies)

Currency

17,882,841.0.31,127,464,304.25

2.774,992,648.204,091,558.61

1,549,448,980.37

73,121,821.2121,055,687.3037,489,097.41

879,257,372.2019,463,935.68

501,865.3350,619,011.13

2,178,416.209

4,685,014.842,861,261.49

1,788,231,900.003,749,367.31

102,000.0012,209,028.01

463,068,358.13.2113,870,344.50

287,715.583

Securities

76,575,000.0.07,309,934,290.50

243,400,000.00

5,552,378,996.00479,623,010.92

3,248,000.00

10,767,067.250

13,377,375.30192,150,000,000.00

647,881.60

1,786,600,000.0.0732,132,569.30

2,569,125.000

Total

94,457,841.0.38,437,398,594,75

2.774,992.648.20247,491,558.61

1,549,448,980.37

73,121,821.2121,055,687.3037,489,097.41

6,431,636,368.20499,086,946.60

3,749,865.3350,619,011.1312,945,483.459

4,685,014.8416,238,636.79

193,938,231,900.003,749,367.31

749,881.6012,209,028.01

2,249,668,358.13.2846,002,913.80

2,856,840.583

ExchangeRates(See

Note 2)

224.000*50.0000

18.50001.10000

31.0000

1.949985.615001.00000

50.00006.90714

1.0000013.5000

287.156*

2.5000040.2500*

See Note 11.00000

2.0000016.285721.0000*32.2500

280.000*

EquivalentValues in U. S.

Dollars

211,585,563.87168,747,971.90

149,999,602.60224,992,326.0149,982,225.17

37,498,754.463,749,899.78

37,489,097.41128,632,727.36

72,256,671.59

3,749,865.333,749,556.38

37,173,732.48

1,874,005.946,536,051.31

570,406,564.413,749,367.31

374,940.80749,677.82

472,430,355.3526,232,648.497,999,153.64


Banque de Syrie et du Liban(Lebanon)

Banque Nationale de Belgique,S. A. (Luxembourg)

Banco de Mexico, S. A.De Nederlandsche Bank, N. V.Departamento de Emision — Banco

Nacional de NicaraguaNorges BankBanco Nacional de PanamaBanco del ParaguayBanco Central de Reserva del PeruCentral Bank of the PhilippinesBanque de Syrie et du Liban

(Syria)Banque Centrale de la Republique

de TurquieSouth African Reserve BankBank of EnglandFederal Reserve Bank of New YorkRiggs National Bank (See Note 3)Banco Central de VenezuelaBanque Nationale de la Repu-

blique Federative Populaire deYougoslavie

TOTAL

Pounds

FrancsPesosGuilders

CordobasKronerBalboasGuaraniesSolesPesos

Pounds

LirasPoundsPoundsDollarsDollarsBolivares

Dinars

9,271,806.15

50,003,913.29778,484,236.7711,215,551.80

7,493,031.1272,301,319.66

49,918.408,105,396.52

16,261,064.4722,497,861.83

1,424,046.60

26,045,820.274,961,955.17.64,689,931.18.0

29,445,386.9630,198.01

5,024,180.50

3,058,022,690.00

433,700,000.00

1,059,000,000.00

263,848,315.10

125,743,686.00

12,447,000.00

78,250,000.0025,390,368.13.4

480,450,000.0.01,270,000,000.00

32,659,359.42

9,271,806.15

483,703,913.29778,484,236.77

1,070,215,551.80

7,493,031.12336,149,634.76

49,918.408,105,396.52

142,004,750.4722,497,861.83

13,871,046.60

104,295,820.2730,352,324.10.10485,139,931.18.0

1,299,445,386.9630,198.01

37,683,539.92

3,058,022,690.00

2.19148

50.00008.650003.80000

5.0000014.0000*

1.000003.09000

See Note 12.00000

2.19148

2.80000280.000*280.000*

3.35000

50.0000

4,230,842.24

9,674,078.2689,998,177.67

281,635,671.53

1,498,606.2247,060,948.86

49,918.402,623,105.67

21,846,884.6911,248,930.91

6,329,533.73

37,248,507.2384,986,508.71

1,358,391,809.321,299,445,386.96

30,198.0111,248,817.88

61,160,453.80

5,548,669,139.50

SUMMARY

Currency and Securities with Depositories, perBalance Sheet, at Equivalent Value in U. S. dollars

Currency $ 745,710,007.56Securities 4,802,959,131.94

Total, as above. . . $5,548,669,139.50

NOTES:1 Par values for members' currencies are established in relation to the U, S,

dollar as agreed to by the Fund and the members concerned with the excep-tion of the French franc and the Peruvian sol which for bookkeeping purposesare computed at a provisional rate of 340.000 francs per U. S. dollar and theformer par value of 6.50000 soles per U. S. dollar, respectively. (See alsoNote 1 to Balance Sheet)

2 Exchange rates represent number of units of national currencies to the U. S.dollar except for items carrying asterisk (*) which represent number ofU. S. cents to the related unit of national currency.

3 A checking account is maintained with Riggs National Bank in Washington,D. C. for the purpose of making local payments for administrative expendi-ture.


APPENDIX XII (vii)

STATUS OF SUBSCRIPTIONS TO CAPITAL—April 30, 1950

Values expressed in United States dollars on basis of established parities (See Note 1)

MEMBERS

AustraliaAustriaBelgiumBoliviaBrazilCanadaChileChinaColombiaCosta RicaCubaCzechoslovakiaDenmarkDominican RepublicEcuadorEgyptEl SalvadorEthiopiaFinlandFranceGreeceGuatemalaHondurasIceland

QUOTAS

(In Mil-lions ofU. S.

