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IMF PAMPHLET SERIES

INTERNATIONAL MONETARY FUND PAMPHLET SERIES

(All pamphlets have been published in English, French, and Spanish,unless otherwise stated)

*1. Introduction to the Fund, by J. Keith Horsefield. First edition, 1964. Second edition,1965. Second edition also in German.

*2. The International Monetary Fund: Its Form and Functions, by J. Marcus Fleming.1964. In English only.

3. The International Monetary Fund and Private Business Transactions: Some LegalEffects of the Articles of Agreement, by Joseph Gold. 1965.

4. The International Monetary Fund and International Law: An Introduction, byJoseph Gold. 1965.

*5. The Financial Structure of the Fund, by Rudolf Kroc. First edition, 1965. Secondedition, 1967.

6. Maintenance of the Gold Value of the Fund's Assets; by Joseph Gold. First edition,1965. Second edition, 1971.

7. The Fund and Non-Member States: Some Legal Effects, by Joseph Gold. 1966.

8. The Cuban Insurance Cases and the Articles of the Fund, by Joseph Gold. 1966.

9. Balance of Payments: Its Meaning and Uses, by Poul H0st-Madsen. 1967.

*10. Balance of Payments Concepts and Definitions. First edition, 1968. Second edition,1969.

11. Interpretation by the Fund, by Joseph Gold. 1968.

12. The Reform of the Fund, by Joseph Gold. 1969.

13. Special Drawing Rights, by Joseph Gold. First edition, 1969. Second edition, withsubtitle Character and Use, 1970.

14. The Fund's Concepts of Convertibility, by Joseph Gold. 1971.

15. Special Drawing Rights: The Role of Language, by Joseph Gold. 1971.

16. Some Reflections on the Nature of Special Drawing Rights, by J.J. Polak. 1971.

17. Operations and Transactions in SDRs: The First Basic Period, by Walter Habermeier.1973.

18. Valuation and Rate of Interest of the SDR, by J.J. Polak. 1974.

19. Floating Currencies, Gold, and SDRs: Some Recent Legal Developments, by JosephGold. 1976. Also in German.

20. Voting Majorities in the Fund: Effects of Second Amendment of the Articles, byJoseph Gold. 1977.

21. International Capital Movements Under the Law of the International Monetary Fund,by Joseph Gold. 1977.

22. Floating Currencies, SDRs, and Gold: Further Legal Developments, by Joseph Gold.1977. Concluding section also in German.

23. Use, Conversion, and Exchange of Currency Under the Second Amendment of theFund's Articles, by Joseph Gold. 1978.

(Continued on inside back cover)

©International Monetary Fund. Not for Redistribution

Pamphlet Series No. 11

INTERPRETATIONBY THE FUND

Joseph Gold

International Monetary Fund

Washington, B.C.

1968


International Standard Serial Number: ISSN 0538-8759

Reprinted September 1985


CONTENTS

Page

Prefatory Note iv

References to Articles of Agreement (Other ThanArticle XVIII) and By-Laws and Rules and Regulations . . v

Table of Cases vii

1. Article XVIII 1

2. Interpretations Under Article XVIII 3

3. The Compulsory Withdrawal of Czechoslovakia 11

4. Interpretations Outside Article XVIII 14

5. The Approach to Interpretation 16

6. Travaux Preparatoires 18

7. Private Law Sources and Analogies 21

8. Clarification and Reinterpretation 26

9. Article XVIII and National Tribunals 31

10. Infrequency of Article XVIII Interpretationsand the Courts 42

11. Request by Courts 46

12. Article XVIII and International Tribunals 47

13. Interpretation of Board of Governors Actions 52

14. Borrowing Agreements 53

15. Agreement with Switzerland 58

16. Stand-By Arrangements 59

17. Summary 61

18. Postscript 64

iii


PREFATORY NOTE

This pamphlet is based on two articles which appeared in theApril 1954 and April 1967 issues of The International and Com-parative Law Quarterly.

The opinions expressed in this article are those of the author,who is the General Counsel and Director of the Legal Departmentof the International Monetary Fund, and not necessarily those ofthe Fund.

IV


REFERENCES TO ARTICLES OF AGREEMENT(OTHER THAN ARTICLE XVIII) AND BY-LAWS

AND RULES AND REGULATIONS

Article and Section

I (n)I (v)

III, Section 3 ( b )III, Section 4(a)IV, Section 5(/)V, Section 3(a)V, Section 3 ( a ) (iii)V, Section 4

VIVI, Section 1VI, Section 3

VII, Section 2VII, Section 3

VIII, Section 2(a)VIII, Section 2(b)VIII, Section 4(a)(ii)VIII, Section 5VIII, Section 5(a)

IX, Section 7IX, Section 10X

XII, Section 2 ( b )XII, Section 2(g)XII, Section 3(6)XII, Section 3(/)XII, Section 5

XIV, Section 2XIV, Section 4XV, Section 2XV, Section 2(a)

XVIIXIX (i)XX, Section 2(a)

Page4423, 2424-25427822 (fn. 34)3127-28, 30-3145 (fn. 75)53, 54 (fn. 87)4945 (fn. 74)6, 7, 17, 32, 37-47, 6327 (fn. 46)12-13117, 32-34, 3741-425110 (fn. 17), 30 (fn. 51), 53 (fn. 86)15 (fn. 24)552 (fn. 2)711-1211-1311-1230, 56 (fn. 89)4641-42

V


REFERENCES TO ARTICLES OF AGREEMENT(OTHER THAN ARTICLE XVIII) AND BY-LAWS

AND RULES AND REGULATIONS

Article and Section PageBy-Laws 15 (fn. 24), 52-53

Section 3(b) 53Section 6(b) 53Section 23 1 (fn. 1)

Rules and RegulationsA-l 15C-ll 65 (fn. 95)

vi


CASES CITED

PageBanco do Brasil, S. A. v. A. C. Israel Commodity Co.,

Inc., et al., 12 N.Y.2d 371, 190 N.E.2d 235, 239N.Y.S.2d 872 (1963) 17, 38

Case Concerning Rights of Nationals of the United Statesof America in Morocco (France v. United States ofAmerica), [1952] I.C.J. 176 48-51, 63

Case Concerning the Factory at Chorzow (Claim for In-demnity) (The Merits), P.C.I.J. Series A, No. 17 (Sep-tember 13, 1928) 22 (fn. 35)

Case Concerning the Temple of Preah Vihear (Cambodiav. Thailand), [1962] I.C.J. 6 26 (fn. 43)

de Sayve v. de la Valdene, 124 N.Y.S.2d 143 (1953) 47International Bank for Reconstruction and Development

and International Monetary Fund v. All America Cablesand Radio, Inc., The Commercial Cable Company,Mackay Radio & Telegraph Company, Inc., R.C.A.Communications, Inc., The Western Union TelegraphCompany, F.C.C. Docket No. 9362, 8 RR 927 (1953) 32-37

International Status of South-West Africa, [1950] I.C.J. 128 25 (fn. 43)Kahler v. Midland Bank, Ltd. [1948] 1 All E.R. 811 40-41Sharif v. Azad [1966] 3 W.L.R. 1285 41Societe 'Filature et Tissage X. Jourdain' v. Epoux Heynen-

Bintner, Pasicrisie Luxembourgeoise (1957), pp. 36-39 39Southwestern Shipping Corporation v. National City Bank

of New York, 173 N.Y.S.2d 509 (1958); 178 N.Y.S.2d1019 (1958); 190 N.Y.S.2d 352 (1959); 80 S.Ct. 198,361 U.S. 895 (1959) 37

Stoeck v. Public Trustee [1921] 2 Ch. 67 40 (fn. 70)Theye y Ajuria v. Pan American Life Insurance Co., 154

So.2d 450 (1963), 161 So.2d 70 (1964) 38-39

vii


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Interpretation by the Fund1. Article XVIII

important feature of the Articles of Agreement of the Inter-national Monetary Fund is the power which is conferred

upon the Fund to adopt final interpretations of its charter. Thispower is to be found in Article XVIII:

(a) Any question of interpretation of the provisions of this Agreementarising between any member and the Fund or between any members ofthe Fund shall be submitted to the Executive Directors for their decision.If the question particularly affects any member not entitled to appointan executive director it shall be entitled to representation in accordancewith Article XII, Section 3 (/).

(b) In any case where the Executive Directors have given a decisionunder (a) above, any member may require that the question be referredto the Board of Governors, whose decision shall be final. Pending theresult of the reference to the Board the Fund may, so far as it deemsnecessary, act on the basis of the decision of the Executive Directors.

(c) Whenever a disagreement arises between the Fund and a memberwhich has withdrawn, or between the Fund and any member duringliquidation of the Fund, such disagreement shall be submitted to arbitra-tion by a tribunal of three arbitrators, one appointed by the Fund,another by the member or withdrawing member and an umpire who,unless the parties otherwise agree, shall be appointed by the Presidentof the Permanent Court of International Justice or such other authorityas may have been prescribed by regulation adopted by the Fund. Theumpire shall have full power to settle all questions of procedure in anycase where the parties are in disagreement with respect thereto.1

The power of interpretation created by this provision is aninternal one in the sense that at no stage of the interpretativeprocess is there any recourse to an agency external to the Funditself. Moreover, no special organ of the Fund itself has beencreated for the purpose of exercising this power. It is exercised bythe same organs of the Fund, the Executive Directors and theBoard of Governors, as exercise most of the other powers of theinstitution. In addition, although it is now common practice inthe Fund to avoid voting on decisions, if a vote had to be takenon a matter of interpretation, it would be taken in accordance

1 The President of the International Court of Justice has been prescribed(Section 23 of the Fund's By-Laws).

1

.NA


with the system of weighted voting which prevails in the Fund,and a majority of the votes cast would decide the issue.2

The published records of the Bretton Woods Conference, atwhich the Articles of Agreement of the Fund were drafted, pro-vide hardly any clue as to the reasons that led the drafters to vesta power of final interpretation in the Fund itself. One of theCommittee reports states that:

"[The] problem consisted in keeping disputes concerning the interpreta-tion of the Agreement between the Fund and any member country,within the setup of the Fund itself, but, at the same time, to secure forthe member in question privileges of fair treatment. I think that mem-bers, when they read our proposals, will acknowledge that we havesucceeded in finding a workable solution. If a conflict should end inthe withdrawal of the member country, or disputes between membercountries and the Fund should arise after its possible liquidation, wehave drafted rules of arbitration. . . ."3

One may surmise that there was a feeling at Bretton Woods thatfrequent appeals to an external tribunal on questions of interpreta-tion, particularly on matters in which the tribunal could not beexpert, would impede the work of the Fund.

In their brief in the proceeding before the United States FederalCommunications Commission which will be discussed in somedetail later in this pamphlet, the Fund and the International Bank

2 Article XII, Section 5: "Voting.—(0) Each member shall have twohundred fifty votes plus one additional vote for each part of its quotaequivalent to one hundred thousand United States dollars.

(6) Whenever voting is required under Article V, Section 4 or 5,each member shall have the number of votes to which it is entitled under(a) above, adjusted

(i) by the addition of one vote for the equivalent of each fourhundred thousand United States dollars of net sales of its cur-rency up to the date when the vote is taken, or

(ii) by the subtraction of one vote for the equivalent of each fourhundred thousand United States dollars of its net purchases ofthe currencies of other members up to the date when the voteis taken;

provided, that neither net purchases nor net sales shall be deemed at anytime to exceed an amount equal to the quota of the member involved.

(c) For the purpose of all computations under this Section, UnitedStates dollars shall be deemed to be of the weight and fineness in effecton July 1, 1944, adjusted for any uniform change under Article IV,Section 7, if a waiver is made under Section 8 (d) of that Article.

(d) Except as otherwise specifically provided, all decisions of theFund shall be made by a majority of the votes cast."3 Proceedings and Documents of the United Nations Monetary and

Financial Conference (U.S. Department of State Publication 2866, Inter-national Organization and Conference Series I, 3, hereinafter referred to asProceedings and Documents), Document 255, p. 428.

2


for Reconstruction and Development4 explained their powers ofinterpretation as follows:

"The basic purpose of these provisions is to assure an expeditious, uni-form interpretation of complicated financial agreements, which will en-able the Bank and Fund to operate as effective institutions. It is apparentthat one of the greatest difficulties in the operation of internationalorganizations in the past has been that no mechanism was establishedfor a speedy settlement of questions of interpretation arising under theirbasic charters, a settlement which would be binding on all their members.

This problem was particularly acute in the case of financial institutionslike the Bank and Fund, whose charters are highly technical and whereuniformity, speed and expertness of interpretation are vital to theirsuccess. Both the Bank and Fund are faced with difficult technical ques-tions arising under their Agreements and on numerous occasions theyhave availed themselves of the interpretation machinery to decide certainof these questions. It is absolutely essential to an orderly functioning ofthese institutions that there be some machinery whereby interpretativequestions can be settled with speed, with expert knowledge, with uni-formity and with finality. The necessity for a procedure of this natureis not unlike the necessity for an administrative procedure in the UnitedStates where expert bodies can, on the basis of their special experienceand competence, issue rules which have the force of law.

The interpretation machinery which was agreed to by the framers ofthe Bank and Fund Agreements at the Bretton Woods Conference inNew Hampshire in 1944 is admirably suited to meet the special needs ofthe Bank and Fund. The Executive Directors are chosen for their specialcompetence in international financial matters; and, functioning in con-tinuous session, they can act with the dispatch and skill essential foroperating organizations. ..."This pamphlet deals with certain aspects of the practice of the

Fund in the interpretation of its Articles. However, problems ofinterpretation arise on other instruments in the course of theFund's work, and this topic also is considered in the later sectionsof the pamphlet.

2. Interpretations Under Article XVIIIThe Fund has adopted no more than ten interpretations under

Article XVIII. Special circumstances have been responsible forthe resort to Article XVIII in these cases. For one reason oranother, a member wanted, or the Fund thought it appropriate togive, finality and maximum solemnity to these interpretations. Itshould be noted that the procedure of Article XVIII can be em-ployed for resolving a problem even though it does not involve adispute. It is sufficient that a question of interpreting the provi-sions of the Agreement has arisen between the Fund and a mem-

4 The Bank has a similar power of interpretation in Article IX of itscharter.

3


ber or between members. Thus, the procedure is available, notmerely for the settlement of disputes, but also for the resolutionof doubts.

Of the interpretations under Article XVIII, two were connectedwith the understandings which two countries sought in acceptingmembership in the Fund. The first of these was the result of arequest by the United Kingdom at the Inaugural Meeting of theBoard of Governors of the Fund at Savannah, Georgia, in March1946. This request related to Article IV, Section 5(/), of theFund's charter. This article declares that the Fund shall concur ina proposal by a member to change the par value of its currencyif the Fund is satisfied that the change is necessary to correct afundamental disequilibrium. If it is so satisfied, the Fund shall notobject because of the domestic policies of the member proposingthe change. What the United Kingdom wished to have clarifiedwas "whether, having regard to the intention of the Governmentof the United Kingdom to maintain full employment and to theterms of Article I (ii) and (v) of the Articles of Agreement, stepsnecessary to protect a member from unemployment of a chronicor persistent character, arising from pressure on its balance ofpayments, shall be measures necessary to correct a fundamentaldisequilibrium."5 On September 26, 1946, the Executive Directorsadopted an interpretation to the effect that the steps referred to"are among the measures necessary to correct a fundamental dis-equilibrium; and that in each instance in which a member pro-poses a change in the par value of its currency to correct a funda-mental disequilibrium the Fund will be required to determine, inthe light of all relevant circumstances, whether in its opinion theproposed change is necessary to correct the fundamental dis-equilibrium."6

The second interpretation was requested by the United States,again at the Savannah Conference. It was requested pursuant toSection 13 of the U.S. Bretton Woods Agreements Act:

5 See Resolution No. 5, Selected Documents, Board of Governors In-augural Meeting, 1946, p. 19.

6 Selected Decisions of the Executive Directors and Selected Documents(Washington, Third Issue, January 1965; hereinafter cited as SelectedDecisions), p. 17.

4


"(a) The governor and executive director of the Fund appointed bythe United States are hereby directed to obtain promptly an officialinterpretation by the Fund as to whether its authority to use its resourcesextends beyond current monetary stabilization operations to afford tem-porary assistance to members in connection with seasonal, cyclical, andemergency fluctuations in the balance of payments of any member forcurrent transactions, and whether it has authority to use its resources toprovide facilities for relief, reconstruction, or armaments, or to meet alarge or sustained outflow of capital on the part of any member.

(b) If the interpretation by the Fund answers in the affirmative anyof the questions stated in subsection (a), the governor of the Fundrepresenting the United States is hereby directed to propose promptly andsupport an amendment to the Articles of Agreement for the purpose ofexpressly negativing such interpretation. The President is hereby author-ized and directed to accept an amendment to that effect on behalf ofthe United States."7

On March 18, 1946, the Board of Governors adopted a Resolu-tion inviting the Executive Directors, at the request of the Gov-ernor for the United States:

"to interpret the Articles of Agreement, pursuant to Article XVIII (a),as to whether the authority of the Fund to use its resources extendsbeyond current monetary stabilization operations to afford temporaryassistance to members in connection with seasonal, cyclical, and emer-gency fluctuations in the balance of payments of any member for currenttransactions, and whether the Fund has authority to use its resources toprovide facilities for relief, reconstruction, or armaments, or to meet alarge or sustained outflow of capital on the part of any member."

