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Recent Activity–International Monetary Fund

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
December 1972
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  • Annual Meeting yields new impetus for monetary reform
  • Executive board submits report on reform of monetary system
  • Committee of Twenty meets

The 1972 Annual Meeting of the Board of Governors took place in Washington from September 25 to 29. The discussions led to a marked consensus on the urgency of international monetary reform and the importance of preserving the global character of the monetary system. In addition, the Committee of Twenty—the new ministerial-level committee of the Board—met for the first time to begin its work on monetary reform and related issues. (A fuller report on the Annual Meeting and the establishment of the new Committee appears elsewhere in this issue.)

The Committee of Twenty, which brings together representatives of both developed and developing member countries of the Fund, will consider in its discussions the report on reform of the international monetary system submitted by the Fund’s Executive Directors to the board of Governors. This report identifies and examines the major issues on which further study will be required. Also available to the Committee and its Deputies are the many constructive and specific statements on reform made by the Governors in the course of the Annual Meeting, as well as the 1972 Annual Report of the Executive Directors, which provides background information on developments in the world economy and in international liquidity.

Special Drawing Rights

In the third quarter of 1972, five participants in the Special Drawing Account—Argentina, Equatorial Guinea, Jamaica, Rwanda, and Trinidad and Tobago—used a total of SDR 40,843,000 to obtain currencies from other participants designated by the Fund. The recipients of the SDRs were Greece, Iran, Israel, Morocco, New Zealand, South Africa, Turkey, and the United Kingdom. The United Kingdom used a total of SDR 291.8 million to acquire balances of pounds sterling from Belgium, France, Germany, the Netherlands, and Norway in agreement with each of these participants.

During the quarter, the Fund’s General Account received SDR 18.5 million from 6 participants that used SDRs in repurchases in the General Account and SDR 4.9 million from participants that paid charges relating to their use of the Fund’s resources. In other transactions involving the Fund’s General Account the United Kingdom received SDR 291.8 million as part of a gold tranche purchase and 12 participants, received SDR 21.3 million in transactions to promote reconstitution of their SDR holdings.

The General Account’s holdings of special drawing rights were SDR 607,300,628 on September 30, 1972.

Drawings, repurchases, and Fund holdings of member currencies

Drawings on the Fund by 12 members totaled the equivalent of SDR 690.80 million during the third quarter of 1972 (see Table 1), against SDR 478.22 million by 11 members during the second quarter, and SDR 1,017.65 million during the third quarter of 1971. Total gross purchases from the beginning of Fund operations to September 30, 1972 reached SDR 25,336.90 million.

Table 1:DRAWINGS BY FUND MEMBERS DURING THE THIRD QUARTER OF 1972
MemberMonthAmount (SDR millions)
BoliviaSeptember2.801
ChileJuly1.50
EcuadorAugust8.90
Equatorial GuineaSeptember1.00
IndonesiaSeptember1.771
JamaicaJuly13.25
NigeriaSeptember0.741
PhilippinesSeptember20.00
SudanSeptember10.00
United KingdomJuly583.59
ZaïreJuly28.252
ZambiaAugust19.002
Total drawings in the third quarter of 1972690.80
Total net drawings at the end of the third quarter of 19723,645.70

Drawing made under the buffer stock financing facility.

Drawing made under the compensatory financing facility.

Drawing made under the buffer stock financing facility.

Drawing made under the compensatory financing facility.

By far the largest single purchase of the period under review was made in August by the United Kingdom for a total equivalent to SDR 583.6 million, half in currencies—Belgian francs, deutsche mark, French francs, Netherlands guilders, and Norwegian kroner—and half in special drawing rights. This purchase raised the Fund’s holdings of sterling from the subscription level of 75 per cent of the U.K. quota of SDR 2,800 million to 96 per cent of quota. The purchase was made in connection with the settlement of liabilities to European countries incurred by the United Kingdom in June as a result of operations in support of sterling under EEC arrangements for maintaining narrower fluctuation margins.

The purchases by Zaire and Zambia were made in accordance with the Fund’s policy of compensatory financing assistance to countries experiencing a shortfall in export earnings largely attributable to circumstances beyond their control. Zaire had made no previous drawings on the Fund, and its purchase equivalent to SDR 28.25 million—in Belgian francs, deutsche mark, Japanese yen, and pounds sterling-alleviated balance of payments problems resulting from an export shortfall during the 12-month period ended December 31, 1971. The shortfall was due mainly to a drop in world prices for copper, a commodity which accounts for nearly two thirds of Zaire’s exports. The purchase by Zambia of the equivalent of SDR 19 million—in deutsche mark, Irish pounds, Japanese yen, Norwegian kroner, and Swedish kronor—followed an earlier compensatory purchase of the equivalent of SDR 19 million made in December 1971, and provided additional assistance under the provision of the Fund’s policy on shortfalls resulting from disasters or major emergencies. Zambia’s reduction of copper output in 1971 was due to the September 1970 Mufulira mine disaster. The country’s export proceeds are almost entirely dependent on copper production.