Dollars)

20050

22510

150300

50550

505

501256855

602.56

38525

405

,51

PAYMENTS ON SUBSCRIPTIONSTO CAPITAL

1/100 of 1%Paid in U. S.

Dollars2

22,500.001,000.00

15,000.0030,000.00

5,000.0055,000.005,000.00

500.005,000.00

12,500.006,800.00

500.00500.00

4,500.00250.00600.00

52,500.004,000.00

500.00250.00100.00

Paid in Gold

8,404,843.20

56,227,500.00

37,485,030.1474,970,000.008,813,013.93

12,495,150.61373,700.09

12,495,386.362,361,151.145,934,983.321,249,512.671,249,612.819,484,075.69

624,787.8061,752.22

79,527,420.664

1,249,559.81124,809.20249,900.28

Paid in Member'sCurrency

191,595,156.80

168,750,000.00

112,499,969.86225,000,000.0041,181,986.07

37,499,849.394,625,799.91

37,499,613.64122,626,348.8662,058,216.683,749,987.333,749,887.19

50,511,424.311,874,962.205,937,647.78

445,420,079.34

3,749,940.19374,940.80749,999.72

SUBSCRIPTIONS TO CAPITALRECEIVABLE

Balances Due(Par ValuesEstablished)

9,999,000.00

Balances not Due(Par Values

not Established)

50,000,000.00

549,945,000.00

38,000,000.00

39,996,000.00


IndiaIranIraqItalyLebanonLuxembourgMexicoNetherlandsNicaraguaNorwayPanamaParaguayPeruPhilippine RepublicSyriaThailandTurkeyUnion of South AfricaUnited KingdomUnited StatesUruguayVenezuelaYugoslavia

TOTALS

400358

1804.5

1090

2752

50.5

3.525156.5

12. 53

43100

1,3002,750

151560

7,921.5

40,000.002,500.00

800.0018,000.00

450.001,000.009,000.00

27,500.00200.00

5,000.0050.00

200.002,500.001,500.00

650.00

4,300.0010,000.00

130,000.00275,000.00

1,500.001,500.006,000.00

759,650.00

27,486,453.618,764,707.14

267,415.124324,821.254

22,491,205.1468,722,500.00

499,975.6612,495,054.90

875,496.473,149,921.003,748,548.79

169,187.1743,125,000.00

10,745,912.2324,994,519.20

236,135,323.70687,500,000.11

3,748,541.967,878,546.204

1,436,505,319.58

372,473,546.3926,232,792.86

7,999, 200.00 5

4,232,134.889,674,178.75

67,499,794.86206,250,000.00

1,499,824.3437,499,945.10

50,000.002,624,303.53

21,847,579.0011,249,951.21

6,330,162.83

32,249,787.7774,995,480.80

1,063,734,676.302,062,224,999.89

11,249,958.0452,115,453.80

5,591,489,580.42

449,950.00

10,448,950.00

179,982,000.00

9,375,000.00

14,998,500.00

882,296,500.00

SUMMARY OFSUBSCRIPTIONS TO CAPITAL RECEIVABLE

(Per Balance Sheet)Balances due $ 10,448,950.00Balances not due. . . . 882,296,500.00

NOTES:

Total SubscriptionsTo CapitalReceivable. $892,745,450.00

1 The established parities for members' currencies represent par values in re-lation to the United States dollar as agreed to by the Fund and the membersconcerned for the payment of their subscriptions at the time such paymentswere made. See also Note to Balance Sheet regarding provisional rates es-tablished for bookkeeping purposes for the French franc and for the Peruviansol.

2 As per Article XX, Section 2(d), of the Articles of Agreement.3 New Member.4 Fund has provisionally accepted member's payment in gold which is less than

25% of the member's quota.5 Member's payment exclusively in currencies is considered by Fund as final.


APPENDIX XII (viii)

OTHER ASSETS

April 30, 1950

Values expressed in United States dollars (See Note 1)

CASHImprest Funds $ 3,049.64(petty cash and postage)

Cash with technical representatives overseas. 3,740.68 $ 6,790.32(See Note 2)

ACCOUNTS RECEIVABLE (including accruals)Members Accounts $607,662.86(accrued charges against members)

Commercial Accounts 51,937.05

Travel and Staff Advances 49,076.67 708,676.58

DEFERRED CHARGES (unexpired insurance, etc.) 12,729.24

EQUIPMENT(represents furniture, office equipment,and automobiles at cost value of$432,144.33 against which full reservesfor depreciation are carried)

LIBRARY INVESTMENT(represents law library at cost value of$16,588.49 and investment at cost valueof $23,200.72 in library owned jointlywith International Bank for Reconstruc-tion and Development, against whichfull reserves for depreciation are carried)

TOTAL OTHER ASSETS, PER BALANCE SHEET. . $728,196.14

NOTES:1 The rates used for the expression of other currencies in U. S. dollars are

explained in Note 1 to the Balance Sheet.2 Cash with technical representatives overseas consists of U. S. dollars

1,110, French francs 572,445, Egyptian pounds 241.255, and Indian rupees1,210.10.6.