The Executive Directors adopted an interpretation in response tothis Resolution on September 26, 1946:

"The Executive Directors of the International Monetary Fund interpretthe Articles of Agreement to mean that authority to use the resources ofthe Fund is limited to use in accordance with its purposes to give tem-porary assistance in financing balance of payments deficits on currentaccount for monetary stabilization operations."

Certain aspects of this interpretation are considered later in thispamphlet.

At the Savannah Conference a third interpretation under ArticleXVIII was requested, in this case by India. Article XII, Section3(fc), provides that five executive directors shall be appointedby the five members having the largest quotas and the rest of theexecutive directors shall be elected by other members at intervalsof two years. Section 3(/) provides that directors shall continuein office until their successors are appointed or elected, and that

7 Public Law 171, 79th Congress, 1st Session, 59 Stat. 512 (1945).

5


if the office of an elected director becomes vacant a new directorshall be elected for the remainder of the term by the membersthat elected the former director. India had the lowest of the fivelargest quotas and was therefore entitled to appoint an executivedirector. However, it wondered what its position would be ifbefore the next regular election of directors occurred a countryjoined the Fund with a quota larger than India's. It therefore re-quested an interpretation of the provisions referred to.8 On May 8,1946, the Executive Directors adopted an interpretation to theeffect that any member having one of the five largest quotas at thedate of a regular election or at any date between regular electionswas entitled to appoint an executive director who would holdoffice until the next regular election without prejudice to the rightof a member admitted later to appoint an executive director ifthat member had one of the five largest quotas.9

The next two interpretations were made by the Executive Direc-tors in order to ensure uniformity among members in their applica-tion of certain provisions in the charter. The first of these was aninterpretation, adopted on June 10, 1949, of the first sentence ofArticle VIII, Section 2(fc) . The following is the text of thisinterpretation:

"The Board of Executive Directors of the International MonetaryFund has interpreted, under Article XVIII of the Articles of Agreement,the first sentence of Article VIII, Section 2 (b), which provision readsas follows:

Exchange contracts which involve the currency of any member andwhich are contrary to the exchange control regulations of that membermaintained or imposed consistently with this Agreement shall be unen-forceable in the territories of any member.The meaning and effect of this provision are as follows:

1. Parties entering into exchange contracts involving the currency ofany member of the Fund and contrary to exchange control regulationsof that member which are maintained or imposed consistently with theFund Agreement will not receive the assistance of the judicial or admin-istrative authorities of other members in obtaining the performance ofsuch contracts. That is to say, the obligations of such contracts will notbe implemented by the judicial or administrative authorities of membercountries, for example by decreeing performance of the contracts or byawarding damages for their non-performance.8 Resolution No. 7, Selected Documents, Board of Governors Inaugural

Meeting, 1946, p. 20. See also pp. 26-27.9 International Monetary Fund, First Annual Meeting of the Board of

Governors, Report of the Executive Directors and Summary Proceedings,September 27 to October 3, 1946, p. 107; Selected Decisions, p. 95.

6


2. By accepting the Fund Agreement members have undertaken tomake the principle mentioned above effectively part of their national law.This applied to all members, whether or not they have availed them-selves of the transitional arrangements of Article XIV, Section 2.

An obvious result of the foregoing undertaking is that if a party to anexchange contract of the kind referred to in Article VIII, Section 2 (b)seeks to enforce such a contract, the tribunal of the member countrybefore which the proceedings are brought will not, on the ground thatthey are contrary to the public policy (ordre public) of the forum, re-fuse recognition of the exchange control regulations of the other memberwhich are maintained or imposed consistently with the Fund Agreement.It also follows that such contracts will be treated as unenforceable not-withstanding that under the private international law of the forum, thelaw under which the foreign exchange control regulations are maintainedor imposed is not the law which governs the exchange contract or itsperformance.

The Fund will be pleased to lend its assistance in connection with anyproblem which may arise in relation to the foregoing interpretation orany other aspect of Article VIII, Section 2 (b). In addition, the Fund isprepared to advise whether particular exchange control regulations aremaintained or imposed consistently with the Fund Agreement."10

The other interpretation which seeks to ensure the uniformapplication by members of a provision in the Articles involves theFund's privilege for communications under Article IX, Section 7:

"The official communications of the Fund shall be accorded by mem-bers the same treatment as the official communications of othermembers."

The interpretation, which was adopted on February 20, 1950, wasin reply to certain questions put to the Executive Directors by theexecutive director for the United States at the request of theU.S. National Advisory Council on International Monetary andFinancial Problems.11 Although the questions and the interpreta-tion dealt with other aspects of the privilege in relation to theofficial cable communications of the Fund, the fundamental prob-lem was whether the privilege embraced the rates charged forsuch communications. The Executive Directors decided that itdid.12 Article IX, Section 7, and the Fund's interpretation havebeen the subject of extensive examination in the proceeding al-ready referred to before the U.S. Federal Communications Com-

10 Selected Decisions, pp. 73-74.11 The National Advisory Council was established by Section 4 of the

U.S. Bretton Woods Agreements Act to coordinate the policies and opera-tions of the U.S. representatives on the Fund and Bank and of all agenciesof the U.S. Government that make or participate in making foreign loansor that engage in foreign financial, exchange, or monetary transactions.

12 Selected Decisions, pp. 93-94.

7


mission, an agency which exercises regulatory powers over therates charged for cable telecommunications.

Three of the five further interpretations under Article XVIIIdeal with the Fund's investment program.13 In an interpretationof January 25, 1956, the Executive Directors decided that theFund had an implied power to sell a portion of its gold for U.S.dollars in order to invest the proceeds in short-term U.S. Govern-ment securities. The purpose of the investment was to earn incomethat would offset the capital impairment resulting from the excessof administrative expenses over income. One important featureof the elaborate interpretation is the determination that theArticles require the United States to maintain the gold value ofthe U.S. Government securities in which the Fund has invested,notwithstanding changes in the par or foreign exchange value ofthe U.S. dollar.14 The interpretation was the product of study anddiscussion over a number of years, but very soon after it wasadopted the Fund's accumulated deficit disappeared. On Novem-ber 27, 1957, the Executive Directors amplified the original inter-pretation to provide that the investment program should be con-tinued in order to provide a reserve against possible future deficitsof the same kind. In an interpretation under Article XVIII ofJuly 24, 1959, the Executive Directors decided that there wasauthority to invest in U.S. Government securities having a term tomaturity not exceeding 12 months. By a later decision, this wasextended to 15 months in the case of one particular issue of U.S.Treasury securities.15

The ninth interpretation, adopted on August 24, 1955, dealswith the meaning of the provision in Article V, Section 3(a) (iii),under which a member may purchase the currencies of othermembers from the Fund without the necessity of a waiver when

"The proposed purchase would not cause the Fund's holdings of thepurchasing member's currency to increase by more than twenty-fivepercent of its quota during the period of twelve months ending on thedate of the purchase. . . ."

If these words were taken to refer to the difference between the13 Selected Decisions, pp. 112-16.14 Selected Decisions, pp. 112-14.15 Selected Decisions, p. 116.

8


level of the Fund's holdings of the member's currency 12 monthspreviously and the level to which they would be increased by aproposed purchase, the provision could permit the continuous useof the Fund's resources in very great amounts in terms of quota.If a member purchases foreign exchange from the Fund, themember transfers an equivalent amount of its own currency tothe Fund, and it is supposed to ensure that its use of the Fund'sresources will be temporary by repurchasing its currency fromthe Fund with gold or the currencies of other members within abrief period of years. In this way, the Fund's resources can bemade to revolve for the benefit of all members. Suppose that amember has made a number of purchases equal to 75 per cent ofits quota, and then makes equivalent repurchases of its currencyfrom the Fund. The effect of interpreting the provision to involvethe comparison of the two levels of the Fund's holdings wouldimmediately enable the member, without the need for a waiver,to purchase exchange equal to 75 per cent of quota, and another25 per cent as well depending on the dates of the earlier pur-chases. The Executive Directors decided that such an interpreta-tion would be repugnant to the basic ideas of a temporary use ofthe Fund's resources and the revolving character of those re-sources. They decided instead that in any period of 12 months amember can purchase exchange equal to a basic amount of 25per cent of its quota. Repurchases made during the period andbefore such a purchase do not augment that amount. Repurchasesmade after the purchase restore the right to purchase pro tantobut not in excess of 25 per cent of quota.16

It should be apparent from this brief treatment of nine of theArticle XVIII interpretations that there have been varied motivesfor recourse to that provision. In two early cases, a country soughtreassurance, in connection with its assumption of membership, onsome feature of the Articles which it regarded as peculiarly im-portant to itself. Another early interpretation resulted from theconcern felt by one member that it might be unable to have itsvotes cast for a temporary period. Other interpretations were

16 Selected Decisions, p. 20. Sales of a member's currency have the sameeffect as repurchases by it.

9


designed to ensure that members would follow a uniform practice inthe application of certain provisions. The interpretations dealingwith investment were primarily for the purpose of defining certainimplied powers of the Fund to conserve its resources. Anotherinterpretation was adopted in order to dispel the ambiguities thatobscured an important aspect of members' rights to use the Fund'sresources. Notwithstanding the diversity of motives responsible forthese interpretations, none of them involved disputes between theFund and a member in the ordinary sense of that word. That is tosay, although frequently there were differences of opinion on thecorrect interpretation, and differences which were sometimesresolutely argued over long periods, the cases were less in thenature of adversary proceedings between a member and the Fundthan cooperative efforts to find solutions to legal problems.

All the interpretations were adopted by the Executive Directors,even when the request for an interpretation was made in theBoard of Governors. This is in accordance with Article XVIII (a),which declares that questions of interpretation shall be submittedto the Executive Directors, Once the Executive Directors havegiven a decision on a question of interpretation under ArticleXVIII (a), any member may require that the question be referredto the Board of Governors, and the power to decide these appealscannot be delegated to the Executive Directors.17 None of thenine interpretations that have been described so far was referredto the Board of Governors after the Executive Directors adoptedtheir decision. This brings the discussion to the remaining inter-pretation under Article XVIII,- the one adopted in the case of thecompulsory withdrawal of Czechoslovakia from the Fund. Thereare a number of legal features of this interpretation that are uniquein the experience of the Fund, and these, as well as other aspectsof the episode, justify a more extensive treatment of the inter-pretation.

17 Article XII, Section 2(b): "The Board of Governors may delegate tothe Executive Directors authority to exercise any powers of the Board,except the power to: . . .(viii) Decide appeals from interpretations of this agreement given by the

Executive Directors."

10


3. The Compulsory Withdrawal of CzechoslovakiaOn November 4, 1953, the Executive Directors found that

Czechoslovakia had failed to fulfill its obligations under theArticles in not furnishing to the Fund the minimum informationnecessary for the effective discharge of the Fund's duties, as pre-scribed in Article VIII, Section 5(a),18 and in not consulting withthe Fund in accordance with Article XIV, Section 4.19 Therefore,the Fund declared Czechoslovakia ineligible to use the Fund'sresources under Article XV, Section 2(a):

"If a member fails to fulfill any of its obligations under this Agreement,the Fund may declare the member ineligible to use the resources of theFund. ..."

On June 7, 1954, Czechoslovakia was notified of a complaint thatit had continued its failure to fulfill its obligations, as set forth inthe decision of November 4, 1953, and it was proposed that theExecutive Directors recommend to the Board of Governors thatCzechoslovakia be required to withdraw from the Fund in ac-cordance with the following provisions of Article XV, Section 2:

"(b) If, after the expiration of a reasonable period the member persistsin its failure to fulfill any of its obligations under this Agreement, or adifference between a member and the Fund under Article IV, Section 6,continues, that member may be required to withdraw from membershipin the Fund by a decision of the Board of Governors carried by amajority of the governors representing a majority of the total votingpower.

(c) Regulations shall be adopted to ensure that before action is takenagainst any member under (a) or (b) above, the member shall be in-formed in reasonable time of the complaint against it and given an ade-quate opportunity for stating its case, both orally and in writing."

On July 23, 1954, the Executive Directors met to consider thecomplaint, and the representative of Czechoslovakia presented theviews of his Government. Apart from a number of proceduralpoints, the basic contention of the Czechoslovak Government was

18 "The Fund may require members to furnish it with such informationas it deems necessary for its operations, including as the minimum neces-sary for the effective discharge of the Fund's duties, national data on thefollowing matters: (i) . . . (xii). . . ."

19 ". . . Five years after the date on which the Fund begins operations,and in each year thereafter, any member still retaining any restrictionsinconsistent with Article VIII, Sections 2, 3, or 4, shall consult the Fundas to their further retention. . . ."

11


that the words "failure to fulfill any of its obligations" in ArticleXV, Section 2, meant a failure for which there was no legal justi-fication; that reasons of national security were a legal justification;and that this justification applied to Czechoslovakia in the cir-cumstances of the case. Czechoslovakia alleged that if it providedthe information it was withholding, the United States would findit easier to pursue its hostile trade policy against Czechoslovakia.The Czechoslovak argument came to the conclusion that theFund was without authority to require the member to withdraw,and requested an interpretation of Article XV, Section 2.

The legal advisors of the Fund prepared an opinion which con-cluded that reasons of national security were not a justification forfailure to perform the obligations of Article VIII, Section 5, andArticle XIV, Section 4, and at a meeting on August 11, 1954 theExecutive Directors adopted the following interpretation:

"In response to the request of the Government of Czechoslovakia, andafter having considered the arguments put forward by that Government,the Executive Directors, acting pursuant to Article XVIII (a) of theFund Agreement, interpret Article XV, Section 2 as follows:

Action may be taken by the Fund to require a member to withdrawwhen the following conditions have been met:1. The member has been declared ineligible to use the resources ofthe Fund pursuant to Article XV, Section 2 (a);2. A reasonable time has passed since the member was declaredineligible to use the resources of the Fund pursuant to Article XV,Section 2 (a), whether or not a fixed period of time had been pre-scribed in connection with such action, and the member persists infailing to fulfill its obligations;3. Trie member has been informed in reasonable time of the com-plaint against it and given an adequate opportunity to state, bothorally and in writing, any fact or legal argument relevant to the issuebefore the Fund."

At the same meeting, the Executive Directors decided to recom-mend to the Board of Governors that Czechoslovakia be requiredto withdraw from the Fund with effect from the close of businesson December 31, 1954, unless the Executive Directors determinedthat prior thereto Czechoslovakia had supplied the informationrequired under Article VIII, Section 5, and entered into consulta-tion with the Fund under Article XIV, Section 4.

At the meeting of the Executive Directors on August 11, 1954,the representative of Czechoslovakia stated that his Government

12


wished to exercise its right to have the question of interpretationreferred to the Board of Governors under Article XVIII ( b ) . Ac-cordingly, the subject was placed on the agenda of the Board ofGovernors at its Ninth Annual Meeting in September 1954.

At the meeting of the Board of Governors, the Governor forCzechoslovakia, in Committee and Board sessions, criticized theinterpretation by the Executive Directors on the ground that it didnot deal with the substantive question of national security. Hedisagreed with the opinion of the Fund's legal advisors on theground that it was a "negation of the concept of self-defense, theconcept of self-preservation and national security as a generalconcept of international law." He proposed the following alterna-tive resolution on the interpretation of Article XV, Section 2:

"1. 'Failure to fulfill the members' obligations under the Agreement' inArticle XV, Section 2, means legally not justified nonfulfillment of theprovisions of the Articles of Agreement.2. Reasons of national security are under the general concept of inter-national law legal justification for 'failure to fulfill the members' obliga-tions under the Agreement.'3. Members of the Fund are entitled not to comply with the provisionsof the Articles of Agreement if to comply would endanger their nationalsecurity, and, in particular, are entitled to withhold information underArticle VIII, Section 5, the disclosure of which would endanger theirnational security."

There was no second to the motion. The Board of Governors, onSeptember 28, 1954, confirmed the interpretation of the ExecutiveDirectors under Article XVIII and adopted the resolution that theExecutive Directors had recommended requiring Czechoslovakiato withdraw.

International lawyers will be interested in the withdrawal ofCzechoslovakia from the Fund for a number of reasons. Proceed-ings to compel the withdrawal of members from internationalorganizations are rare events. The issue of national security andsimilar concepts in relation to treaty obligations written in abso-lute terms is equally absorbing. This was a complicated case, butall that has been attempted here is a brief indication of the centralrole of the question of interpretation. In this connection, it willhave been noted that this was the only interpretation that has everbeen referred to the Board of Governors under Article XVIII

13


(ft).20 However, there have been a number of occasions on which,at some session of the Board, a governor has expressed his views,on a particular interpretation or decision or on the techniques ofinterpretation that, in his opinion, the Fund should employ.

4. Interpretations Outside Article XVIIIThe Articles of Agreement are a complex, lengthy, and im-

portant instrument, and it was not to be expected that an instru-ment of this character would be so clear and comprehensive as torequire little in the way of interpretation. A considerable numberof interpretations have been necessary in order to enable the Fundto function efficiently. The overwhelming proportion of these inter-pretations have been adopted outside Article XVIII.