The September purchases by Bolivia (SDR 2.8 million), Indonesia (SDR 1.8 million), and Nigeria (SDR 0.7 million), all in Japanese yen, were made in connection with the financing of contributions to the buffer stock provided for by the Fourth International Tin Agreement. The Fund’s buffer stock financing facility was established in June 1969.

Repurchases during the third quarter totaled SDR 127.01 million, against SDR 1,295.80 million for the corresponding period of 1971. Total repurchases from the beginning of Fund operations to September 30, 1972 amounted to the equivalent of SDR 15,317.40 million. The three largest repurchases during the period July 1-September 30 were those of Colombia, Morocco, and the Philippines, equivalent to SDR 29 million, SDR 18.23 million, and SDR 12 million, respectively. The currencies most extensively used in repurchase were Belgian francs, French francs, and deutsche mark for the equivalent of SDR 28 million, SDR 26.19 million, and SDR 12.98 million, respectively; also, SDR 18.47 million was used in special drawing rights.

Fund holdings of selected currencies as of September 30, 1972 are shown in Table 2.

Table 2:FUND HOLDINGS OF SELECTED CURRENCIES, SEPTEMBER 30, 1972
CurrencyAmount

(SDR millions)
Per Cent

of Quota
Austrian schillings138.551
Belgian francs131.820
Canadian dollars796.472
Deutsche mark450.928
French francs1,047.170
Irish pounds82.768
Italian lire672.867
Japanese yen678.657
Kuwaiti dinars44.368
Mexican pesos272.274
Netherlands guilders151.622
Norwegian kroner170.071
Pounds sterling2,683.696
Swedish kronor238.873
U.S. dollars6,286.394

Stand-by arrangements

The Fund approved two stand-by arrangements in the third quarter of 1972 for a total amount equivalent to SDR 12.75 million.

The SDR 4 million stand-by arrangement for Haiti, the twelfth in aid of the country’s efforts toward financial stability, is in support of a financial program designed to consolidate reserve improvements of the past two year and facilitate the expansion of the Government’s investment effort. Although the country’s economic prospects are on the whole favorable, international reserves are still low, and the Fund’s continuing support will help the Government to ensure the smooth functioning of the payments system.

The SDR 8.75 million stand-by arrangement with El Salvador, the eleventh with that country, is in support of a financial program designed to achieve the maximum rate of economic growth and employment compatible with price stability and the maintenance of net international reserves at the level reached at the end of 1971. Continued Fund support will assist the authorities in their efforts to maintain internal and external equilibrium.

Membership

Four new members joined the Fund during the third quarter of 1972: the People’s Republic of Bangladesh on August 17 with a quota equivalent to SDR 125 million, Bahrain on September 7 with a quota equivalent to SDR 10 million, Qatar on September 8 with a quota equivalent to SDR 20 million, and the United Arab Emirates on September 22 with a quota equivalent to SDR 15 million. This raised to 124 the number of Fund members, and to SDR 28,978.6 million total quotas in the Fund.

Rumania applied for membership in September and was represented by an observer at the Annual Meeting.

Par values

It was announced on September 8 that the Government of Iran had proposed and the Fund had concurred in a change in the par value of Iranianrial. The new par value is 2,878.49 Iranianrials per troy ounce of fine gold, which corresponds to 82.2425 Iranianrials per special drawing right, and in terms of the U.S. dollar to the central rate of 75.75 Iranianrials per U.S. dollar which was communicated to the Fund after the currency realignment of December 18, 1971. The previous par value was 2,651.25 Iranianrials per troy ounce of fine gold.

Following the decision of the United Kingdom on June 23, 1972, to allow the pound sterling to float temporarily, the following 16 Fund members had moved, as at September 15, to allow their currencies to float with sterling: Barbados, Botswana, Fiji, The Gambia, Guyana, India, Ireland, Jamaica, Lesotho, Malawi, Mauritius, Sierra Leone, South Africa, Sri Lanka, Swaziland, and Trinidad and Tobago. Malta indicated that the exchange rate for the Malta pound would be determined between that of sterling and that of the currencies of its major trading partners.

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