134


APPENDIX XII (ix)

LIABILITIES

April 30, 195

Values expressed in United States dollars (See Note)

ACCOUNTS PAYABLEMembers Accounts $ 394.50(overpayments on capital subscriptions, reimbursablein member's currency)

Commercial Accounts and Accruals 95,024.28Executive Directors, Staff, and Staff Benefits 99,241.30(amounts due or accrued for salaries and wages, StaffRetirement Fund, travel, etc.)

Total Accounts Payable and Accruals $194,660.08

UNEARNED INCOMESubscriptions to Fund's publications 4,776.84

TOTAL LIABILITIES, PER BALANCE SHEET. . . . $199,436.92

NOTE:The rates used for the expression of other currencies in U. S. dollars areexplained in Note 1 to the Balance Sheet.

135


APPENDIX XII (x)

SUMMARY OF TRANSACTIONS

For the Year ended April 30, 1950

Exchange Transactions

Currency Sold by FundU. S. Dollars

Currency Purchased byFund

Australian PoundsBrazilian CruzeirosEthiopian DollarsYugoslav Dinars

Repurchases of their Currencyby Members

Currency Repurchasedfrom Fund

Belgian FrancsCosta Rican ColonesNicaraguan Cordobas

Currency and Gold Paidto Fund

U. S. DollarsGold (in fine ounces)

Amount inCurrency

51,800,000.00

8,928,571.8.7416,250,000.00

745,341.61450,000,000.00

1,073,443,105.1011,922,159.032,500,000.00

14,671,553.10272,497.808

U. S. DollarEquivalent

51,800,000.00

20,000,000.0022,500,000.00

300,000.009,000,000.00

51,800,000.00

21,585,706.752,123,269.64

500,000.00

24,208,976.39

14,671,553.109,537,423.29

24,208,976.39

136


APPENDIX XII (xi)

STAFF RETIREMENT FUND

AUDITORS' CERTIFICATE

"We have made an independent examination of the accountsof the Staff Retirement Fund of the International MonetaryFund for the year ended April 30, 1950. Our examination wasmade in accordance with generally accepted auditing standardsand included all procedures which we considered necessary inthe circumstances. In that connection, consideration was givento the authority and other requirements governing transactionsof the Staff Retirement Fund.

"The examination did not include a verification of the indi-vidual participants' accounts as at April 30, 1950, except forinquiry into certain of such accounts as a consequence of theapplication of auditing procedures to the other accounts of theStaff Retirement Fund. We ascertained, however, that the In-ternal Auditor of the International Monetary Fund had made adetailed audit of all participants' individual accounts as atApril 30, 1950, and we satisfied ourselves that application of theauditing procedures adopted by him would be adequate to insurethe correctness of such individual accounts with regard foreligibility, contributions, and interest allowed.

"In our opinion, the Balance Sheet and related statements ofthe Participants' Account, Accumulation Account, and Applica-tion of Funds, together with the notes appearing thereon, pre-sent fairly the financial position of the Staff Retirement Fundof the International Monetary Fund as at April 30, 1950, andthe results of operations for the year ended that date, and wereprepared in conformity with generally accepted accounting prin-ciples applied on a basis consistent with that of the previousfiscal period from July 1, 1948 to April 30, 1949."

/s/ G. S. RAU(India)

/s/ J. G. DE WEGER, JR.(Netherlands)

/s/ P. J. CURTIS(United Kingdom)

137


APPENDIX XII (xii)

STAFF RETIREMENT FUNDBALANCE SHEET

April ,30, 1950

ASSETSCASH IN BANK

Riggs National Bank,,Washington, D. C.. $ 2,248.73

Chase National Bank.,New York, N. Y.. 557.51 $ 2,806.24

INVESTMENTS (Book Value)(See Page 141)

United States Savings Bonds,Series G (non-marketable) $378,000.00

International Bank for Recon-struction and Development 3%Bonds (market value$285,487.50) 270,816.23

Commercial Bonds (market value$290,507.50) 289,322.74 938,138.97

ACCRUED INTEREST ON INVESTMENTS. 4,735.60ACCRUED CONTRIBUTIONS RECEIVABLE

FROM INTERNATIONAL MONETARYFUND 10,017.63

TOTAL ASSETS $955,698.44

LIABILITIESACCOUNTS PAYABLE $ 433.01PARTICIPANTS' ACCOUNT

Balance April 30, 1949 $153,256.22Add: Excess of Income over Outgo

(See Page 139) 109,199.64

Balance April 30, 1950 262,455.86ACCUMULATION ACCOUNT

Balance April 30, 1949 $446,667.58Add: Excess of Income over Outgo

(See Page 140) 223,936.55

Balance April 30, 1950 670,604.13RETIREMENT RESERVE—

See Note 1Transferred from Participants'

Account $ 6,736.07Transferred from Accumulation

Account 15,469.37 22,205.44

TOTAL LIABILITIES. $955,698.44

See Notes on page 145,, which are an integral part of this Statement.

IBS


APPENDIX XII (xiii)


STATEMENT OF PARTICIPANTS' ACCOUNT

for the year ended April 30, 1950INCOME

CONTRIBUTIONS OFEMPLOYEES

Prior Service $ 8,066.80Participating Service 117,391.70Additional Voluntary

Contributions 4,120.00 $129,578.50

TRANSFERS FROM ACCUMU-LATION ACCOUNT(See Page 140)

Interest credited to participantsin respect of:

Prior Service $ 279.49Participating Service 4,729.34Additional Voluntary

Contributions 93.82 5,102.65

TOTAL INCOME $134,681.15

OUTGOREFUNDS

To former participants who havewithdrawn (contributions andinterest) $ 17,987.38

To beneficiary upon death of par-ticipant (contributions and in-terest) 375.81 $ 18,363.19

TRANSFERSTo Retirement Reserve $ 6,736.07To Retirement Fund of Interna-

tional Bank for Reconstructionand Development (net) — SeeNote 2 382.25 7,118.32

TOTAL OUTGO 25,481.51

EXCESS OF INCOME OVER OUTGO (See Page 138) $109,199.64

See Notes on page 145, v/hich are an integral part of this Statement.