The Fund has published Selected Decisions of the ExecutiveDirectors and Selected Documents, now in its third issue (January1965). The bulk of this publication, apart from documents, con-sists of decisions taken without recourse to Article XVIII. Eventhese decisions are only a portion of those that can be said to beof an interpretative character. The published collection is confinedon the whole to those decisions of a general nature to which fre-quent reference is likely to be made. Numerous decisions thatinvolve particular members or particular practices have not beenincluded. In addition, although most decisions are adopted by theExecutive Directors in a form which expressly states that they aredecisions,21 they are sometimes less recognizable. For example, the

20 Much material relating to the case will be found in InternationalMonetary Fund, Summary Proceedings of the Ninth Annual Meeting ofthe Board of Governors (1954), pp. 97-101, 112-14, 121-22, and 135-80.

21 In a few instances, the decisions state that they are adopted as inter-pretations (even though they are not under Article XVIII). See SelectedDecisions, pp. 2, 6, and 52. The reference to interpretation occurs in thesecases in order to avoid any impression that the decision is an expressionof policy. They do not differ in effect from other decisions of an interpreta-tive character which do not state that they are interpretations. The readerof Selected Decisions should also note that some of the decisions whichobviously are mainly declarations of policy may include a sentence or tworesolving a legal problem, often one that had to be disposed of beforeagreement could be reached on the policy. See, for example, the sentencebeginning at the bottom of page 81, for the significance of which see Gold,The International Monetary Fund and Private Business Transactions: SomeLegal Effects of the Articles of Agreement, International Monetary Fund,Pamphlet Series No. 3 (Washington, 1965), pp. 9-11.

14


decision, arrived at after much legal debate, that it was not con-sistent with the Articles for a member to move from a fixed parvalue for its currency to a fluctuating rate as a transition toanother fixed par value, appears in a discussion on fluctuatingrates in an Annual Report of the Executive Directors.22 Decisionson legal questions may be embedded in other documents as well.For example, paragraphs 20 and 22 of the Report of the Execu-tive Directors on Increases in Quotas of Fund Members: FourthQuinquennial Review establish the legal principle that the Fundmay hold gold either as earmarked bars or on general depositunder which ownership of the bars vests in the depository.23 Inconnection with interpretative decisions, the Rules and Regulationsof the Fund deserve special mention because they "attempt toprovide such operating rules, procedures, regulations, and inter-pretation as are necessary and desirable to carry out the purposesand powers contained in the Agreement, as supplemented by theBy-Laws."24

It must not be thought that there is any essential differencebetween interpretations adopted under Article XVIII and thosenot adopted under that provision, apart from the more formaland authoritative character of the former. For example, the tech-nique of arriving at interpretations does not differ according tothe procedure followed. The attitude to the two classes of inter-pretation is the same: both are observed and applied as part ofthe Fund's corpus juris. Nor can any distinction between them bemade on the basis of their importance or the difficulties involvedin arriving at them. A glance at Selected Decisions will show howfundamental are many of the interpretations that have not beensubsumed under Article XVIII.

It is natural to ask why the Fund has adopted the practice of

22 International Monetary Fund, Annual Report, 1951, p. 40.23 International Monetary Fund, Annual Report, 1965, pp. 124-28, and

International Financial News Survey, Vol. XVII (1965), pp. 85-88.24 Rule A-l of the Rules and Regulations (Twenty-sixth issue, August 10,

1966). The By-Laws of the Board of Governors and the Rules and Regula-tions of the Executive Directors are adopted under Article XII, Section2(#): "The Board of Governors, and the Executive Directors to the extentauthorized, may adopt such rules and regulations as may be necessary orappropriate to conduct the business of the Fund."

15


making most of its interpretations outside Article XVIII. It is noteasy to answer this question because the practice has not beenthe result of any formal decision. The explanation may be that theadoption of interpretations outside Article XVIII preserves a cer-tain informality precisely because these interpretations are notgiven the stamp of final authoritativeness that they would haveunder Article XVIII. The practice is thus more consistent withthe spirit of consultation and collaboration which is the first de-clared purpose of the Fund and which is essential for its success.This informality can be preserved without any impairment of thesafeguards for members. Moreover, if a member wished to have aquestion of interpretation pursued under Article XVIII, that coursewould be followed. Again, it has now become apparent that thereconsideration of Article XVIII interpretations may involve cer-tain difficulties that would not be present in the case of otherinterpretations. This question is discussed in a later section. What-ever difference may have emerged in this connection in recentyears, it cannot explain, except subconsciously, the preferenceestablished at an early date for interpreting the Fund's charteroutside Article XVIII.

5. The Approach to InterpretationIt is not possible to understand or interpret the Articles unless

it is constantly kept in mind that they are a legal document thatregulates the activities of states in monetary and economic affairs.Recognition of the fact that the Articles were drafted by lawyersand economists acting in concert, that the language of the Articlesis permeated by economic terminology, and that the Articles regu-late monetary and economic affairs has led to the adoption of acoherent and usable body of legal interpretation. This recognitionof the character of the Articles is of fundamental importance inconnection with those provisions that deal with the code of con-duct binding on member states and with the use of the financialresources that the Fund makes available to members to help themobserve that code of conduct. As might be expected, the specialcharacter of the Articles is less decisive in connection with some

16


of the provisions that deal exclusively with the institutional featuresof the Fund.

The dangers of failing to think in terms of the economic char-acter of the Articles are illustrated by certain views expressed bythe courts in interpreting Article VIII, Section 2(b). In Banco doBrazil, S.A. v. A.C. Israel Commodity Co., Inc., et al.,25 the NewYork Court of Appeals considered the meaning of this provision,and, in an obiter dictum, the majority was reluctant to accept theview that the criterion for determining whether exchange contracts"involve the currency" of a member is whether they affect themember's exchange resources. It is a simple economic conceptthat the stability of a currency is affected if the exchange resourcesthat support it can be drained away. In fact, it is a major objectiveof the Fund to help preserve exchange stability by supportingmembers' currencies with the Fund's financial resources. The pur-pose of Article VIII, Section 2(6), is to ensure that members willcooperate in accordance with the provision when members havefound it necessary to maintain or impose exchange controls forthe support of their currencies and those controls are consistentwith the Articles. A similar failure to understand the economiccharacter and objective of the provision has led to suggestions thatthe words mean that a currency is involved if the contract callsfor payment in the member's own currency but not in a foreigncurrency.26 This distinction is economically unsound. A paymentby a resident to a nonresident affects the economy of the resident'scountry whatever the currency in which he has undertaken to pay.The country's exchange resources are affected if payment is in itsown currency because this will increase its foreign liabilities; thecountry's exchange resources are affected if payment is in aforeign currency because this will reduce its foreign assets.

2512 N.Y.2d 371, 190 N.E.2d, 235, 239 N.Y.S.2d 872 (1963); Gold,"The Fund Agreement in the Courts—VIII," Staff Papers, Vol. XI (1964),pp. 468-73.

26 Gold, "The Fund Agreement in the Courts—VIII," Staff Papers, Vol.XI (1964), pp. 459-60; Gold, The Fund Agreement in the Courts, Inter-national Monetary Fund (Washington, 1962, hereinafter referred to asGold (1962), op. cit.), p. 146.

17


6. Travaux PreparatoiresThe Fund has made abundant use of travaux preparatoires, al-

though from time to time there has been discussion of the weightthat should be attributed to them in general or in relation to aparticular problem. It is probably safe to say that the degree ofreliance on travaux preparatoires in the solution of a problemis proportional to their clarity. This working rule sometimes trans-fers the debate from the meaning of the text to the meaning of anearlier draft. Although uncertainty as to the inferences that can bedrawn from travaux preparatoires sometimes tends to produce ageneral skepticism about their usefulness, when they have beenclear they have made weighty or even decisive contributions to thesolution of some problems of interpretation.

The Fund's basic travaux preparatoires are the Proceedings andDocuments of the United Nations Monetary and Financial Con-ference. These are two volumes, of almost 2,000 pages, publishedin 1948 by the U.S. Department of State.27 They are, of course,a collection of the working papers of the Bretton Woods Con-ference of July 1 to 22, 1944, at which the Articles of theFund and of the International Bank for Reconstruction and De-velopment were drafted. The volumes also reproduce the Britishplan for an International Clearing Union and various other pro-posals that were forerunners of the Articles.

The examination of any important problem of interpretation ofthe Articles, whether or not under Article XVIII, usually beginswith a study of any relevant material in the Proceedings andDocuments. This is not always rewarding, largely because little inthe way of discussion is recorded, and it is, therefore, difficult tosay with confidence why the various drafts of a provision wereproposed and why the final version was adopted. If the Proceed-ings and Documents are not always helpful, this must not beunderstood to mean that they never give guidance.28

In order to facilitate the work of the Bretton Woods Conference,a preliminary meeting was held at Atlantic City, New Jersey. On

27 See footnote 3, above.28 See, for example, Gold (1962), op. cit., p. 33.

18


June 15, 1944 a group of American experts met there and werejoined a little later by experts from 15 other countries. The At-lantic City Conference produced a document on the basis of whichthe deliberations on the Fund's Articles began at Bretton Woods.The Atlantic City documents have not been published, but manyof them are available within the Fund, and they are sometimesuseful in resolving ambiguities, although, of course, less oftenthan the Bretton Woods documents.

Another source of material is the Parliamentary debates andhearings on the proposed Bretton Woods legislation of certainmember countries, which was designed to authorize them to jointhe Fund and make provision for the performance of certain ob-ligations under the Articles. These debates and hearings weresubsequent to the negotiation and drafting of the Articles, andthey are therefore travaux preparatoires of the legislative enact-ments and not of the Articles, but they took place soon after theConference and sometimes present the views of experts who tookleading parts in the negotiations. Of this material, by far the mostcomprehensive and detailed are the Hearings before the Commit-tee on Banking and Currency of the U.S. Senate in June 194529

and the Hearings before the Committee on Banking and Currencyof the U.S. House of Representatives in March, April, and May1945.30 In those hearings, the colloquies between U.S. Govern-ment officials who participated in the Bretton Woods Conferenceand members of the Committees are of the greatest interest. Thelate Senator Robert Taft, who was a lawyer by profession and acritic of the Fund project, took an active part in the Senate hear-ings, and his pointed and persistent questions addressed to thesegovernment officials did much to get useful information on therecord.31

A further source of historical material is a document entitledQuestions and Answers on the International Monetary Fund,

29 Bretton Woods Agreements Act, Hearings, 79th Congress, 1st Session,on H.R. 3314 (Washington, 1945).

30 Bretton Woods Agreements Act, Hearings, 79th Congress, 1st Session,on H.R. 2211 (Washington, 1945).

31 See, for example, Gold, The Fund and Non-Member States: SomeLegal Effects, International Monetary Fund, Pamphlet Series No. 7 (Wash-ington, 1966), pp. 8-9.

19


issued by the U.S. Treasury on June 10, 1944. It is a document ofsome length, consisting of 35 questions and the answers to them,many of which are detailed essays. It was issued by the Treasuryin order to educate American opinion on certain aspects of theJoint Statement by Experts on the Establishment of an Inter-national Monetary Fund of the United and Associated Nations.32

This was a statement of principles adopted on April 21, 1944 bythe technical experts of more than 30 countries, in which they ex-pressed their personal views without binding their governments.The Questions and Answers was also circulated a few weeks inadvance of the Bretton Woods Conference to the delegations thatwere going to attend that Conference.

The Questions and Answers is a useful document because of thelucidity with which it is written and because it was produced byofficials who were responsible in large part for the original pro-posal for a Fund and for working on its subsequent versions. Not-withstanding the great merits of the Questions and Answers, it mustbe used with caution, not only because it was produced by onecountry only, but also because in the Articles as finally agreedthere were many important departures from the principles of theJoint Statement. The citation of the Questions and Answers inFund discussions of an ambiguity in the Articles has sometimesled to interesting debates about the weight to be attributed to thedocument, or to the sections cited, in the light of the subsequentintentions of the drafters of the Articles.

Another source of information about the drafting history of theArticles is on a much lower level of importance and usefulness.For their personal convenience during the Bretton Woods Con-ference, some members of the U.S. Delegation arranged forstenographic minutes to be taken of the meetings of Commission Iof the Conference, the Commission charged with formulating theArticles of the Fund. These minutes do not constitute anythinglike a full record of the deliberations on the Articles because somuch of the debate was conducted in specialized committees re-porting to Commission I. Nevertheless, even this incomplete record

32 Proceedings and Documents, pp. 1629-36.

20


is helpful in eking out the not very adequate travaux prepara-toires. At the request of the Fund, the U.S. Government consentedto the transmission of a copy of the minutes to each executivedirector of the Fund. The United States assumed no responsibilityfor the text and it is, of course, completely unofficial. The text,often garbled, has never been edited, checked, or agreed, and,therefore, it has not been made available outside the Fund.

7. Private Law Sources and AnalogiesA characteristic of the interpretative work of the Fund has been

the reliance placed on what the late Judge Lauterpacht called"private law sources and analogies."33 International monetary lawis even more sparse than many other branches of public inter-national law, and this in itself would have encouraged frequentresort to private law. In addition, the comparative treatment ofprivate law makes it possible on occasion to distill concepts orprinciples with which many systems of law are familiar, and whenthere are broadly accepted concepts or principles, they make auseful contribution to the attainment of general consent amongthe Executive Directors and membership of the Fund. However,although private law has made a considerable contribution to theelucidation of the Articles, it has been necessary to observe acertain caution. The Fund and its activities are unique in manyways, and it would be misleading therefore to assume that theconcepts of the Articles always have exact parallels in privatelaw.

A fairly recent and illuminating example of the use of privatelaw sources and analogies was the adoption by the Fund of adecision and model agreement for the pledge of gold to the Fund.The Fund has the power to waive the conditions on which itmakes its resources available to members and may require the"pledge" of "collateral security" in the form of gold, silver, securi-ties, or other acceptable assets as a condition of granting a

33 H. Lauterpacht, Private Law Sources and Analogies of InternationalLaw (London, 1927).

21


waiver.34 The Fund approved exchange transactions accompaniedby gold collateral on a few occasions, and then decided that itwould establish standard terms for this type of transaction. It wasfound that there was very little positive international law35 whichhelped in defining the legal incidents of the terms "pledge" and"collateral security," and therefore virtually all of the featuresof the form of pledge established by the Fund had to be importedfrom private law. For example, the widespread principle of pri-vate law that the pledger must make an effective surrender ofpossession of the pledged property to the pledgee or to someoneon his behalf led the Fund to accept this principle and to decidethat it could best be observed if gold pledged to the Fund weredelivered to some depository of the Fund outside the territory ofthe pledger.

Another and more troublesome feature of the private law ofpledge that had to be coped with was the invalidity in many legalsystems of terms in a pledge agreement that impaired the pledgor'sright to redeem the pledged property by providing that on defaultin the performance of the pledgor's principal obligation owner-ship would pass automatically to the pledgee ("pacte commis-soire"). The pledgee's normal remedies are judicial foreclosure orsale and not unilateral appropriation of the pledged property. Itwas arguable that the pacte commissoire would not be improperin the case of a pledge of gold because this would not be anunconscionable burden on the pledgor. Transfer of the gold tothe Fund would be at the parity price established under theArticles. Nevertheless, the Fund decided to adopt safeguards forthe pledgor that would avoid a pacte commissoire to the maximum

34 "Waiver of conditions.—The Fund may in its discretion, and on termswhich safeguard its interests, waive any of the conditions prescribed inSection 3 (a) of this Article, especially in the case of members with arecord of avoiding large or continuous use of the Fund's resources. Inmaking a waiver it shall take into consideration periodic or exceptionalrequirements of the member requesting the waiver. The Fund shall alsotake into consideration a member's willingness to pledge as collateralsecurity gold, silver, securities, or other acceptable assets having a valuesufficient in the opinion of the Fund to protect its interests and may re-quire as a condition of waiver the pledge of such collateral security"(Article V, Section 4).

35 See Case Concerning the Factory at Chorzow (Claim for Indemnity)(The Merits), P.C.I.J. Series A, No. 17 (September 13, 1928).

22


extent. It was provided, therefore, that after the due date thepledger would be given a period of grace within which to dis-charge its obligation to the Fund; that at any time before the duedate or within the period of grace the pledger might sell thepledged gold and discharge its obligation either with the proceedsof sale or with any other holdings of currency or gold; and thatthe Fund would facilitate any such sale.36

There has been one resort to private law sources that deservesspecial mention because of broader issues that it raised in con-nection with the interpretation of the Articles. Ordinarily, aninterpretation, once adopted, is assumed to have been effective atall relevant times. However, on one occasion this would havecreated special problems. The circumstances in which the issuearose are complicated, but some of the salient facts may be takento be that on September 30, 1946 the Executive Directors agreedto recommend to the Board of Governors a quota increase for amember. The Resolution adopted by the Board of Governors con-tained no provision dealing with the gold subscription payable inrespect of the increase in quota. The member consented to theincrease, which became effective on January 14, 1947, at whichdate the member had not yet been required to pay and had notin fact paid the gold portion of its original subscription. Beforethe final date for that payment (February 28, 1947), there wasdiscussion of the question of the gold subscription payable by themember. One view was that while the member was bound byArticle III, Section 3(£),37 to pay an original gold subscriptionequal to the smaller of 25 per cent of quota or 10 per cent of themember's net official holdings on a specific date, it was also bound

36 Selected Decisions, pp. 44-48.37 "Each member shall pay in gold, as a minimum, the smaller of

(i) twenty-five percent of its quota; or(ii) ten percent of its net official holdings of gold and United States

dollars as at the date when the Fund notifies members underArticle XX, Section 4 (a ) that it will shortly be in a positionto begin exchange transactions.

Each member shall furnish to the Fund the data necessary to determineits net official holdings of gold and United States dollars"(Article III, Section 3(6)) .

23


by Article III, Section 4(a),38 to pay a further gold subscriptionin respect of the increase in quota. This additional gold subscrip-tion would be equal to 25 per cent of the increase (or such smalleramount as the Fund might determine if the member's monetaryreserves were below a certain level). A competing view was thatif a quota increase became effective before the original subscrip-tion was due, the total gold subscription payable was governed byArticle III, Section 3(6). On that assumption, the only gold sub-scription would be the smaller of 25 per cent of the increasedquota or 10 per cent of the member's net official holdings. If, asin this case, the member was paying on the basis of 10 per cent ofits net official holdings, the increase in quota would not entail alarger gold subscription than was payable in respect of the originalquota.

The adoption of the first view in this case would have causedthe member prejudice if it had been led to believe that no furthergold subscription would be payable in respect of the quota in-crease and if it had consented to the increase on that basis. Aquota increase cannot be reversed by the member's unilateralwithdrawal of consent. Therefore, had the legal issue relating tothe subscription been raised in time and left uncertain or resolvedin favor of a further gold subscription, the member might not haveconsented or might have appealed the question to the Board ofGovernors.

The question of interpretation was not settled by the ExecutiveDirectors until July 1950, and it was then settled by a decisionthat any increase in quota is governed by Article III, Section 4(a),so that 25 per cent of an increase is payable in gold39 whether ornot the increase takes effect before an original subscription is

38 "Payments when quotas are changed.—(a) Each member which con-sents to an increase in its quota shall, within thirty days after the date ofits consent, pay to the Fund twenty-five percent of the increase in gold andthe balance in its own currency. If, however, on the date when the mem-ber consents to an increase, its monetary reserves are less than its newquota, the Fund may reduce the proportion of the increase to be paid ingold" (Article III, Section 4(cr)).

39 Subject to the power of the Fund to reduce this amount if the mem-ber's monetary reserves are below the level of its new quota on the datewhen the member consents to the increase. In practice, the Fund has neverreduced the amount of the gold subscription payable in respect of a quotaincrease.

24


due.40 However, the Fund found with respect to the particularincrease that had produced the controversy that the member ingood faith had been led to understand before it consented to theincrease in quota that a further gold subscription would not bepayable under Article III, Section 4(a). In view of that findingand the other circumstances of the case, in particular the time thathad elapsed before the adoption of the interpretation of ArticleIII, Section 4(a), the Fund decided that the member was notrequired to make a further payment of gold in respect of theincrease in its quota.

The effect of this decision was that the interpretation was notmade retroactive to the particular quota increase which had pro-duced the legal issue. The decision did not refer expressly to anyparticular doctrine of law, but it was clearly influenced by suchdoctrines as estoppel or preclusion and laches.41 There is authorityin some systems of private law which, subject to many qualifica-tions, asserts that estoppel is confined to representations of factand does not extend to representations of law, or which denies thepossibility of setting up an estoppel against a statute, or whichprevents extension of the powers of a corporation beyond itscharter by means of an estoppel.42 However, it has been said that"when international law borrows an idea from municipal systems,there is no reason why the international formulation of the ruleshould be identical with that of national law. . . ,"43 This raisesan interesting question. What constitutes the essence of a generalconcept or principle of law and what are the inessential local inci-dents that should not be carried over into international law? It islikely that this is a problem on which not much guidance can befound in general rules.

40 Selected Decisions, p. 6.41 It can hardly be doubted that these are now doctrines of international

law. See the many references to and discussions of them in C. W. Jenks,The Prospects of International Adjudication (London, 1964). There wasless international authority on which to base this conclusion in 1950, andmore weight had to rest at that time on private law sources and analogies.

42 J. A. Andrews, "Estoppels against Statutes," The Modern Law Review,Vol. 29 (London, 1966), pp. 1-15.

43McNair, The Law of Treaties (Oxford, 1961), fn. 2, p. 487. LordMcNair refers to his dictum in International Status of South-West Africa,[1950] I.C.J., p. 148: "To what extent is it useful or necessary toexamine what may at first sight appear to be relevant analogies in pri-

25


It is possible that there was, in any event, a radical differencebetween the Fund quota case and those cases in which an estoppelcannot be established under the rules of private law that havebeen mentioned. The Fund has the power to interpret its Articlesand bind its members thereby. It would be difficult to justify theretroactive application of an interpretation to a member whichhad acted to its prejudice on the assumption induced by the Fundthat some other interpretation was the correct one.44

8. Clarification and ReinterpretationA passing reference has already been made to the problem of

reconsidering interpretations, and in particular those adopted withthe formality of Article XVIII. The problem has arisen in connec-tion with the interpretation agreed by the Executive Directors onSeptember 26, 1946 as the result of a request made by the Gov-ernor for the United States pursuant to Section 13(a) of the U.S.Bretton Woods Agreements Act. The interpretation was submittedby the Executive Directors to the Board of Governors at the FirstAnnual Meeting. The Board of Governors was not called upon totake any action in relation to it, and the Board took no action. Theinterpretation was not even discussed by the Board of Governorsat the First, or at any subsequent, Annual Meeting.45

In due course, it became desirable to establish exactly what thisinterpretation meant in connection with the use of the Fund'sresources to assist a member when its payments difficulties wereoccasioned to some extent by capital transfers. The question invate law systems and draw help and inspiration from them? Internationallaw has recruited and continues to recruit many of its rules and institutionsfrom private systems of law. Article 38 (i) (c) of the Statute of the Courtbears witness that this process is still active, and it will be noted that thisarticle authorizes the Court to 'apply . . . (c) the general principles of lawrecognized by civilized nations'. The way in which international law borrowsfrom this source is not by means of importing private law institutions lock,stock and barrel', ready-made and fully equipped with a set of rules. Itwould be difficult to reconcile such a process with the application of 'thegeneral principles of law'." See also Case Concerning The Temple ofPreah Vihear, [1962] I.C.J., particularly at p. 62.

44 On this basis, the case can be said to resemble estoppel per rem judi-catam, on which see J. A. Andrews, op. cit., pp. 8-15.

45 International Monetary Fund, First Annual Meeting of the Board ofGovernors, Report of the Executive Directors and Summary Proceedings,September 27 to October 3, 1946, Appendix C, p. 106.

26


Section 13 of the U.S. Bretton Woods Agreements Act and in theResolution of the Board of Governors seemed to ask whether theFund's authority went beyond the financing of deficits on currentaccount to the length of meeting a large or sustained outflow ofcapital. This was an infelicitous question, and as is often thecase with such questions it produced an infelicitous reply. Perhapsthe explanation of Section 13 was that it sought to reassure thoseelements of public opinion in the United States that were con-cerned that the Fund might provide financing for the purposesenumerated in the second part of Section 13(a), and the parlia-mentary draftsman tried to indicate in the first part of Section13 (a) the form in which the reassurance might be given andwould give most comfort. What was unhappy about Section 13(a)was that it left no apparent place for the use of the Fund's re-sources in respect of an outflow of capital that was not large orsustained. Under Article V, Section 3 (a):

"A member shall be entitled to buy the currency of another memberfrom the Fund in exchange for its own currency subject to the follow-ing conditions:

(i) The member desiring to purchase the currency represents that itis presently needed for making in that currency payments whichare consistent with the provisions of this Agreement. . . . "

Among the provisions of the Agreement are those of Article VI,which is entitled "Capital Transfers." Section 1 provides asfollows:

"Use of the Fund's resources for capital transfers.—(a) A member maynot make net use of the Fund's resources to meet a large or sustainedoutflow of capital, and the Fund may request a member to exercise con-trols to prevent such use of the resources of the Fund. If, after receivingsuch a request, a member fails to exercise appropriate controls, the Fundmay declare the member ineligible to use the resources of the Fund.

(6) Nothing in this Section shall be deemed(i) to prevent the use of the resources of the Fund for capital trans-

actions of reasonable amount required for the expansion of exports orin the ordinary course of trade, banking or other business. . . ,"46

Prima facie, therefore, the question appeared to ignore a use of

27

46 This is not the only provision under which some use of the Fund'sresources for capital transfers seems to be contemplated. See, for example,Article VIII, Section 4(a)(ii).


the Fund's resources to meet an outflow of capital that was notdeemed, according to whatever might be the appropriate criteria,to be "large or sustained" under Section 1 (a) or that constituted"capital transactions of reasonable amount" under Section

By 1961 it was felt that something should be done to cope withthose semantic and legal uncertainties created by the interpretationthat, in the words of the Managing Director, "had not alreadybeen dissipated by the practice of the Fund."47 This had becomeall the more necessary because the restoration of broad con-vertibility for major currencies and freedom for exchange marketspermitted greater fluidity for capital movements and often madeit difficult to determine, except after the event, precisely to whatextent payments problems were on current or on capital account.48

The legal issues raised by the particular interpretation were ex-tremely complex and involved many refinements of the Articles,but these will not be pursued here. The issues discussed here willbe those that relate to certain consequences of Article XVIIIinterpretations in general.

The basic difficulty was this. On the one hand, there was wide-spread, and perhaps even unanimous, agreement that the use ofthe Fund's resources in connection with capital transfers was notwholly inadmissible. On the other hand, the interpretation mightbe read to leave no room for such a use of the Fund's resources.The interpretation had been adopted under Article XVIII; and, inaddition, it had been delivered in response to a question put bythe U.S. Governor under Congressional instruction. In principle,there were two possible approaches: one was that the interpreta-tion was wrong because it had been intended to reject all possi-bility of the use of the Fund's resources in connection with capitaltransfers,49 and the other was that this had not been intended but

47 International Monetary Fund, Summary Proceedings of the SixteenthAnnual Meeting of the Board of Governors (1961), p. 26.

48 International Monetary Fund, Annual Report, 1961, p. 18; 1962,pp. 32-33.

49 Cf. E. Lauterpacht, "The Legal Effect of Illegal Acts of InternationalOrganisations," Cambridge Essays in International Law: Essays in Honourof Lord McNair (London, 1965), pp. 88-121.

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1(b)(i).


that the language was unclear or misleading because it neverthe-less suggested this.

The conclusion that the first approach had to be followed wouldhave made it necessary to deal with a number of questions. Someof these might have arisen under U.S. law. For example, if thisapproach led to the repeal of the interpretation, Section 13 (a) ofthe U.S. Bretton Woods legislation would be left unanswered. Itseems, however, that reformulation of the interpretation so that itcorresponded expressly with the general understanding of thelegal position would have created little, if any, difficulty for theUnited States.50

For the Fund, the main legal questions would have involvedthe central issue of the reversibility (whether by revocation orsubstantial alteration) of interpretations that had been adoptedunder Article XVIII. Could the Executive Directors themselvesreverse an interpretation which they had adopted, or could this bedone only by the Board of Governors? Could an interpretation ofthe Executive Directors be referred to the Board of Governorsunder Article XVIII (b) after almost 15 years? Could it be re-ferred to the Board of Governors when the Board of Governorshad requested the interpretation, received it, and taken no actionin respect of it? Suppose that in the past the question had beenreferred to the Board of Governors, which had then taken adecision. Could the Board of Governors reverse its own decision?In connection with this last question, was the long silence of theBoard of Governors somehow equivalent legally to a decision byit on a reference under Article XVIII (b)l

The answers to some of these questions would undoubtedly in-volve consideration of the words "whose decision shall be final"in Article XVIII ( b ) . It is possible that these words mean only thatno appeal lies from the Board of Governors to some other body,whether within or outside the Fund, and that they do not dealwith the reversal by the Executive Directors or the Board ofGovernors of past interpretations. At the same time, it would

50 U.S. National Advisory Council on International Monetary andFinancial Problems, Eighth Special Report to the President and to theCongress, April 1960-March 1962 (Washington, 1963), p. 12.

29


seem unjustifiable to regard Article XVIII as establishing no morethan a procedure for the settlement of disputes under which theeffect of an interpretation by the Board of Governors would beto dispose of the dispute in which it was adopted without affectinglater disputes between other parties.51 Article XVIII may apply tocases that are truly adversary proceedings and can therefore beregarded as involving "disputes," but the provision also applies tocases in which the parties are seeking to arrive at the best inter-pretation and not simply to win an argument. Commentators out-side the Fund tend to overemphasize the former kind of case. Inpractice, the overwhelming proportion of interpretations, whetherunder Article XVIII or outside it, falls into the latter category.Whatever the character of the case, however, it is clear that thedecisions of the Executive Directors and the Board of Governorsunder Article XVIII are meant to be interpretations of the Articlesand therefore to have general application.

If it were concluded that an interpretation under Article XVIIIcould not be revoked or substantially altered by later decisions ofthe organs of the Fund, the consequence would be that a mis-interpretation could be corrected only by amendment of theArticles. In effect, the misinterpretation would have amended theArticles without observing the provisions of Article XVII onamendment. Moreover, if the misinterpretation involved theneglect of the language of the Articles—as might have been thecase in connection with Article VI, Section 1—the remedy wouldbe an odd one. It would consist in the reconfirmation of thelanguage that had been neglected.

In all of the questions that have been mentioned as arising on amisinterpretation a further refinement may be introduced. Doesthe legal effect of a misinterpretation by the Executive Directorsunder Article XVIII(0), or by the Board of Governors underArticle XVIII(fe), depend on whether the misinterpretation hasaffected the practice of the Fund and its members? This wouldhave been a relevant question if it had been decided that the

51 But note that Article XII, Section 2(6)(viii), speaks of "appeals" indescribing questions "referred" to the Board of Governors under ArticleXVlll(b).

30


interpretation of September 1946 was in fact a misinterpretationbecause it had been intended to deny any use of the Fund's re-sources in connection with capital transfers. It could not havebeen demonstrated that any such understanding of the interpreta-tion had shaped the practice of the Fund. On the contrary, fromthe early years of the Fund and throughout its history, there hadbeen instances in which the Fund's resources had been made avail-able to members to assist them in circumstances in which theirpayments difficulties involved some element of capital outflow.For example, in one substantial group of cases the Fund's re-sources had been made available explicitly for the support of freeexchange markets, and it is safe to assume that a certain amountof capital must have been transferred through those markets.

The questions that would have become pertinent if the first ap-proach had been pursued were never answered. The ExecutiveDirectors concluded, taking into account such considerations asthe practice of the Fund, that it had not been intended by theinterpretation to negate the use of the Fund's resources in connec-tion with capital transfers where this was permitted by the expresslanguage of the Articles. On July 28, 1961, the Executive Direc-tors came to the following decision:

"After full consideration of all relevant aspects concerning the use ofthe Fund's resources, the Executive Directors decide by way of clarifica-tion that Decision No. 71-2 does not preclude the use of the Fund'sresources for capital transfers in accordance with the provisions of theArticles, including Article VI" (Selected Decisions, p. 54).

The procedure was one of clarification by the Executive Directorsof their 1946 decision, in contrast to the correction of that decisionor the adoption of a new decision. The action had a certainsimilarity to the procedure of the International Court of Justicein construing a judgment where there is a dispute as to its "mean-ing or scope."52

9. Article XVIII and National TribunalsA question which will occur immediately to the lawyer is

52 Article 60 of the Statute of the Court. See also S. Rosenne, TheInternational Court of Justice (Leyden, 1957), pp. 330-31 and 468-73.

31


whether Article XVIII interpretations by the Fund have bindingeffect on forums in member countries. This is, of course, quitedifferent from the question whether they are binding on membergovernments. Indeed, there can be no question about that. Thequestion whether they are binding on courts is particularly perti-nent in view of the fact that two of the interpretations underArticle XVIII, those involving Article VIII, Section 2(6), andArticle IX, Section 7, have an impact on the rights or obligationsof private persons or corporations. It is not likely that the problemwill arise except in relation to interpretations under Article XVIIIbecause under the charter only these are authoritative. However,this does not mean that a forum would ignore the persuasive effectof an interpretation made otherwise than under Article XVIII, ifone of them was relevant to some issue before the forum.

There is very little authority on the question of the effect ofinterpretations on a forum in a member country. The most de-tailed examination of the question of the conclusiveness of ArticleXVIII interpretations in U.S. law has occurred not in a court butin a proceeding before the U.S. Federal Communications Com-mission.53

The case arose in this way. In 1949 the U.S. cable companiesproposed to adopt revised tariffs of charges under which theFund54 would be charged the same commercial rates for its offi-cial telecommunications messages as were payable by privatepersons. Before July 1, 1949, the Fund had paid the same ratesas applied to governmental messages sent from the United Statesto other countries. These rates were substantially lower than thecommercial rates. The Fund filed a complaint with the FederalCommunications Commission which contended that the revisedtariffs were unlawful on the ground that, so long as special govern-mental rates existed, the Fund was entitled to the same standard

r>3 International Bank for Reconstruction and Development and Inter-national Monetary Fund v. All America Cables and Radio, Inc., TheCommercial Cable Company, Mackay Radio & Telegraph Company, Inc.,R.C.A. Communications, Inc., The Western Union Telegraph Company,F.C.C. Docket No. 9362, 8 RR 927 (1953).