139


APPENDIX XII (xiv)


STATEMENT OF ACCUMULATION ACCOUNT

for the year ended April 30, 1950

INCOME

CONTRIBUTIONS OFEMPLOYER

For Employees' Participating Service $231,965.62

INCOME ON INVESTMENTSInterest earned—See Note 3 20,863.66

OTHER INCOMEInterest on unpaid prior service contributions

of participants 152.91

TOTAL INCOME $252,982.19

OUTGO

BENEFITSTo former participants who have

withdrawn $ 2,185.16To beneficiary upon death of par-

ticipant 6,272.45 $ 8,457.61

TRANSFERSInterest credited to participants*

accounts (See Page 139) $ 5,102.65To Retirement Reserve Account

(includes interest of $228.92). . 15,469.37To Retirement Fund of Interna-

tional Bank for Reconstructionand Development: (net)—SeeNote 2 16.01 20,588.03

TOTAL OUTGO 29,045.64

EXCESS OF INCOME OVER OUTGO (See Page 138) $223,936.55


140


APPENDIX XII (xv)


SCHEDULE OF INVESTMENTS

April 30, 1950

InterestRate

MaturityDate

FaceValue

BookValue

2}4%

United States SavingsBonds:

Series G—See Note 3Series G—See Note 3Series G—See Note 3Series G—See Note 3Series G—See Note 3Series G—See Note 3Series G—See Note 3

International Bank forReconstruction andDevelopment Bonds 3%

Commercial Bonds:American Telephone

and Telegraph Co.—Debentures

Consolidated EdisonCo. of New York,Inc.—1st and Re-funding "E"

Duke Power Co.—1stand R e f u n d i n gMortgage

Illinois Bell TelephoneCo.—1st Mortgage"A"

New York TelephoneCo. — Refund ingMortgage "D"

Niagara MohawkPower Corp.—Gen-eral Mortgage

Pacific Gas and Elec-tric Co.—1st andRefunding "S"

July 1, 1960 $250,000.00 $250,000.00January 1, 1961February 1, 1961March 1, 1961April 1, 1961March 1, 1962April 1, 1962

32,000.0024,000.0026,000.0018,000.0014,000.0014,000.00

32,000.0024,000.0026,000.0018,000.0014,000.0014,000.00 $378,000.00

3%

3%

July 15, 1972

1980

1979

1979

1981

1982

1980

1983

276,000.00

15,000.00 $ 15,102.21

25,000.00 26,113.37

13,000.00 13,670.83

25,000.00 25,403.42

37,000.00 37,616.91

14,000.00 14,156.62

45,000.00 47,141.66

270,816.23

141

2}4%2}4%2}4%

2}4%

2}4%2}4%

2}4%

2}4%

2}4%

2}4%

2}4%


APPENDIX XII (xv) (Continued)


SCHEDULE OF INVESTMENTS

April 30, 1950

InterestRate

MaturityDate

Face BookValue Value

Commercial Bonds(Continued):

Pennsylvania Powerand Light Co.—1stMortgage 3% 1975

Public Service Elec-tric and Gas Co.—1st and Refunding 2%% 1979

Standard Oil Com-pany of New Jersey—Debentures 2%% 1974

United Gas Corpora-tion—1st Mortgageand Collateral Trust 2%% 1970

Total Investments(See Page 138) $938,138.97

38,000.00 39,812.92

25,000.00 26,003.14

30,000.00 30,145.48

14,000.00 14,156.18 289,322.74


142


APPENDIX XII (xvi)


STATEMENT OF APPLICATION OF FUNDSfor the year ended April 30, 1950

FUNDS PROVIDEDContributions of Employees:

Prior service $ 8,066.80Participating service 117,391.70Additional voluntary contributions 4,120.00 $129,578.50

Contributions of Employer:For Employees' participating service 231,965.62

Income on Investments—See Note 3 20,863.66Interest on unpaid prior service contributions of participantsTransfers from Retirement Fund of Interna-

tional Bank for Reconstruction and Development—See Note 2To Participants' Account $ 334.72To Accumulation Account 1,076.94 1,411.66

Total Funds Provided $383,972.35

FUNDS APPLIEDPurchase of Investments $343,962.72Refunds

To former participants with interest $ 17,987.38To beneficiary upon death of participant (con-

tributions and interest) 375.81 18,363.19

BenefitsTo former participants who have withdrawn. . $ 2,185.16To beneficiary upon death of participant 6,272.45 8,457.61

Transfers to Retirement Fund of InternationalBank for Reconstruction and Development—See Note 2From Participants' Account $ 716.97From Accumulation Account 1,092.95 1,809.92

Increase in Working Capital 11,378.91

Total Funds Applied $383,972.35

143

152.91


APPENDIX XII (xvi) (Continued)