54 The case is discussed in terms of the Fund and the Fund's charter, butthe same question arose under the charter of the IBRD, and the twoorganizations were associated as complainants. The discussion should thusbe understood to apply equally to the IBRD.

32


of treatment. The Fund's case was based mainly on Article IX,Section 7, of its charter, which had been given "full force andeffect" in the United States, its territories, and possessions bySection 11 of the U.S. Bretton Woods Agreements Act. It hasbeen seen above that the Executive Directors of the Fund inter-preted Article IX, Section 7, under Article XVIII to mean thatit embraced the rates charged the Fund for its official telecom-munications messages.

One of the major issues in the controversy was whether theinterpretation was binding on the Federal Communications Com-mission. The cable companies argued that Article IX, Section 7,applied to such matters as priorities and freedom from censorshipbut not rates, and that the interpretation was not conclusive. TheCommission held that the interpretation was binding on the U.S.Government and, therefore, on the Commission.

"We believe that the question as to the application of the term 'treat-ment' in the Bank and Fund Articles to rates has been conclusivelydetermined by the Bank and Fund Executive Directors' interpretation,by unanimous vote, that the language in question applies to rates chargedfor official communications of the Bank and the Fund. Under the termsof the Bank and Fund Articles of Agreement, this interpretation, ineffect, is final. This procedure for issuing interpretations binding membergovernments does indeed appear novel; but it also appears to point theway toward speedy, uniform and final interpretations. This procedure isnot only an integral part of the Bank and Fund Articles, which havebeen accepted by the United States, but its use was specifically invokedwith respect to questions of interpretation by sections 12 and 13 of theBretton Woods Agreements Act;55 and the United States Congress, bydirecting that an amendment of the Articles be sought if the requestedinterpretations were not satisfactory, appears to have recognized in thesetwo sections that the United States is bound by the results of the inter-pretations. The United States Government is therefore bound by theExecutive Directors' interpretation of the term 'treatment' and is underan international obligation to act in conformity therewith."56

The Commission also disposed of three subsidiary argumentsdirected against the interpretation by the cable companies. First,they contended that the National Advisory Council exceeded itsauthority in requesting the U.S. executive director in the Fundto obtain the interpretation. The Commission held that the Na-tional Advisory Council had ample authority. Secondly, the cable

55 Section 13 has been quoted above. Section 12 called for an interpreta-tion of the charter of the IBRD.

56 F.C.C. Decision, para. 3 of Conclusions, 8 RR 927, at 944.

33


companies argued that the interpretation was ultra vires becausethe question with which it dealt did not arise between membersor between any member and the Fund within the meaning ofArticle XVIII of the Fund's charter but between private com-panies and the Fund. The Commission held that the question wasone that involved all members of the Fund, and was requested bythe National Advisory Council for the specific purpose of securinga uniform understanding among all members. The interpretationhad an effect on the cable companies, but this could not in anyway limit the interpretation procedure established by the Fund'scharter. Thirdly, the cable companies contended that the inter-pretation lacked finality because it had not been referred to theBoard of Governors under Article XVIII(b). The Commissionheld that the interpretation had the requisite degree of finality. Ithad been adopted by the Executive Directors without a singledissenting vote and had been notified to all member governments.For the United States, the National Advisory Council had indi-cated that it had no intention of seeking an appeal, and no othermember had taken any steps to appeal to the Board of Governors.

The cable companies relied also upon a number of argumentsattacking the reasonableness of any interpretation of the languageof Article IX, Section 7, to include rates. On these arguments theCommission commented:

". . . assuming for purposes of argument, that if the interpretations ofthe term 'same treatment' by the Executive Directors of the Bank andFund were so unreasonable, arbitrary or capricious as to constitute infact an amendment of the Articles of Agreement rather than interpreta-tions thereof we should not have to give effect to them, we think itclear that the interpretations made in this case cannot be so categorized.The language of the Articles of Agreement appears to be sufficientlybroad and general to include rates, and nowhere is there any exclusionof the matter of rates, either expressed or implied, or any words oflimitation."57

It is interesting to note in connection with the Commission'sdecision that Article XVIII is not included among the provisionsin the Fund's charter which have been expressly given the forceof law in the U.S. Bretton Woods Agreements Act. Nevertheless,the Commission concluded that the interpretation under Article

57 F.C.C. Decision, para. 5 of Conclusions, 8 RR 927, at 945.

34


XVIII was binding. The broad base upon which this conclusionrests is that the United States, in accepting the Fund's Articlesof Agreement, entered into an executive agreement authorized byCongress, with the result that the Articles, including ArticleXVIII, became the law of the land. Executive agreements have adignity similar to that of treaties, and these are expressly made thelaw of the land by clause 2 of Article VI of the U.S. Constitution.

The Commission's decision as to the conclusiveness of theinterpretation thus rests upon the general law of the land, andnot upon some special feature of the Commission's activities as anadministrative agency. This fact is emphasized in that part of theCommission's opinion which dealt with the argument of the cablecompanies that the Fund could not invoke its charter or theBretton Woods Agreements Act, because this involved questionsof interpretation of international executive agreements and statuteswhich were foreign to the Commission's jurisdiction. The Com-mission held that

"In inquiring as to the lawfulness of any new charge, classification, regu-lation or practice, or in ascertaining whether any unjust or unreasonablediscrimination exists, the Commission can not be confined to a con-sideration only of the costs or value of services rendered or other suchmatters of fact; we have the authority also to consider whether rates orcharges are affected by special legislation or by international agree-ments."58

It follows from what has been said of the Commission's deci-sion that its rationale would be as applicable to an action in acourt in the United States as to a proceeding before a regulatoryagency. In this connection, it is important to note that the recordin the case contains two letters from the Department of State ofthe United States. A letter of June 2, 1950 contained the followingparagraph:

"By virtue of its membership in the Fund and Bank, the United Statesis obliged to conform to the provisions of the respective Articles ofAgreement, including the provisions of the respective Articles relatingto interpretation of the Articles. As a consequence, the United States isobliged to carry out the Articles of Agreement as interpreted in accord-ance with the provisions of the Articles. Since the United States does notintend to require that the interpretations under reference be referred tothe respective Boards of Governors, the United States is under an inter-national obligation to act in conformity with the interpretations issuedby the respective Executive Directors of the Fund and Bank."58F.C.C. Decision, para. 14 of Conclusions, 8 RR 927, at 951.

35


In a further letter, dated January 25, 1951, the State Depart-ment declared, in part, that

"Reference is made to the provisions of Article XVIII of the Articles ofAgreement. Since that authority [i.e., the Fund and International Bank]held to the view that the Articles of the Agreement of the Bank and theFund relate to the treatment to be accorded to official communications,including governmental privileges with respect to rates, this Departmentis of the opinion that the United States Government is committed tosupport that interpretation."

The Commission remarked that its conclusion on the bindingforce of the interpretation was reached independently of the let-ters from the State Department. However, the view of the StateDepartment, the Commission continued, was entitled to greatweight and constituted an additional basis for the Commission'sconclusion.59

There is a further aspect of the case which should be mentioned.A forum may decide, as the Commission did, that an interpreta-tion under Article XVIII is binding on it, but it may feel calledupon to interpret the interpretation. This happened in the casebefore the Commission. One of the issues was whether the UnitedStates was bound to ensure that in all circumstances U.S. cablecompanies extend to the Fund the same standard of rate treat-ment as prevailed for the messages of other member governmentsor whether the cable companies were required to do so onlywhere their foreign correspondents observed certain conditions ofreciprocity such as the division of tolls on the basis of reducedrates. Counsel for the Fund argued that the obligation of theUnited States to ensure that U.S. cable companies accord theFund the same preferential rate treatment as member governmentsreceive did not depend on any showing of reciprocity by theforeign correspondents of U.S. cable companies. The Commissiontook a different view. It pointed out that international cable serviceis a bilateral process, and before it can be instituted a U.S. cablecompany had to make appropriate arrangements with its foreigncorrespondent. Where the U.S. cable company granted reducedrates this was generally the result of a reciprocal arrangement. IfU.S. companies were required unilaterally to give reduced rates

59F.C.C. Decision, para. 10 of Conclusions, 8 RR 927, at 948.

36


to the Fund without reference to the action of their foreigncorrespondents, they would not be giving the Fund the "same"treatment under Article IX, Section 7, but better treatment. TheCommission was of the opinion that the interpretation itself sup-ported this view. There was no express language or necessaryimplication in it that placed an unconditional unilateral obliga-tion on member countries. There was in fact an indication in theinterpretation that no such unilateral obligation was contemplated.One of the questions submitted to the Executive Directors, andanswered by them in the negative, was whether a member's obliga-tion would be satisfied if the Fund's communications could besent only at rates exceeding the rates accorded the official com-munications of other members "in comparable situations." Acomparable situation would not exist where there was no arrange-ment for reciprocity between the U.S. cable company and itsforeign correspondent, and in such a situation the U.S. companycould charge the Fund higher rates than it charged membergovernments.60

There is a certain amount of judicial authority in the UnitedStates on the question of the binding effect of Article XVIIIinterpretations on courts in the United States. In SouthwesternShipping Corporation v. National City Bank of New York,61

the issue was whether certain contractual arrangements enteredinto by Italian residents in violation of Italian exchange con-trol legislation were enforceable in New York. The New YorkSupreme Court noted that under Article VIII, Section 2(6), "ourcourts, under the Bretton Woods Agreement, are expressly pro-hibited from furnishing any assistance to the enforcement of anyagreements made in violation of the Foreign Exchange ControlLaws of Italy," and the court quoted the material part of theFund's interpretation of the provision. The court held that "even inthe absence of the Bretton Woods Agreement," the plaintiff couldnot recover, but the clear implication was that the court consideredthe interpretation binding on it.62

6°F.C.C. Decision, para. 16 of Conclusions, 8 RR 927, at 951-53.ei 173 N.Y.S.2d 509 (1958); Gold (1962), op. cit., pp. 97-100.62 On appeal, it was held that the plaintiff could succeed because its

claim was based on a contract severable from the one tainted by violation

37


The New York Court of Appeals has referred to the sameinterpretation in the more recent case of Banco do Brasil, S.A. v.A.C. Israel Commodity Co., Inc.,63 in which the court held thatArticle VIII, Section 2(fc), was not a basis for a claim to damagesfor conspiracy to evade Brazilian exchange control regulations.The court said:

"A further reasonable inference to be drawn from the provision is thatthe courts of no member should award any recovery for breach of anagreement in violation of the exchange controls of another member.Indeed, the International Monetary Fund itself, in an official interpreta-tion of subdivision (b) of section 2 issued by the Fund's ExecutiveDirectors, construes the section as meaning that 'the obligations of suchcontracts will not be implemented by the judicial or administrative au-thorities of member countries, for example, by decreeing performanceof the contracts or by awarding damages for their non-performance.'. . . An obligation to withhold judicial assistance to secure the benefitsof such contracts does not imply an obligation to impose tort penaltieson those who have fully executed them."

Once again the implication is consistent with the binding forceof the interpretation.

In another American case, Theye y Ajuria v. Pan AmericanLife Insurance Co.,64 the plaintiff, while a resident of Cuba, ap-plied for a policy of insurance through the Havana representativeof the defendant, a Louisiana corporation. The application wasforwarded to and approved by the defendant's head office in NewOrleans, and a policy was issued to the plaintiff. It stipulated thatall premiums and proceeds were payable at the home office. Theplaintiff left Cuba as a refugee in November 1960 and became aresident of Florida. He claimed the cash surrender value of thepolicy at the New Orleans office, but the defendant refused thedemand on the ground, inter alia, that under the Fund's ArticlesCuban exchange control legislation prevented payment anywhereexcept in Cuba. The plaintiff sued in the Louisiana courts, andthe Court of Appeal of Louisiana, Fourth Circuit, held that theplaintiff must fail. The court based itself on Article VIII, Section

of the Italian exchange control legislation. 178 N.Y.S.2d 1019 (1958);190 N.Y.S.ld 352 (1959); 80 S.Ct. 198, 361 U.S. 895 (1959); Gold(1962), op. cit.,pp. 102-108.

6312 N.Y.2d 371, 190 N.E.2d 235, 239 N.Y.S.2d 872 (1963); Gold,"The Fund Agreement in the Courts—VIII," Staff Papers, Vol. XI (1964),pp. 468-76.64 154 So.2d 450 (1963).

38


), and quoted a considerable portion of the Fund's interpreta-tion in presenting its opinion. It prefaced the quotation as follows:

"By accepting and implementing the above [the Bretton Woods Agree-ment], our Congress has undertaken to make the above principle [ArticleVIII, Section 2(b)], a part of pur national law. On June 14, 1949, theInternational Monetary Fund, binding on all its members, including Cubaand the United States, issued the following interpretation of Article VIII,Section 2(b): . . ."

Of course, "binding on all its members" is not the same as "bind-ing on the courts of all its members," but the latter seemed tohave followed from the former in the view of the court. Onfurther appeal, the Supreme Court of Louisiana held that ArticleVIII, Section 2(f t ) , did not apply in the particular circumstancesof the case and reversed the lower court without mentioning theinterpretation.65

In Societe 'Filature et Tissage X. Jourdain' v. Epoux Heynen-Bintner, the Tribunal d'Arrondissement de Luxembourg (Civil)clearly regarded itself as bound by the Fund's interpretation ofArticle VIII, Section 2(6).66 A French resident sued a Luxem-bourg resident in a French court, and was met with the defensethat the debt for which suit was brought had been discharged bya third party. The French court rejected this defense on theground that the alleged payment was not in accordance withFrench exchange control regulations, and gave judgment for theplaintiff. The plaintiff then sought execution of the judgment inLuxembourg and was met with the objection that French exchangecontrol legislation on which the judgment was based was contraryto Luxembourg public policy. The Luxembourg court set forththe principles of the Fund's interpretation, and held that asLuxembourg courts were bound by the Articles, and France was amember of the Fund, a Luxembourg court could not refuse toapply French exchange control regulations that were maintainedor imposed consistently with the Articles on the ground that theywere contrary to Luxembourg public policy.

A learned author has expressed doubt that the Fund's interpre-

65 161 So.2d70 (1964).6GPasicrisie Luxembourgeoise (1957), pp. 36-39; Gold (1962), op. cit.,

pp. 94-96.

39


tation of Article VIII, Section 2(fc), has legal effect in England,67

and this even though the provision has been given the force oflaw in England.68 A dictum by Lord Justice Evershed (as he thenwas) seems to suggest a different view:

"An interesting argument was addressed to us on the scope and effectof the Bretton Woods Agreements Order in Council, 1946 (S. R. & O.,1946, No. 36) (made under s. 3 of the Bretton Woods Agreements Act,1945), which gave the effect of law in England to certain parts of theFinal Act of the United Nations Monetary and Financial Conference,1944, commonly known as the Bretton Woods Agreements. The argu-ment turned largely on the interpretation to be given to the term 'Ex-change contracts' found in the Articles of Agreement of the InternationalMonetary Fund, Art. VIII, s. 2(b). The term is not defined in theAgreement—or in the Order in Council—but provision is made by Art.XVIII of the Agreement to the effect that any question of interpretationof the provisions of the Agreement arising as therein stated should besubmitted to the executive directors of the International Monetary Fund.On the view I take of the case, it is unnecessary for me to express anyview on the argument referred to, and, having regard particularly to theinterpretation provisions of the Agreement itself, it is, I think, undesir-able that I should do so."69

This dictum can be understood to mean that if there had beena relevant interpretation under Article XVIII, Lord Evershedwould have followed it. However, the absence of such an interpre-tation should not discharge a court from its duty to construe arelevant provision in the Fund's Articles which has been given theforce of law.70 In the case in which the dictum was delivered the

67 "The ruling has probably no legal effect in England, but it merely ex-presses what is obvious and an English court will be able to give effect toit without relying upon it" (F. A. Mann, "The Private International Law ofExchange Control under the International Monetary Fund Agreement,"The International and Comparative Law Quarterly, Vol. 2 (London, 1953),fn. 37, p. 104).

68 The Bretton Woods Agreements Order in Council, S.R. & O. 1946,No. 36, pursuant to the Bretton Woods Agreements Act, 1945 (9 & 10Geo. 6, c. 19).

*»Kahler v. Midland Bank, Ltd. [1948] 1 All E.R. 811, 819.70 See Russell J. in Stoeck v. Public Trustee [1921] 2 Ch. 67, 71 (cited

by Dr. Mann in footnote 16, page 100, in the article referred to in footnote67, above: " . . . a suggestion was made by the Solicitor-General that thecourt should be reluctant to construe, and indeed should in the exerciseof some discretion refrain from construing, an international document suchas the Treaty of Peace, executed between high contracting parties and cap-able of alteration of interpretation at their hands. I do not appreciate thiscontention. I apprehend it is the right of a litigant to assert before theCourts of this country, and the duty of those Courts to adjudicate upon,claims founded upon a consideration of the municipal law of this country,and not the less so because the law involved has been derived from, andhas been enacted for the purpose of giving effect to* certain provisions of adocument of an international character."

40


provision referred to was one which has clearly become part ofEnglish law. At the same time, it is only fair to point out thatLord Evershed thought it unnecessary, on his view of the case,to decide the question of interpretation of the Fund's charterwhich had been raised.

The Court of Appeal in England has now construed ArticleVIII, Section 2(6), in Sharif v. Azad.71 The court was not at allreluctant to pass upon certain features of that provision becausethey have not been the subject of any interpretation by the Fund.Indeed, the court made no reference to the Fund's interpretationof the provision even though it was relevant to certain otheraspects of the case. The court's views were consistent with theinterpretation, and perhaps for this reason the court felt it un-necessary to raise the question of the binding force of an ArticleXVIII interpretation on English tribunals.

Finally, what of the position where it is established that underthe existing law in a member country an interpretation underArticle XVIII is not binding on the courts of that country incases in which the provision interpreted should be applied underthe Articles of Agreement? Article XX, Section 2(a), providesthat

"Each government on whose behalf this Agreement is signed shalldeposit with the Government of the United States of America an instru-ment setting forth that it has accepted this Agreement in accordance withits law and has taken all steps necessary to enable it to carry out all ofits obligations under this Agreement."

A more specialized provision of the kind is to be found in ArticleIX, Section 10, the concluding section of the Article which estab-lishes the Fund's status, immunities, and privileges:

"Each member shall take such action as is necessary in its ownterritories for the purpose of making effective in terms of its own lawthe principles set forth in this Article and shall inform the Fund of thedetailed action which it has taken."

If, under the existing law in a particular member country, aninterpretation under Article XVIII were not binding on the localcourts, it would follow, if the interpretation related to one of theobligations of the member, that the member would be failing to

[1966] 3 W.L.R. 1285.

41

1


perform its undertaking in Article XX, Section 2(a). In view ofArticle XVIII, the undertaking in Article XX, Section 2(#), mustrefer to the obligations of members as interpreted under ArticleXVIII where the Fund has adopted such an interpretation. Inaddition, the member would be failing to perform its undertakingin Article IX, Section 10, if the interpretation related to any mat-ter covered by Article IX. In such cases as are discussed here, itmay be expected that the necessary change in the member's lawto make the interpretation binding would be forthcoming.

10. Infrequency of Article XVIII Interpretationsand the Courts

It has been suggested on occasion that the Fund should take aninitiative in issuing formal interpretations more frequently. Thissuggestion has been made in connection with Article VIII, Sec-tion 2(fe), on the ground that this provision has an impact on therights and obligations of private parties and the courts have notbeen expert in their understanding of it. The interpretations thatare referred to in this connection are not confined to the text ofArticle VIII, Section 2(fc) , but include interpretations of otherprovisions that may be necessary in order to enable the courts toapply Article VIII, Section 2(6). The point has been made mostrecently in connection with the litigation involving a vast numberof life insurance policies issued to Cuban residents by U.S. andCanadian companies that had been doing business in Cuba.72 Thepolicyholders became refugees after the present regime came topower in Cuba, and then sued on the policies in courts in theUnited States and Canada. One of the defenses advanced by theinsurance companies was the argument that the new regime hadadopted exchange control regulations which prevented paymentto the policyholders outside Cuba. The companies argued thatthe courts were bound by Article VIII, Section 2( fc) , to recog-nize these regulations. The cases undoubtedly raised many difficult

72 Richard R. Paradise, "Cuban Refugee Insureds and the Articles ofAgreement of the International Monetary Fund," University of Florida LawReview, Vol. 18 (1965), pp. 29-77, particularly at pp. 72-74.

42


issues of the interpretation of Article VIII, Section 2(6), andother provisions of the Articles. No one of the three members thathad some connection with the litigation, Canada, Cuba, and theUnited States, requested an interpretation, and the Fund volun-teered none. In response to requests by counsel for a number oflitigants, the Fund did provide a statement which dealt in generalterms with the sole question of the consistency of Cuban exchangecontrol regulations with the Articles.73

It is certainly true that the Fund's role has been a reserved onein relation to the litigation in many countries in which ArticleVIII, Section 2(6), has been or should have been relied on. TheFund's formal interpretation of June 10, 1949 of certain basicfeatures of Article VIII, Section 2(6), has been mentioned severaltimes in this pamphlet. The purpose of that interpretation was todraw the attention of members of the Fund and the legal professionto the fact that the provision had brought about important changesin the private international law and public policy of many countries.It was apparent at the time, and experience has certainly con-firmed, that the provision would raise many problems that gobeyond the scope of the interpretation, but the Fund has notadopted any further interpretations.

The last paragraph of the interpretation of June 10, 1949 de-clares that

"The Fund will be pleased to lend its assistance in connection withany problem which may arise in relation to the foregoing interpretationor any other aspect of Article VIII, Section 2(b). In addition, the Fundis prepared to advise whether particular exchange control regulations aremaintained or imposed consistently with the Fund Agreement."

In practice, the Fund has acted only under the second of these twosentences. It has frequently provided information, in response torequests, on the consistency of particular exchange control regula-tions with the Articles. It has done this without hesitation on theground that these were requests for information of a kind that waslikely to be available only to the Fund. It is virtually impossiblefor anyone else to make the determination of consistency, and itcertainly cannot be derived from a perusal of the Articles. The

73 See Gold, The Cuban Insurance Cases and the Articles of the Fund,International Monetary Fund, Pamphlet Series No. 8 (Washington, 1966).

43-


Fund's legal advisors have provided other information of a factualcharacter, and have been prepared to do this for the benefit ofboth parties to an action.

The reluctance of the Fund to go beyond this, notwithstandingthe last paragraph of the interpretation, should not be attributedto any lack of concern with the judicial application of Article VIII,Section 2(b). The reasons why the Fund has not adopted furtherinterpretations, and has not appeared as amicus curice in any pro-ceeding notwithstanding occasional invitations from governmentsor litigants, have not been formulated explicitly. A probable reasonfor the reluctance to become involved in pending litigation hasbeen the reflection that the contests are between private parties.In addition, the Fund could not intervene without taking a positionthat would necessarily be partisan in its impact. The reluctance toadopt further interpretations has also been influenced by the feel-ing that this could turn the Fund, in effect, into a court of appealfrom the tribunals of its members. The interpretations wouldinevitably deal with those issues that had arisen or should havearisen in the courts. The interpretation of June 10, 1949 wasitself the result of the misunderstanding or neglect of the provisionby courts and litigants. The embarrassments that might be in-volved in a policy of readiness to correct the courts whenevernecessary would not be the only deterrent. The demands on theFund, once it decided to issue interpretations of or in connectionwith Article VIII, Section 2(b), could be quite considerable. Thecases have produced a stream of issues, and the Fund would havehad to give much time to this work if it had decided to react onall of these issues.

It must be emphasized that there has been no deliberate decisionto leave to the courts exclusively the task of the further interpreta-tion of the Articles for the purpose of applying Article VIII, Sec-tion 2(6). It is not impossible, therefore, that the Fund might con-clude, on occasion, that events had made it desirable for the Fundto adopt an interpretation on some aspect of Article VIII, Section2(fc) , or some other provision. For example, if the Fund were toreceive a request from a member for an interpretation under

44


Article XVIII, the issue would no longer be confined to privatelitigants.

Members have not hitherto requested further interpretations inconnection with Article VIII, Section 2(b). The reasons for thisare not clear. It must not be assumed that members have beenunconcerned with the outcome of litigation in the courts of othermembers involving Article VIII, Section 2(fc), and affecting theirresidents. But the implications of some of the issues raised inlitigation may go far beyond the litigation itself and may have amuch broader impact on the relations between the Fund and itsmembers. For example, one issue might be whether a particularexchange control regulation restricted payments and transfers forcurrent international transactions or whether it restricted capitaltransfers. This was one of the issues in the cases involving in-surance policies issued to former residents of Cuba by foreigninsurance companies. This issue might arise because Article VIII,Section 2(6), establishes the sanction of unenforceability for cer-tain contracts if they are contrary to exchange control regulations"maintained or imposed consistently with this Agreement." Thebasic rule of the Articles is that a member must obtain the priorapproval of the Fund for restrictions on payments and transfersfor current international transactions,74 but normally a memberhas full freedom to impose controls on capital transfers.75 Ac-cordingly, if the Fund's approval has not been obtained where itis necessary, the exchange controls will not be maintained orimposed consistently with the Articles. If approval is not required,the regulations will be consistent with the Articles. In any particu-lar action, it may be helpful to a litigant, or to the member ofwhich the litigant is a resident, to obtain a ruling from the Fundthat the exchange control regulation in question restricted pay-

74 "Subject to the provisions of Article VII, Section 3(6), and ArticleXIV, Section 2, no member shall, without the approval of the Fund,impose restrictions on the making of payments and transfers for currentinternational transactions" (Article VIII, Section 2(0)).

75 "Controls of capital transfers.—Members may exercise such controlsas are necessary to regulate international capital movements, but no mem-ber may exercise these controls in a manner which will restrict paymentsfor current transactions or which will unduly delay transfers of funds insettlement of commitments, except as provided in Article VII, Section 3(6),and in Article XIV, Section 2" (Article VI, Section 3).

45


ments and transfers for current international transactions, andtherefore required Fund approval, which approval had not beengranted. A ruling of this kind may help to dispose of the case tothe litigant's satisfaction, but it will also establish the propositionthat all restrictions on the kind of payments and transfers in-volved in the case are subject to the Fund's jurisdiction and cannotvalidly be introduced by a member unless it obtains the approvalof the Fund.

It is, of course, possible that in some particular case the issueis not one of general interpretation but one of special determina-tion, i.e., whether in the circumstances of that case the control inquestion is on payments and transfers for current internationaltransactions or on capital transfers. There is a provision in theArticles which enables the Fund to deliver a judgment in thiskind of case even though the Fund is not called upon to deliveran interpretation of general application. Article XIX (/) concludesby declaring that

"The Fund may, after consultation with the members concerned, deter-mine whether certain specific transactions are to be considered currenttransactions or capital transactions."

1 1 . Request by CourtsIn connection with assistance to the courts, there has been an

interesting development in Fund practice. On June 30, 1965 thePresident of the First Civil Division of the Circuit Court of Ap-peals of Karlsruhe addressed a letter to the Managing Directorof the Fund which was transmitted to him by the executive direc-tor appointed by the Federal Republic of Germany. The letterstated that the basic problem in a case before the court waswhether the court had to apply Brazilian private law and Braziliancurrency law. The letter asked whether Brazilian DecreeNo. 23501 of November 21, 1933 was an "exchange control regu-lation" that was "maintained or imposed consistently" with theArticles of the Fund within the meaning of Article VIII, Section

The letter was brought to the attention of the Executive Direc-tors, who authorized the General Counsel to send a reply to the

46

2(b).


President of the Court which stated that the Articles did notcontain a definition of exchange control regulations, but that, inhis opinion, those words did not include laws that had been de-signed solely to ensure the acceptance of paper currency as legaltender in the country of issue and not to protect the country'sforeign exchange resources. The Brazilian decree appeared to beof that character. He drew attention to a case decided by theSupreme Court of New York76 in which it was noted that theFrench courts have held that French cours force legislation wasnot regarded as foreign exchange control legislation. The GeneralCounsel concluded, therefore, that the question whether theBrazilian decree was maintained consistently with the Articles didnot arise under the provision. The Karlsruhe court decided, inaccordance with this letter, that the decree was not an "exchangecontrol regulation" within the meaning of Article VIII, Section

This has been the only case so far in which the Fund has re-ceived a formal request from a court for assistance in connectionwith the application of Article VIII, Section 2(b). The requestrelated to the consistency of a decree with the Articles and there-fore did not go beyond the scope of the inquiries that the Fundhabitually answers. However, the circumstances of the case re-quired a reply that could be considered as going somewhat further.It was necessary to give some indication of the meaning of "ex-change control regulations" in order to make the point that thequestion of the consistency of the decree with the Articles did notarise under Article VIII, Section 2(6).

12. Article XVIII and International TribunalsThere can be little doubt that an international tribunal would

regard itself as concluded by an interpretation under ArticleXVIII. The interpretation is binding under treaty law, and noaction is required, such as may be necessary under some systemsof national law, to give the interpretation the force of law ininternational law.

Sayve v, de la Valdene, 124 N.Y.S.2d 143 (1953), discussed inGold (1962), op. c/7., p. 74.

47

2()2(bn).


An international tribunal may have before it a case betweenmembers of the Fund in which an issue is raised involving theinterpretation of some provision of the Fund Agreement which hasnot been interpreted by the Fund under Article XVIII. Can theinternational tribunal make its own interpretation or must theparties be remitted to the procedure of Article XVIII? It has beensuggested above that if a case of this kind occurs between privateparties in a national tribunal, the court cannot forbear from mak-ing its own interpretation if the provision to be interpreted hasbeen incorporated in the local law applied by the court. A nationaltribunal cannot elect to ignore part of its local law. It is arguablethat a principle similar to the one stated in the preceding sentencemay provide the answer to the question formulated above withrespect to an international tribunal. Such a tribunal must applythe whole of international law, and the charter of the Fund is partof that body of law. Article XVIII, this argument would continue,is mandatory in its language. "Any question of interpretation ofthe provisions of this Agreement arising between . . . any mem-bers of the Fund shall be submitted to the Executive Directors fortheir decision." An international tribunal could thus hold that themembers involved in the proceeding before it are bound to takeup the issue under Article XVIII.

This problem has been discussed before the International Courtof Justice, although not decided by that court, in the Case Con-cerning Rights of Nationals of the United States of America inMorocco (France v. United States of America).77 The case had beeninstituted by France as the result of a lengthy dispute with theUnited States in which the latter had contended that certaineconomic and extraterritorial rights in Morocco which it claimedby treaty had been ignored by France. One of these alleged rightswas a right to the maintenance of a regime of free trade withoutrestrictions on imports. The United States argued that a Decree ofDecember 30, 1948, issued by the Resident General of the FrenchRepublic in Morocco and reimposing the control of imports notrequiring an official allocation of exchange, violated this treatyright." [1952] I.C.J., pp. 176-233.

48


Much of the argument of France in the International Court wasbased upon the Fund's Articles of Agreement. France sought toestablish that the Articles recognized or authorized the right ofMorocco to impose the control in question. One of the provisionsto which France referred was Article VII, Section 3, which au-thorizes a member to control exchange operations in a currencyafter the Fund has made a formal declaration of the scarcity ofthat currency.78 France argued that the Fund's decision of April 5,1948, announcing that members participating in the EuropeanRecovery Program should request the purchase of U.S. dollarsfrom the Fund only in exceptional or unforeseen cases,79 wastantamount to a declaration of scarcity under Article VII, Section3. The United States disagreed with this construction of the Fund'sdecision of April 5, 1948.

How was this particular issue to be settled? In oral argumentthe Agent of the United States expressed his country's views asfollows:

"Now, the discussion here, in this dispute, of the interpretation ofArticles of Agreement of the Fund, of what the Directors meant whenthey made such a decision, shows the wisdom of the requirement of theArticles of Agreement of the Fund itself, which imposes on the FrenchGovernment, as the party which is attempting to justify action on thebasis of these Articles of Agreement, the burden of proceeding inaccordance with these Articles to obtain an authoritative interpretation.In this connection, the attention of the Court is respectfully drawn to78 Article VII, Section 3. "Scarcity of the Fund's holdings.—(a) If it

becomes evident to the Fund that the demand for a member's currency seri-ously threatens the Fund's ability to supply that currency, the Fund,whether or not it has issued a report under Section 1 of this Article, shallformally declare such currency scarce and shall thenceforth apportion itsexisting and accruing supply of the scarce currency with due regard to therelative needs of members, the general international economic situation, andany other pertinent considerations. The Fund shall also issue a report con-cerning its action.

(6) A formal declaration under (a) above shall operate as an authoriza-tion to any member, after consultation with the Fund, temporarily to imposelimitations on the freedom of exchange operations in the scarce currency.Subject to the provisions of Article IV, Sections 3 and 4, the member shallhave complete jurisdiction in determining the nature of such limitations, butthey shall be no more restrictive than is necessary to limit the demand forthe scarce currency to the supply held by, or accruing to, the member inquestion; and they shall be relaxed and removed as rapidly as conditionspermit.

(c) The authorization under (b) above shall expire whenever the Fundformally declares the currency in question to be no longer scarce."

79 International Monetary Fund, Annual Report, 1948, Appendix IV,pp. 74-75.

49


Article XVIII, which requires that: 'Any question of interpretation ofthe provisions of this Agreement arising . . . between any members ofthe Fund shall be submitted to the Executive Directors for their decision.'Now, this provision is mandatory on members. A right of appeal to theBoard of Governors is provided. There has been no compliance withthis requirement. The suggestion that the treaty rights of the UnitedStates have been abrogated by action taken under the Articles of Agree-ment of the International Monetary Fund should therefore be rejected."80

To this, France replied that the Fund was the only internationalauthority competent to decide whether an exchange controlmeasure was consistent with its Articles. The Fund had beeninformed of the measure in question, but had not objected to it.It was not for the Moroccan authorities to seek an interpretationunder Article XVIII. The United States should have done this,because the United States was the complaining party.81

The International Court did not decide this or any other ques-tion concerning the Fund's charter. It was able to settle the ques-tion of the legality of the Decree of December 30, 1948 on groundsunrelated to the Fund's Articles. It is, however, striking that theparties appear to have agreed that issues between them as to theinterpretation of the Fund's Articles should be the subject ofinterpretation under Article XVIII. They differed only as to theparty upon which the obligation rested in this case to seek suchan interpretation.