STATEMENT OF APPLICATION OF FUNDS

for the year ended April 30, 1950

STATEMENT OF CHANGES IN WORKING CAPITALfor the year ended April 30, 1950

April 30, April 30,1950 1949 Increase Decrease

CURRENT ASSETSCash $2,806,24 $5,123.46 $ $2,317.22Accrued Interest on

Investments 4,735.60 2,187.50 2,548.10Accrued Contributions

Receivable from Inter-national Monetary Fund 10,017,63 — 10,017.63

Accounts Receivable — 18.85 18.85

$17,559.47 $ 7,329.81CURRENT LIABILITIES

Accounts Payable 433.01 1,,582.26 1,149.25

WORKING CAPITAL. .. $17,126.46 $5,747.55 $13,714.98 $2,336.07

Increase in Working Capital $11,378.91


144


APPENDIX XII (xvii)

NOTES TO FINANCIAL STATEMENTS OF STAFFRETIREMENT FUND OF THE INTERNATIONAL

MONETARY FUND

1 The Retirement Reserve represents amounts calculated by the actuary asat the date of participants' retirement under the Plan as being necessary toprovide for their pensions.

2 During the past fiscal year the International Monetary Fund and Inter-national Bank for Reconstruction and Development amended their retire-ment plans so as to permit an employee participant who transfers employ-ment between the Fund and the Bank without a break in service to transferall pension rights without any loss of benefits. If the employee so trans-ferring desires to have his pension rights transferred to his new employer,an amount necessary to maintain his status in the retirement plan of hisnew employer shall be transferred between the retirement funds.

3 Income on investments includes interest on United States Savings Bonds,Series G, currently paid at the rate of 2j^ per cent per annum on the condi-tion that the bonds will be held to maturity which is 12 years after issue.If such bonds should be redeemed, at the option of the owner, prior to ma-turity, the interest previously received at the rate of 2}/£ per cent is subjectto adjustment (or refund) resulting in a lower yield on the investment at arate depending on the length of time the investment is held.

145


APPENDIX XIII (i)

SCHEDULE OF PAR VALUES—as of July 1, 1950

CURRENCIES OF METROPOLITAN AREAS

Member

AUSTRALIAAUSTRIABELGIUMBOLIVIABRAZILCANADACHILECHINACOLOMBIACOSTA RICACUBACZECHOSLOVAKIADENMARKDOMINICAN REPUBLICECUADOREGYPTEL SALVADORETHIOPIA

Currency

PoundSchillingFrancBolivianoCruzeiroDollarPesoYuanPesoColonPesoKorunaKronePesoSucrePoundColonDollar

Par ValuesIn Terms of Gold

CurrencyGrams of fine

gold per troy ouncecurrency unit of fine gold

1.990 62 15.625 0Par Value not yet established0.017 773 4 1,750.000.014811 2 2,100.000.048 036 3 647.5000.807 883 38.500 00.028 666 8 1,085.00Par Value not yet established0.455 733 68.249 30.158 267 196.5250.888 671 35.000 00.0177734 1,750.000.128 660 241.7500.888 671 35.000 00.065 827 5 472.5002.55187 12.18850.355 468 87.500 00.357 690 86.956 5

Par ValuesIn Terms of U.

Currencyunits per

U.S.dollar

0.446 429

50.000 060.000 018.500 01.10000

31.0000

1.949 985.615 001.000 00

50.000 06.907 141.000 00

13.500 00.348 2422.500 002.484 47

S. Dollars

U. S. centsper currency

unit

224.000

2.000 001.666 675.405 41

90.909 13.22581

51.282 517.809 4

100.0002.000 00

14.477 8100.000

7.407 41287.15640.000 040.250 0

units per


FINLANDFRANCEGREECEGUATEMALAHONDURASICELANDINDIAIRANIRAQITALYLEBANONLUXEMBOURGMEXICONETHERLANDSNICARAGUANORWAYPANAMAPARAGUAYPERU1

PHILIPPINE REPUBLICSYRIATHAILANDTURKEYUNION OF SOUTH AFRICA

UNITED KINGDOM

UNITED STATESURUGUAYVENEZUELAYUGOSLAVIA

MarkkaFrancDrachmaQuetzalLempiraKronaRupeeRialDinarLiraPoundFrancPesoGuilderCdrdobaKroneBalboaGuaraniSolPesoPoundBahtLiraPound

Pound

DollarPesoBolivarDinar

Par Value notNo Par ValuePar Value not0.888 6710.444 3350.054 567 60.186 6210.027 555 72.488 28Par Value not0.405 5120.017 77340.102 7370.233 8610.177 7340.1244140.888 6710.287 595

0.444 3350.405 512Par Value not0.317 3822.488 28

2.488 28

0.888 671Par Value not0.265 2750.017 773 4

yet establishedagreed with the Fundyet established

35.000 070.000 0

570.000166.667

1,128.7512.5000

yet established76.701 8

1,750.00302.750133.000175.000250.00035.000 0

108.150

70.000 076.701 8

yet established98.000 012.500 0

(ui 250 shillings)12.5000

(or 250 shillings)35.000 0

yet established117.250

1,750.00

1.000 002.000 00

16.285 74.761 90

32.250 00.357 143

2.191 4850.000 08.650 003.800 005.000 007.142 861.000003.090 00

2.000 002.191 48

2.800 000.357 143

0.357 143

1.000 00

3.350 0050.000 0

100.00050.000 06.14036

21.00003.100 78

280.000

45.631 32.000 00

11.560726.315 820.000 014.000 0

100.00032.362 5

50.000 045.631 3

35.7143280.000

280.000

100.000

29.850 72.000 00

1 In November 1949, Peru introduced a new exchange system, but no agreement on a new par value has been reached.


APPENDIX XIII (ii)

SCHEDULE OF PAR VALUES— as of July 1,SEPARATE CURRENCIES IN NON-METROPOLITAN AREAS

Par ValuesIn Terms of Gold

Member andNon-Metropolitan areas

BELGIUMBelgian Congo

FRANCE

Grams of fineCurrency and relation to gold per

Metropolitan Unit currency unit

Franc 0.017 773 4(Parity with Belgian franc)

French Possessions in India Rupee 0.186621French SomalilandNETHERLANDSSurinam

Netherlands Antilles

Netherlands New GuineaUNITED KINGDOMGambiaGold CoastNigeriaSierra LeoneSouthern RhodesiaNorthern RhodesiaNyasalandCyprus

Gibraltar

Malta

Bahamas

Bermuda

Jamaica

Falkland Islands

Djibouti Franc 0.004 145 07

Guilder (=-2.015 0.471 230Netherlands guilders)

Guilder ( = 2.015 0.471 230Netherlands guilders)

Currencyunits per

troy ounceof fine gold

1,750.00

166.6677,503.73

66.004 9

66.004 9

1950OF MEMBERS

Par ValuesIn Terms of U. S. Dollars

Currencyunits per U. S. cents

U. S. per currencydollar unit

50.000 0 2.000 00

4.761 90 21.000 0214.392 0.466435

1.88585 53,0264

1.88585 53.0264

Guilder Par Value not yet established

West African Pound(Parity with sterling)

Southern RhodesianPound (Parity withsterling)

Cyprus Pound(Parity with sterling)

Gibraltar Pound(Parity with sterling) I 2.488 28

Maltese Pound(Parity with sterling)

Bahamas Pound(Parity with sterling)

Bermuda Pound(Parity with sterling)

Jamaican Pound(Parity with sterling)

Falkland Islands Pound

12.5000 0.357 143 280.000


KenyaUgandaTanganyikaZanzibarBarbadosTrinidadBritish GuianaBritish Honduras

Mauritius

Seychelles

Fiji

Tonga

Hong Kong

Malaya(Singapore and Federationof Malaya)

SarawakBritish North Borneo

East African Shilling(20 per pound sterling)

British West IndianDollar (4.80 perpound sterling)

British Honduras Dollar(4.00 per pound sterling

Mauritius Rupee (13 J^per pound sterling)

Seychelles Rupee (13J£per pound sterling)

Fijian Pound (1.11 perpound sterling)

Tongan Pound (1.2525per pound sterling)

Hong Kong Dollar (16per pound sterling)

Malayan Dollar(8.571 428 57 per poundsterling, or 2 shillings 4pence per Malayan Doi-lar)

The Sarawak and BritishNorth Borneo Dollarswhich circulate along-side the Malayan Dol-lar (which is also legaltender) have the samevalue

0.124414

0.518391

0.622 070

0.290 299

250.000

60.000 0

50.000 0

107.143

7.142 86

1.71429

1.42857

3.061 22

14.000 0

58.333 3

70.000 0

0.186621

2.241 69

1.98665

0.155517

166.667

13.875 0

15.6563

200.000

4.761 90

0.396 429

0.447 321

5.714 29

21.000 0

252,252

223.553

17.5000

32.666 7




INDEX




INDEXAdministrative BudgetAfghanistan, exchange rate adjustmentAfrica:

Effect of devaluationsInvestment financingRise in prices and costs

AgricultureArgentina, exchange rate adjustmentArticle IX, Section 7, interpretati.onAsia:

Effect of devaluationsInvestment financingRise in prices and costs

Audit CommitteeAuditor's CertificatesAustralia:

Cancellation of gold-mining subsidiesDevaluationImport policies, consultations with GATT

Austria:Exchange system adjustmentsFund mission

Balance of Payments YearbookBalance SheetBank for International SettlementsBelgian Congo:

DevaluationGold price riseInclusion in Belgian gold market

Belgium:Achievement of considerable degree of convertibilitvDevaluationExtension of special multilateral drawing rights and long-termGold marketIntra-European trade surplusRepurchase obligation dischargedUnit value of exports

Belgium-Luxembourg Economic UnionBlack markets, goldBolivia, exchange system modificationsBrazil, depletion of coffee stocksBritish Honduras, devaluationBurma, devaluation

Canada:Business expansion expected to continueDemand for importsDevaluationFinancing of Europe's imports surplusGold prices and subsidiesImport restrictions reduced and exchange restrictions relaxed.ImportsPayments problemUnion with NewfoundlandU. S. surplus in goods and servicesWholesale prices

153

84, 11533

14253

9, 25, 29 33, 4685, 118

14253

85121, 137

743269

4080

83122, 138 65, 81

357472

6333, 35

credits 6572137711

33, 357250423232

2226

8, 20, 362, 3, 19

7463

19, 291979

512


Capital movementsCentral Bank Experts of the American Republics, MeetingCeylon:

DevaluationImport policy, consultations with GATTSpecial exchange agreement with GATT

Charges, paymentChile:

Exchange system changesImport policies, consultations with GATT

China, gold importing change to exportingCoffee, pricesColombia, exchange rate changesCommunications, interpretation of Art. IX, Sec. 7Consultations (see also Missions) :

Costa RicaContracting Parties, General Agreement on Tariffs and Trade.UruguayWith members