Under Article 34 (2) of the Statute of the International Courtof Justice, a public international organization may be called on bythe Court to present information relevant to a case or may presentsuch information on its own initiative. Under Article 34 (3) apublic international organization is to be notified by the Registrarwhenever the construction of its charter or of an internationalconvention adopted under it is in question, and the organizationis to receive copies of all written proceedings.82 These provisions

80 Case Concerning Rights of Nationals of the United States of Americain Morocco, I.C.J. Pleadings, Vol. II, p. 261.

81 Ibid., pp. 200, 205, 308, and 309.82 "1. Only States may be parties in cases before the Court.

2. The Court, subject to and in conformity with its Rules, mayrequest of public international organizations information relevant tocases before it, and shall receive such information presented by suchorganizations on their own initiative.

3. Whenever the construction of the constituent instrument of a pub-lic international organization or of an international convention adoptedthereunder is in question in a case before the Court, the Registrar shall

50


have been supplemented by rules, and one authority on the Courthas commented that whereas Article 34 (3) seems to impose aspecific duty on the Registrar to notify the public internationalorganization concerned, the Rules of the Court appear to reservesome discretion to the Court or to the President to instruct theRegistrar whether or not he is to act.83 The same authority hasalso observed that "In the U.S. Nationals in Morocco case theArticles of Agreement of the International Monetary Fund (Bret-ton Woods Agreement) were cited in the application and in thepleadings, but no notification was sent to that Specialized Agency,nor any request for information. The Court did not find it neces-sary to discuss these contentions in its judgment."84

Other legal provisions have a bearing on the relations of theFund to the International Court of Justice. The Fund has enteredinto an agreement with the United Nations pursuant to Article 63of the Charter of the United Nations and Article X of the Fund'sArticles. The agreement, which came into force on November 15,1947, is intended to define the terms on which the two organiza-tions shall be brought into relationship. Under Article VIII of theagreement:

"The General Assembly of the United Nations hereby authorizes theFund to request advisory opinions of the International Court of Justiceon any legal questions arising within the scope of the Fund's activitiesother than questions relating to the relationship between the Fund andthe United Nations or any specialized agency. Whenever the Fund shallrequest the Court for an advisory opinion, the Fund will inform theEconomic and Social Council of the request."

The Fund has not requested an advisory opinion of the Court.On November 21, 1947, the United Nations General Assembly

adopted the Convention on the Privileges and Immunities of theSpecialized Agencies for the purpose of unifying as far as possiblethe privileges and immunities enjoyed by the United Nations andby the various specialized agencies. The Executive Directors ofthe Fund accepted the standard clauses of the Convention andapproved Annex V with respect to the Fund, which became

so notify the public international organization concerned and shall com-municate to it copies of all the written proceedings." See also Articles62 and 63.83 Rosenne, op. cit., p. 241.84 Ibid., at p. 242.

51


effective on May 9, 1949. By the end of February 1967, 42 mem-bers had accepted the Convention with respect to the Fund.

Section 32 of the Convention declares that all differences arisingout of the interpretation or application of the Convention shall bereferred to the International Court of Justice unless the partiesagree to have recourse to another mode of settlement. If a differ-ence arises between a specialized agency and a member, a requestshall be made for an advisory opinion on any legal question in-volved, in accordance with Article 96 of the Charter, Article 65 ofthe Statute of the Court, and the agreement between the UnitedNations and the specialized agency; and the opinion given by theCourt shall be accepted as decisive by the parties.

Annex V declares that the Convention does not modify oramend or require the modification or amendment of the Articlesof Agreement or impair the privileges and immunities conferredby the Articles or by the law of member countries. In addition,

"Section 32 of the standard clauses shall only apply to differencesarising out of the interpretation or application of privileges and im-munities which are derived by the Fund solely from this Conventionand are not included in those which it can claim under its Articles ofAgreement or otherwise."

One effect of this provision is to ensure that questions of interpre-tation that fall within the purview of Article XVIII remain sub-ject to that provision and not Section 32 of the Convention. Noproceedings involving the Fund have been initiated under Sec-tion 32.

13. Interpretation of Board of Governors ActionsThis and the subsequent sections of this pamphlet deal with

the practice of the Fund in connection with problems of interpreta-tion that do not arise on the Articles. The Board of Governors hasadopted By-Laws, consisting of 24 sections, pursuant to its au-thority to adopt such rules and regulations as are necessary orappropriate to conduct the business of the Fund.85 The preambleto the By-Laws declares that

85 See footnote 24, above.

52


"These By-Laws are adopted under the authority of, and are intendedto be complementary to, the Articles of Agreement of the InternationalMonetary Fund; and they shall be construed accordingly. In the eventof a conflict between anything in these By-Laws and any provision orrequirement of the Articles of Agreement, the Articles of Agreementshall prevail."

In addition, the Board of Governors has adopted numerous Reso-lutions, at Annual Meetings or by voting without meeting, on avariety of subjects, most of them under powers that cannot bedelegated to the Executive Directors.86

In practice, the Executive Directors interpret the By-Laws andResolutions of the Board of Governors whenever the ExecutiveDirectors find it necessary in the course of the activities of theFund. Interpretative decisions by the Executive Directors of thischaracter which do not involve a question of the interpretation ofthe provisions of the Articles are not regarded as falling withinArticle XVIII ( b ) . However, this does not mean that proceduresare unavailable for referring to the Board of Governors a questionwhich arises on an interpretation by the Executive Directors ofthe By-Laws or Resolutions of the Board of Governors. Forexample, under Section 6(b) of the By-Laws any governor mayplace a subject on the agenda of the Board of Governors providedthat he gives notice of it not less than seven days before themeeting, and under Section 3(b) special meetings of the Boardof Governors must be called on the request of five members orof members having an aggregate of one fourth of the total votingpower.

14. Borrowing AgreementsIn recent years borrowing has been added to the categories of

the financial operations engaged in by the Fund. Under ArticleVII, Section 2, if the Fund deems it appropriate to replenish itsholdings of a member's currency, it may agree to borrow that cur-rency from the member itself or, with the approval of the member,from some other source either within or outside the territories ofthe member. No member is under any obligation to lend to the

86 Cf. Article XII, Section 2(b).

53


Fund or to approve a borrowing by the Fund from any othersource.87

In 1961, the Fund deemed it appropriate to make arrangementsunder which it could call for advances of the currencies of tenmembers, in the case of eight currencies from the member issuingthe currency and in the case of the other two currencies fromthe central bank of the issuing member.88 The total commitmentsof the ten potential lenders amounted to the equivalent of sixbillion U.S. dollars, and probably constituted the largest loanagreement ever made. The purpose of the arrangements was toensure that the Fund would be able to supplement its resources inorder to meet the requests of the ten members involved to purchaseeach other's currency from the Fund. The new conditions of wide-spread convertibility had made it possible that there would berequests of a magnitude that the Fund would not be able to meetreadily without supplementary resources, and that without suchresources it would not be able to forestall or cope with an impair-ment of the international monetary system. The arrangements thatwere negotiated by the Fund and the ten members constitute anelaborate international agreement, in the form of a decision ofthe Executive Directors, called the General Arrangements toBorrow, to which the potential lenders ("the participants") wereinvited to adhere. All ten have adhered.

The final provision in the General Arrangements, Paragraph 20,is entitled "Interpretation" and reads as follows:

"Any question of interpretation raised in connection with this Decisionwhich does not fall within the purview of Article XVIII of the Articlesshall be settled to the mutual satisfaction of the Fund, the participantraising the question, and all other participants. For the purpose of this87 "Measures to replenish the Fund's holdings of scarce currencies.—

The Fund may, if it deems such action appropriate to replenish its holdingsof any member's currency, take either or both of the following steps:

( i) Propose to the member that, on terms and conditions agreed be-tween the Fund and the member, the latter lend its currency to theFund or that, with the approval of the member, the Fund borrowsuch currency from some other source either within or outside theterritories of the member, but no member shall be under any obliga-tion to make such loans to the Fund or to approve the borrowingof its currency by the Fund from any other source.

(ii) Require the member to sell its currency to the Fund for gold"(Article VII, Section 2).88 United States, Deutsche Bundesbank, United Kingdom, France, Italy,

Japan, Canada, Netherlands, Belgium, Sveriges Riksbank.

54


Paragraph 20 participants shall be deemed to include those formerparticipants to which Paragraphs 8 through 14, 17 and 18(b) continueto apply pursuant to Paragraph 19(c) to the extent that any such formerparticipant is affected by a question of interpretation that is raised."

There are a number of interesting features of this provision.The special rule for settling questions of interpretation that arisein connection with the General Arrangements does not extend toquestions that fall within the purview of Article XVIII. It wouldnot have been possible for the Fund to abdicate its power andduty of interpretation under Article XVIII. Moreover, it followsfrom this that the Fund itself must determine whether a questionof interpretation is or is not within the purview of Article XVIII.

If a question of interpretation connected with the GeneralArrangements does not fall within the purview of Article XVIII,the question is to be settled to the mutual satisfaction of the Fund,the participant raising the question, and all other participants. Inshort, authority to interpret the General Arrangements has notbeen vested in the Fund alone as it has in the case of the Articles.The need for the concurrence of the participants in any interpreta-tion under Paragraph 20 of the General Arrangements means that,although the General Arrangements are a decision of the ExecutiveDirectors, they are not the sole interpreters of their decision. Inrequiring the concurrence of the Fund and all participants, Para-graph 20 is consistent with the rule of unanimity which is acharacteristic of the General Arrangements but is in sharp con-trast to Article XVIII of the Articles. Under that provision, theFund can adopt interpretations of the Articles by a majority ofvotes cast.

The process of interpretation under Paragraph 20 would oper-ate, therefore, as follows. The Fund would have to be willing toaccept a proposed interpretation and, if formally called upon toindicate this, would do so by a decision of the Executive Directors.This decision, if not adopted by the consensus which is the normalfeature of Fund practice, would be taken by a majority of thevotes cast. The Executive Directors appointed or elected by theeight participating members and the two members whose centralbanks were participants in the General Arrangements would castthe votes of these ten members when the Executive Directors de-

55


cided whether the Fund agreed with a proposed interpretation.However, each of the ten participants would have to agree sep-arately, outside the Fund, before the interpretation could beregarded as having been adopted.

It is an interesting reflection that the rule of unanimity forformal interpretations of the General Arrangements is not onlymore severe than the voting requirements for the adoption ofinterpretations under Article XVIII of the Articles but also moresevere than the requirements for the adoption of most amendmentsof the Articles. For amendments modifying three provisions of theArticles, the acceptance of all members is required, but for allother amendments, approval by three fifths of the members, havingfour fifths of the total voting power, is sufficient.89

It cannot be denied that Paragraph 20 would lead to an impasseif there should be a difference of opinion among the eleven parties,i.e., the Fund and the ten participants, which proved persistent. Inpractice; nothing of the kind has happened. On the contrary, therehas been a strong disposition by all to interpret the GeneralArrangements in a flexible and practical manner and to do thisby more informal procedures than those established by Para-graph 20. In this respect, the experience with Article XVIII andthe informal interpretation of the Fund's Articles has been re-peated, although there have been far fewer occasions on which in-terpretative understandings of the General Arrangements havebeen necessary.

Paragraph 20 makes the interpretation of the provisions of theGeneral Arrangements depend on the concurrence of even formerparticipants in some circumstances. If the General Arrangementsare not renewed or are terminated before expiry, or if a participantwithdraws before the General Arrangements expire or are termi-nated, certain prescribed provisions continue to apply to anyoutstanding indebtedness of the Fund to the former participantsuntil repayment is completed. If a question of the interpretationof the General Arrangements arises which affects a former partici-pant to which the Fund is still indebted, the concurrence of that

89 Article XVII.

56


former participant in a proposed interpretation is necessary beforethe interpretation can be deemed to be adopted.

The position as explained in the preceding paragraph assumesthat the former participant in the General Arrangements remainsa member of the Fund. If a participating member or a memberwhose institution is a participant withdraws from the Fund, partici-pation in the General Arrangements ceases when the withdrawalfrom the Fund takes effect. The Fund's indebtedness under theGeneral Arrangements is then part of the settlement of all accountsbetween the Fund and the former member. If any disagreementarises between the Fund and the former member as to the settle-ment of all accounts, whether the disagreement relates to accountsarising under the General Arrangements or arising under theArticles, Article XVIII (c) will apply. That is to say, the disagree-ment must be submitted to a tribunal of three arbitrators, consistingof one appointed by the Fund, another by the former member,and an umpire.

Under the General Arrangements, the Managing Director makesproposals for loans to the Fund by the participants, and each ofthem notifies him of its acceptance. The participants have agreedon procedures by which they confer among themselves in orderto decide how to respond to the Managing Director's proposals.These procedures are set forth in letters of December 15, 1961that were sent by the then Minister of Finance of France to theother participants. The letters are res inter alios acta from theviewpoint of the Fund. Nothing is said in the letters about inter-pretation. Presumably, the rule of unanimity would apply byimplication. If this is correct, the implied rule for interpreting theletter is more severe than the rule in the letter according to whichthe participants may be bound to lend. Under that rule, if certainprescribed majorities are attained, even dissenting participantswill be bound to lend.90

Recently, the Fund has entered into its first bilateral borrowingagreement. This is one under which Italy has agreed to lend theFund lire in an amount equivalent to 250 million U.S. dollars. Theprovisions of the agreement are based on those of the General


57


Arrangements, but adapted, of course, to the fact that the agree-ment is not plurilateral in character and provides, moreover, foran immediate advance by Italy and not credits to be called onwhen needed. Paragraph 9 of the agreement is obviously inspiredby Paragraph 20 of the General Arrangements:

"Any question of interpretation of this agreement which does not fallwithin the purview of Article XVIII of the Articles shall be settled tothe mutual satisfaction of Italy and the Fund."

15. Agreement with SwitzerlandUnder the General Arrangements to Borrow, the Fund is able

to replenish its holdings of the currencies of ten members, but theFund has no legal powers to borrow the currencies of nonmembers.In certain circumstances, however, when the Fund borrows underthe General Arrangements in order to finance a transaction witha member which is intended to forestall or cope with an impair-ment of the international monetary system, it might be a usefulcontribution to that objective if Swiss francs could be made avail-able to the member. The legal problem posed by the Fund's in-ability to borrow Swiss francs has been solved by an agreementbetween the Fund and Switzerland which is in the nature of astipulation pour autrui.^

The agreement provides that if the Fund borrows under theGeneral Arrangements in order to finance a transaction with amember, Switzerland will lend resources directly to that member.The agreement is much more complex than that simple statement,and in particular there are conditions qualifying Switzerland's dutyto lend. The agreement takes the form of an exchange of lettersdated June 11, 1964 between the Ambassador of Switzerland tothe United States and the Managing Director of the Fund.92

Paragraph (11) deals with interpretation:

"Any question of interpretation or application of these understandingswill be settled to the mutual satisfaction of the Swiss Confederation andthe Fund."91 Gold, The Fund and Non-Member States: Some Legal Effects, Inter-

national Monetary Fund, Pamphlet Series No. 7 (Washington, 1966),pp. 33-37.


58


No express reservation has been made for the settlement ofquestions of interpretation that fall within the purview of ArticleXVIII because it is difficult to see how they could arise underthis agreement. However, it is not unlikely that questions pf inter-pretation under the General Arrangements might affect the agree-ment between the Fund and Switzerland. For example, para-graph (5) provides that "The effect of the terms and conditions forthe timing of repayment of resources made available by Switzerlandpursuant to this letter will correspond, to the maximum extentpracticable, with the repayment provisions of Paragraph 11 of theGeneral Arrangements."

16. Stand-By ArrangementsThe stand-by arrangements of the Fund are arrangements under

which the Fund assures a member that it will be able to use theFund's resources up to a prescribed amount during a specifiedperiod and usually subject to certain conditions.93 These arrange-ments are now very frequent in Fund practice, and a large propor-tion of the Fund's financial transactions is covered by them.Almost invariably, a stand-by arrangement consists of two docu-ments, one of which sets forth largely standard terms that areintended on the whole to fit the operation into the Articles andthe Fund's unique form of financing. The second document is anattachment in the form of a letter or memorandum, usually signedby the Minister of Finance or Governor of the central bank of themember for whose benefit the arrangement is made, or by both.This document, frequently referred to as a letter of intent, setsout, often in some detail, the policies that the member will follow.The general objective of these policies is to ensure that the mem-ber's use of the Fund's resources under the stand-by arrangementwill be consistent with the purposes and provisions of the Articlesand with the policies adopted by the Fund under them. By meansof appropriate provisions in the covering document, the observ-

93 Gold, "The Law and Practice of the International Monetary Fundwith Respect to 'Stand-By Arrangements'," The International and Com-parative Law Quarterly, Vol. 12 (London, 1963), pp. 1-30.

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ance of certain features of the member's letter of intent is madea condition of its continued ability to use the Fund's resourcesunder the stand-by arrangement.