Costa Rica:Exchange system revisionsFund missionRepurchases

Cuba, decline in value of exportsCurrencies (see also Exchange rates; Par Values):

ConvertibilityDevaluationFund holdings

Currency liabilities

Denmark:DevaluationEffect of devaluation on balance of paymentsSteps to facilitate payments

Depositories, holdingsDevaluations:

BackgroundBasis for progress toward convertibilityContribution to lessen gold hoardingEffects in Asia and AfricaEffects on exports, imports and pricesEurope and other countriesMeasures to accompany

Ecuador:Fund missionMultiple exchange rate adjustments

Egypt, devaluationEthiopia:

Exchange controls and restrictionsFund mission

Europe:Devaluation of currenciesEffect of war on tradeEffects of devaluationExportsGold and dollar reserves, increaseImports

154

5, 7, 14, 3981

326969

76, 117

496973

42, 44, 4544

85fn., 118

4564, 69

4867, 80

44807721

22, 551, 28, 57

75, 130100

331363

129, 130

1577314

12, 16, 178, 12, 28, 32

22

804632

53, 6480

28, 3329

7, 1014

7, 12


Europe (continued) :Means of improving dollar positionPayments problemProduction increase likely to be moderate in near fu tureReconstructionReservesRise in prices and costsTrade restrictions

European Payments UnionExchange controlsExchange rates, adjustment 1 , 3Exchange restrictions:

First report onFund activitiesImpositionNeed for relaxationReasons for maintenance after war

Exchange transactionsExecutive Board:

Changes in membershipDecisions on monetary reserves and repurchase obligations. . .Interpretation of Article IX, Sec. 7MembershipReport on External Transactions in Gold at Premium Prices

Exports:Asia and AfricaBelgium and LuxembourgCanadaEffect of trade and exchange restrictionsExpansionLatin AmericaMonthly averagePricesTo United StatesUnited Kingdom

Far East:Delay of resumption of production and exportGold hoarding demandIndex of wholesale prices

Financial statementsFinland, devaluationFood and Agriculture OrganizationFrance:

Exchange system adjustmentExtension of drawing rights and credits by BelgiumGold hoardingGold quotations in Paris marketOverseas Territories, exchange systems adjustmentRelaxation of quantitative and exchange restrictionsTrade deficit

Free markets:BoliviaCosta RicaFranceGoldIndonesiaItalyNicaragua

155

115, 6

232, 3

7, 143

61, 63, 6566

2, 53, 8, 28, 33, 88

55, 67, 6962, 66, 68, 69

63, 6459, 60, 62

56, 5775, 96, 136

8078, 99

85fn., 114ix, 80, 112

70, 90

15352061

4, 10, 2621, 22

127, 11, 237, 17, 22

29

373

7120

33, 3481

33, 36657372386313

504536

72, 74543845


Free markets (continued) :ParaguayPeru 49Switzerland 39Syria and Lebanon 52Thailand 52

General Agreement on Tariffs and Trade, Contracting Parties. .58, 64, 68, 69Germany, Western, exchange rate adjustment 33, 39Gold (see also Monetary reserves) ;

Fund holdings 75, 129Fund policy 70Markets, prices, and production 72, 73Report of Executive Directors on Transactions at Premium Prices. . 71, 90Resolution of Union of South Africa 70

Governors and Alternates:Changes 80, 109List 80, 104

Greece, exchange rate adjustments 33, 39Guatemala, Fund mission 80

Haiti, extension of period for acceptance of membership 79Hashemite Kingdom of the Jordan; see JordanHoldings 75, 129, 130Honduras, Fund mission 80Hong Kong, gold trade 72

Iceland, devaluation 32, 34Imports:

Asia and Africa 14Canada 19Demand in Western Hemisphere 22Reduction from dollar countries 12Restrictions 20, 63Surplus, financing 3United Kingdom 29United States 4, 6, 7, 17

Income, comparative statement of 85, 117Income and Expenditure, Statement of 125India:

Devaluation 32Dollar deficit in 1948 30Gold prices and sales 72Import licensing modifications 64Import policies, consultations with GATT 69

Indonesia:Devaluation and exchange certificate system 53No longer regarded as territory on whose behalf Netherlands has

accepted Articles of Agreement 80Inflation 3, 15, 24, 41, 47, 49, 57, 67Inter- American Statistical Institute 81International Bank for Reconstruction and Development 81, 82International Financial News Survey 83International Financial Statistics 83Intra-European payments 13, 64Investment; 24, 25, 60Iran, exchange system adjustments 52Iraq, devaluation 32Ireland, devaluation 32Israel, exchange rate adjustment

156

48

33


Italy:Exchange system adjustmentGold hoardingIntra-European trade surplusRelaxation of quantitative and exchange restrictions

Jordan, devaluation

Latin America:Financing of Europe's import surplusMultiple rate systemsPayments problemsU. S. surplus on goods and services

Lebanon, exchange systemLiberia, extension of period for acceptance of membershipLuxembourg, devaluation

Malaya, effect of war on earning capacityMembers:

Consultation with FundListMonetary reserve dataNewWithdrawal, Poland

Mexico, exchange rate problemMiddle East:

Gold hoarding demandIndex of wholesale prices

Missions:AustriaBoliviaChileCosta RicaEcuadorEthiopiaEuropean Payments Union discussionsGuatemalaHondurasNicaraguaParaguayPhilippine RepublicThailand

Monetary reserves:Coffee- producing countriesData from membersEffect of devaluationEuropeExecutive Board decisionsInadequacy at end of warLatin \mericaObstacle to removal of exchange restrictionsRelation to chargesUnited Kingdom

Money supply:ExpansionOEEC Countries

Multiple currency practices

Netherlands:Devaluation

157

33, 38731363

33

342205

5279

33, 35

30

67104

7879

79, 10243

737

80515080808066808045488080

447822

7, 13, 1478, 99

56215976

30, 31, 32

39, 10

42, 54, 67

33


Netherlands (continued) :Extension of drawing rights and credits by BelgiumNotification regarding IndonesiaRelaxation of exchange restrictionsTrade deficitUnit value of exports

New Zealand:DevaluationImport policies, consultations with GATT

Newfoundland, union with CanadaNicaragua:

Exchange system modificationsVoluntary repurchases in U. S. dollars

Non-negotiable, non-interest bearing demand notesNorway:

DevaluationSteps to facilitate paymentsTrade deficitUnit value of exports

OEEC:Payments Committee, Fund attendance as observer at discussionsRequest for partial removal of import restrictionsTrade liberalization program

OEEC countries 5, 9,

Pakistan:Acceptance of membershipDollar deficit in 1948Import licensing modificationsImport policies, consultation with GATTMaintenance of exchange rate

Par Values:Changes 1, 33, 43,Changes, effect on subscription paymentsScheduleStudy by Executive Board of need for uniform change

Paraguay, exchange system adjustmentsPayments:

Distortion, cause of devaluationsEffect of devaluations 9,Imbalance in Asia and AfricaIntra-EuropeanLatin American problemsMeasures to accompany devaluationProblem 5

Peru, exchange system modificationsPhilippine Republic:

Exchange restrictionsFund mission

Point IV ProgramPoland, withdrawal from membershipPortugal, exchange rate adjustmentPrices:

Break through controlsCoffeeDanger in riseDeclines for rice and cocoaEffect of devaluationExport, index

158

6579631311

326979

457777

33631311

666558

10, 22, 63

7930646932

44, 51, 8876

1467148

117, 22, 26

1513, 6420, 21

22, 6, 10, 59

48

648082

79, 10233

342, 44

2346

16, 26, 3511, 12


Prices (continued) :GoldOEEC countries

Production:Changes in pattern in Asia and AfricaEurope, expansionIncreaseIndustrial development

Quotas

Repurchases:Calculation of obligationsExecutive Board decisionsSummary of transactionsVoluntary

Reserves; see Monetary reservesRuanda Urundi, inclusion in gold marketRules and Regulations, amendment

Saudi Arabia, exchange rate adjustmentSouth Africa; see Union of South AfricaSouthern Rhodesia:

Cancellation of gold-mining subsidyImport policies, consultation with GATT

StaffStaff PaperspersssStaff Retirement Fund, financial statementsStaff Retirement PlanSterling area:

Devaluation of currenciesGold and dollar surplusProblem of balances

Subscriptions:Payment by YugoslaviaStatus of subscriptions to capital

Sweden:DevaluationSteps to facilitate paymentsTrade deficit

Switzerland:Effect of devaluationIntra-European trade surplusPayments agreement with Belgium allowed to lapseUnit value of exports

Syria, exchange system

TariffsTechnical Assistance ProgramThailand:

Acceptance of membershipExchange system adjustmentFund mission

Trade:BarriersChanges in patternCooperation of GATT and the FundExpansionIntra-EuropeanLatin America with Europe

159

729, 10, 11

154, 9

5625

80, 104

7778, 99

78, 13677

727733

7469

83, 8483

85, 13785

8, 28, 321458

75132

33, 346313

3913631152

26 5882

7933, 51, 52

80

582

684

13, 6421


Trade (continued) :Position, EuropeRestrictions

Training programTransitional period arrangements, Mexico

U.S.S.R., appreciation of exchange rateUnderdeveloped countriesUnion of South Africa:

DevaluationEffect of devaluation on gold miningImport policies, consultations with GATTImport restrictionsResolution on goldSale of gold to United Kingdom after the war

United Kingdom:DevaluationEffects of devaluation on raw material pricesExportsExtension of drawing rights and credits by BelgiumFinancing of overseas war expenditureGold and dollar reservesImport policies, consultations with GATTImportsNotification regarding NewfoundlandRisk of general removal of exchange restrictionsSteps to facilitate paymentsTrade deficit

United Nations, relations with FundUnited States:

Balance of paymentsCapital movementsCustoms simplification bill pending before CongressDemand for importsEffect of prices of commodities on expansion of industrialExportsFinancing of Europe's import surplusGrants and creditsImportsMild recession, November 1948- July 1949Payments deficit of EuropeSolution of the payments problem

Uruguay, multiple rate system adjustments

Venezuela, decline in value of exportsVoting power:

Executive DirectorsGovernors

Western Hemisphere:Demand for importsEffect of devaluationExpansion of production of foods and raw materialsExportsIndex of raw material pricesPaymentsSources of supply, dependence of world

Yugoslavia, payment of subscription

160

26, 61,

14,

64,

70,

8,

11,

14, 30, 31,

81,

5,7,

production6, 7, 11,

2

4, 6,4,

80,80,

22,18,

7628443

4025

327469649030

281629652

3269297959631382

221458261629

!, 36

2930111847

21

112104

26222475

15

75


Documents

International Monetary Fund Annual Report 1950