The Fund would undoubtedly take the position that the inter-pretation of the standard terms in the covering document fallswithin its own powers of interpretation under the Articles becausethe purpose of those terms is to fit the arrangement into theArticles. Moreover, the standard terms are based on, and reflectthe language of, the general decisions of the Executive Directorson stand-by arrangements. The position is not so clear withrespect to the letter of intent. It is a declaration by the memberitself. Probably, neither the letter of intent nor the stand-byarrangement as a whole can be regarded as an internationalagreement in any classical legal sense.94 Nevertheless, the letterof intent is almost always written after consultations with a Fundmission, and the degree of participation in its drafting by Fundofficials may vary from suggestions at one extreme to the prepara-tion of a complete draft on behalf of the member at the otherextreme. The extent of staff participation will depend on theamount of technical assistance that the member needs in arrivingat an appropriate program or on the character of the negotiations.The negotiations are sometimes complex, and a letter of intentmay be the subject of many revisions either in the field or after amission has returned to Fund headquarters and had the benefit ofthe views of the Managing Director and other staff members. Inall of this drafting and redrafting, the Fund's legal advisors takean active part.

It is not at all infrequent that during the life of a stand-byarrangement there will be the need to interpret the language ofthe letter of intent. No stand-by arrangement has ever included anexpress provision, either in the covering document or in the letterof intent, with respect to interpretation. Sometimes, however, in-terpretative understandings on particular features of the letter ofintent will be reached between the Fund and the member in the

94 Gold, The International Monetary Fund and International Law: AnIntroduction, International Monetary Fund, Pamphlet Series No. 4 (Wash-ington, 1965), pp. 25-26.

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course of the consultations preceding the Fund's approval of astand-by arrangement. In practice, it has always been possible toresolve difficulties of interpretation by consultation even where nosuch understanding was reached in advance. It must also be notedthat sometimes a member will be granted stand-by arrangementsfor successive periods, and the difficulties of interpretation thatmay have emerged during one period will be resolved in the docu-ment drafted for the next period. In addition, the experiencegained in the case of one member will often be useful in avoidingambiguities in the drafting of stand-by arrangements for othermembers.

17. SummaryThe Fund is one of the international organizations that have

a power of internal authoritative interpretation. This power isconferred on the Fund by Article XVIII and is exercised by thesame organs, the Executive Directors and the Board of Governors,as exercise most of the other powers of the Fund. Although votingis avoided, if a vote had to be taken on a matter of interpretation,it would be taken in accordance with the system of weightedvoting that prevails in the Fund, and a majority of the votes castwould be decisive.

The interpretations adopted under Article XVIII number nomore than ten at this date, and there are special reasons why eachof them has been given that formality. In only one case of aninterpretation under Article XVIII has there been a reference ofthe question from the Executive Directors to the Board of Gov-ernors. An episode in 1961 showed that the Executive Directorsmay take action to clarify a long-standing interpretation. Thatepisode is even more interesting because of the speculation itprovokes about the reversibility of formal interpretations fororiginal error.

The Executive Directors have adopted numerous decisions ofan interpretative character without subsuming them under ArticleXVIII. Many of these decisions have been collected in SelectedDecisions, and some have appeared in other publications of the

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Fund, but not all decisions have been made public. The interpreta-tive decisions taken without recourse to Article XVIII have beenreached by the application of the same legal principles as wouldhave been observed had the decisions been taken under ArticleXVIII. The decisions adopted outside Article XVIII are notnecessarily of less importance than Article XVIII interpretations.They are regarded by the Fund and members as part of the corpusjuris of the Fund even though they have not been given the cachetof Article XVIII.

The Fund's approach to the interpretation of its Articles hasbeen based on the constant awareness that the Articles are a legaldocument that was intended to regulate the monetary and eco-nomic affairs of states and was drafted in language influenced byeconomic and financial experts. Travaux preparatories, althoughfragmentary and sometimes unorthodox, have been freely utilized,always with due weight to the character of the material referredto. Private law sources and analogies have sometimes had a forma-tive influence on the interpretation and development of Fund law.When there are concepts or principles of sufficient generality, theycan be particularly persuasive in the formation of consensus. Oneinterpretative decision, based on estoppel and laches, is of specialinterest because it prevented the retrospective application of aninterpretation and also because it illustrates the need to isolate thecentral substance of a concept or principle of private law from thelocal incidents attached to it.

There has been little authority on the question whether inter-pretations under Article XVIII are binding on tribunals in mem-ber countries. In a proceeding before the Federal CommunicationsCommission, a U.S. regulatory agency, it was decided, in con-formity with the view of the U.S. Department of State, that theU.S. Government was bound by these interpretations. The littlejudicial authority that has accumulated, at least in the courts oftwo members, is consistent with the binding force of these inter-pretations. If under a member's law an Article XVIII interpreta-tion is not binding on domestic tribunals, the member is obligedto take the steps to make it binding.

An international tribunal should regard itself as concluded byan interpretation under Article XVIII. Moreover, an international

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tribunal should hold that a question of interpretation of the Fund'sArticles that is in issue before it must be remitted to the Fundfor decision. The parties in the Case Concerning Rights of Na-tionals of the United States of America in Morocco, decided bythe International Court of Justice, seemed to agree with this latterproposition, although they disagreed about the party on which theburden rested to seek an interpretation from the Fund. Domesticcourts should not refuse to interpret provisions of the Articlesthat have been incorporated in the lex fori on the ground thatthey have not been interpreted by the Fund.

The view has been expressed that the Fund should issue moreinterpretations for the purposes of Article VIII, Section 2(b)9 inthe interests of courts and litigants who are often forced to grapplewith this brief but difficult provision. It is true that the Fund hasdeveloped a practice of confining itself to answering questionsabout the consistency of exchange control regulations with theArticles, but members have been equally reticent and have notrequested interpretations. There has been one occasion, however,on which the Fund has received and responded to a request forassistance by a court in a member country transmitted through themember's executive director.

Article XVIII is understood to apply only to questions of theinterpretation of the provisions of the Articles. It does not applyto interpretations by the Executive Directors that relate exclu-sively to the By-Laws, Resolutions, and other actions of theBoard of Governors, but there are other ways of appealing suchinterpretations to the Board of Governors.

Article XVIII does not apply to the interpretation of theGeneral Arrangements to Borrow or certain other agreementsentered into by the Fund or to the stand-by arrangements grantedby the Fund to its members, excppt to the extent that questions ofthe interpretation of the Articles are involved and must be dealtwith under Article XVIII. The Fund sometimes makes an expressreservation of these questions, as in the General Arrangements.This reservation is also made in the United Nations Convention onthe Privileges and Immunities of the Specialized Agencies. TheFund has not requested any advisory opinions of the InternationalCourt of Justice.

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18. Postscript

While this pamphlet was in the press, the subject of interpreta-tion by the Fund came under review in the following circumstances.At its Twenty-Second Annual Meeting at Rio de Janeiro, theBoard of Governors adopted a Resolution requesting the ExecutiveDirectors to proceed with their work on the establishment in theFund of a new facility based on special drawing rights to meet theneed, as and when it arises, for a supplement to existing reserveassets and on the improvements in the present rules and practicesof the Fund that appeared desirable as a result of developments inworld economic conditions and the experience of the Fund sinceits inception. The Executive Directors were asked to proposeamendments to the Articles for both purposes, and they did this inApril 1968. Article XVIII was among the possible modificationsthat the Executive Directors discussed, and they decided to pro-pose a change in that provision.

The issues that were debated in connection with interpretationwould be of the greatest interest to all who are concerned withinternational law and organization, but a detailed account willhave to be the task of some future historian. At the moment, it canbe said that one prominent feature of the debate was the colloquybetween those who advocated a procedure for the final resolutionof problems of interpretation by some authority external to theFund and without resort to weighted voting, and those who feltthat the procedure should remain internal and substantially un-changed because of its demonstrated success. Those who held thelatter view did not preclude improvements in existing procedures.The result of the debate was a subtle compromise, based on theidea of the continued internal authority of the Fund to interpret itsown Articles with finality but involving the creation of a new bodyinside the Fund which would take decisions on questions of inter-pretation without weighted voting.

The proposal of the Executive Directors is to amend ArticleXVIII(fe) as follows:

In any case where the Executive Directors have given a decision under(a) above, any member may require, within three months from the date

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of the decision, that the question be referred to the Board of Governors,whose decision shall be final. Any question referred to the Board ofGovernors shall be considered by a Committee on Interpretation of theBoard of Governors. Each Committee member shall have one vote. TheBoard of Governors shall establish the membership, procedures, and vot-ing majorities of the Committee. A decision of the Committee shall bethe decision of the Board of Governors unless the Board by an eighty-fivepercent majority of the total voting power decides otherwise. Pending theresult of the reference to the Board the Fund may, so far as it deems nec-essary, act on the basis of the decision of the Executive Directors.

The procedure under this proposal will remain internal becauseappeals will be heard by a Committee of the Board of Governorsand not by some external tribunal. This does not mean that thework of the Committee will always be conducted by the governorsthemselves, because under the practice of the Fund alternate ortemporary alternate governors may serve in the absence of theirprincipals. Another internal feature of the proposed new procedureis that the decisions of the Committee will be deemed to be thoseof the Board of Governors unless the Board overrules these deci-sions by the special majority of 85 per cent of the total votingpower.

It will be apparent that the new procedure will operate onlywith respect to questions of interpretation that are the subject offuture decisions of the Executive Directors under Article XVIII,because appeals can be taken under the new procedure only withinthree months after a decision of the Executive Directors. TheCommittee on Interpretation will arrive at its decisions withoutweighted voting. The adoption of decisions without weighted vot-ing by an organ of the Fund will not be the only departure fromexisting Fund practice. Committees of the Board of Governors orof the Executive Directors have reached conclusions hitherto with-out formal voting of any kind.95 The Committee on Interpretationwill take decisions, and by voting. The special majority by whichthe Board of Governors may overrule its Committee on Interpreta-tion will continue to be based on weighted voting.

If the proposal to amend Article XVIII(fo) is approved and

95 There shall be no formal voting in committees and subcommittees.The Chairman of the committee or subcommittee shall determine the senseof the meeting (including alternative points of view) which shall be re-ported" (Rule C-ll of the Rules and Regulations, which applies to theExecutive Directors).

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accepted, the amended provision will have to be augmented byrules determining the membership, procedures, and voting majori-ties of the Committee. These rules have not yet been established,and it is clear that many of the most interesting aspects of theproposed change will be settled only when the Board of Governorsadopts the necessary By-Law.

The proposals to amend the Articles, when accepted, will estab-lish a General Account and a Special Drawing Account in theFund. The original operations and transactions of the Fund, in-cluding those of an administrative character, will be conductedthrough the General Account. The functions of the Fund relatingto special drawing rights will be conducted through the SpecialDrawing Account. The proposed amendments distinguish care-fully between matters pertaining exclusively to the General Ac-count, to which all members will subscribe, and matters pertainingexclusively to the Special Drawing Account, in which it is legallypossible that not all members will participate. One purpose forwhich this distinction is made is voting. The votes allotted to allmembers may be cast in the voting on decisions relating to matterspertaining exclusively to the General Account, but only partici-pants may cast votes in the voting on decisions relating to matterspertaining exclusively to the Special Drawing Account. It will beobvious that there could be problems in determining whether amatter falls into the one category or the other or into both. A ruleis laid down in the proposed Article XXVII(a)(iv) for makingthese determinations:

Questions of the general administration of the Fund, including reimburse-ment under Article XXII, Section 2, and any question whether a matterpertains to both Accounts or exclusively to the Special Drawing Accountshall be decided as if they pertained exclusively to the General Account....

In short, the question of classification is to be settled by a decisionin which the votes of all members may be cast.

Suppose that it is determined that a matter pertains exclusivelyto the Special Drawing Account. The proposed Article XXVII(c)provides that only a participant in that Account may raise a ques-tion of interpretation in relation to the matter under ArticleXVIII(a) or require that an appeal be taken from a decision of the

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Executive Directors on that question. The first and second sen-tences of the proposed Article XX VII (c) read as follows:

A question of interpretation of the provisions of this Agreement onmatters pertaining exclusively to the Special Drawing Account shall besubmitted to the Executive Directors pursuant to Article XVIII(a) onlyon the request of a participant. In any case where the Executive Directorshave given a decision on a question of interpretation pertaining exclusivelyto the Special Drawing Account only a participant may require that thequestion be referred to the Board of Governors under Article XVIII(b).

The proposed amendments raise but do not settle the questionwhether all members of the Committee on Interpretation may voteon a question of interpretation under Article XVIII on a matterpertaining exclusively to the Special Drawing Account. The prac-tical issue is whether a Governor appointed by a member that isnot a participant in that Account should be able to vote on a matterof that kind in the Committee on Interpretation. This question hasbeen left open for later decision by the Board of Governors becauseit was thought to be closely connected with the questions of mem-bership, procedures, and voting majorities of the Committee thatthe proposed amendment to Article XVIII(fc) declares shall beresolved by the adoption of a By-Law. The last sentence of theproposed Article XXVII(c) provides that

The Board of Governors shall decide whether a governor appointed bya member that is not a participant shall be entitled to vote in the Com-mittee on Interpretation on questions pertaining exclusively to the SpecialDrawing Account.

Article XVIII(c) establishes an external tribunal for the settle-ment of any "disagreement" that arises between the Fund and amember that has withdrawn or between the Fund and any memberduring liquidation of the Fund. This is the only exception in thepresent Articles to the principle of internal authoritative interpreta-tion. One reason for the exception is that Article XVIII(c) is morein the nature of a procedure for settling disputes than for arrivingat interpretations, as is evidenced by the contrast between "anyquestion of interpretation" in Article XVIII(a) and "disagree-ment" in Article XVIII(c), although the latter may involve issuesof interpretation. But a more important reason for the exceptionalprocedure of Article XVIII(c) is that the disagreement no longerarises within the family of members, either because one disputant is

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a former member or because the family is disintegrating, and itwould be inappropriate, therefore, to insist on settlement of the dis-agreement within the family. The proposed Article XXVII(d) willintroduce a further exception to internal procedures for interpreta-tion, but it will be unique in character.

Article XXVII(d) establishes a procedure by analogy to ArticleXVIII(c), as follows:

Whenever a disagreement arises between the Fund and a participantthat has terminated its participation in the Special Drawing Account orbetween the Fund and any participant during the liquidation of the Spe-cial Drawing Account with respect to any matter arising exclusively fromparticipation in the Special Drawing Account, the disagreement shall besubmitted to arbitration in accordance with the procedures in ArticleXVIII(c).

Although this provision is inspired by Article XVIII(c), there isa fundamental difference between the two provisions. Under theproposed Article XXVII(d), the country that has terminated itsparticipation in the Special Drawing Account may still be a mem-ber of the Fund. If the disagreement arises in the liquidation of theSpecial Drawing Account, the Fund itself may continue in beingwithout any liquidation of the General Account, and once again,therefore, the disputant may still be a member of the Fund. Anyquestions of interpretation of the Articles that are considered underArticle XXVII(d) in these circumstances will be the only questionsof interpretation arising between the Fund and a member that canbe submitted to external settlement.

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IMF PAMPHLET SERIES

(Continued from inside front cover)

24. The Rise in Protectionism, by Trade and Payments Division. 1978.25. The Second Amendment of the Fund's Articles of Agreement, by Joseph Gold. 1978.26. SDRs, Gold, and Currencies: Third Survey of New Legal Developments, by Joseph

Gold. 1979. Concluding section also in German.27. Financial Assistance by the International Monetary Fund: Law and Practice, by

Joseph Gold. First edition, 1979. In English only. Second edition, 1980.28. Thoughts on an International Monetary Fund Based Fully on the SDR, by J.J. Polak.

1979.29. Macroeconomic Accounts: An Overview, by Poul H0st-Madsen. 1979.30. Technical Assistance Services of the International Monetary Fund. 1979.31. Conditionally, by Joseph Gold. 1979.32. The Rule of Law in the International Monetary Fund, by Joseph Gold. 1980.33. SDRs, Currencies, and Gold: Fourth Survey of New Legal Developments, by

Joseph Gold. 1980.34. Compensatory Financing Facility, by Louis M. Goreux. 1980.35. The Legal Character of the Fund's Stand-By Arrangements and Why It Matters, by

Joseph Gold. 1980.36. SDRs, Currencies, and Gold: Fifth Survey of New Legal Developments, by

Joseph Gold. 1981.37. The International Monetary Fund: Its Evolution, Organization, and Activities. First

edition, 1981. Fourth edition, 1984.38. Fund Conditionality: Evolution of Principles and Practices, by Manuel Guitian. 1981.39. Order in International Finance, the Promotion of IMF Stand-By Arrangements, and

the Drafting of Private Loan Agreements, by Joseph Gold. 1982.40. SDRs, Currencies, and Gold: Sixth Survey of New Legal Developments, by Joseph

Gold. 1983. In English. French and Spanish in preparation.41. The General Arrangements to Borrow, by Michael Ainley. 1984. In English. French

and Spanish in preparation.42. The International Monetary Fund: Its Financial Organization and Activities, by

Anand G. Chandavarkar. 1984. In English. French and Spanish in preparation.43. The Technical Assistance and Training Services of the International Monetary Fund.

In English. French and Spanish in preparation.

*Out of print. Photographic or microfilm copies of all English editions, includingnumbers that are out of print, may be purchased direct from University MicrofilmsInternational, 300 North Zeeb Road, Ann Arbor, Michigan 48106, U.S.A., or, forthose living outside the Western Hemisphere, from University Microfilms Limited,30/32 Mortimer St., London, WIN 7RA, England.Copies (unless out of print) may be requested from:

External Relations Department, Attention: PublicationsInternational Monetary Fund, Washington, D.C. 20431, U.S.A.

Telephone number: 202 623-7430Cable address: Interfund


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