Foreign Relations of the United States: Diplomatic Papers, 1942, General; the British Commonwealth; the Far East, Volume I

800.515/1418

The Secretary of the Treasury (Morgenthau) to the Secretary of State

Washington, May 20, 1942.

My Dear Mr. Secretary: I am appending a memorandum which I submitted to the President with an enclosure which I think you will find self-explanatory. The President told me to continue the study of the proposal in conjunction with the State Department, Board of Economic Warfare and Export-Import Bank and to speak to him again about the project after we had progressed further in our study and after I had obtained the views of the State Department. I am also asking the Federal Reserve Board to join us in the study.

I would appreciate it very much if you would designate someone to represent your department to meet with me at 3:00 P.M. on Monday, May 25.

The proposal is, of course, in the study stage and if before the meeting you want more information on the matter, Harry White is available and will be glad to discuss it at your convenience.

Sincerely yours,

H. Morgenthau, Jr.

[Enclosure]

Memorandum by the Secretary of the Treasury (Morgenthau) to President Roosevelt

[Washington,] May 15, 1942.

I have had prepared in the Treasury the attached study of a Stabilization Fund for the United and Associated Nations and an International Bank for Reconstruction and Development. The purpose of these two agencies is to meet the inevitable post-war international monetary and credit problems—to prevent disruption of foreign exchange and the collapse of monetary and credit systems, to assure the restoration of foreign trade and to supply the huge volume of capital that will be needed abroad for relief, for reconstruction, and economic development essential for the attainment of world prosperity and higher standards of living.

I would like very much to have you read the appended extract from the study which briefly sets forth why preliminary work for the establishment of such institutions should be entered into now, and gives some indication of their nature and scope.

I am convinced that the launching of such a plan at this time has tremendous strategic as well as economic bearing. It seems to me that the time is ripe to dramatize our international economic objectives in terms of action which people everywhere will recognize as practical, powerful and inspiring.

In the flush of success our enemies always dealt [dwelt] upon their “New Orders” for Europe and for Asia. There could be no more solid demonstration of our confidence that the tide is turning than the announcement of the formulation in concrete terms, and the preparation of specific instrumentalities for what really would be a New Deal in international economics.

If you think this idea is worth canvassing, I would like to ask the Board of Economic Warfare, State Department and Federal Reserve Board and other appropriate agencies to work with the Treasury on these plans with a view to your calling a conference to be held in Washington of Finance Ministers of the United and Associated Nations. In this connection you will remember that Resolution XV of the Rio Conference²⁶ already commits the American Republics to participate in such a conference.

To give some idea of the ground that might be covered by a conference of that character, there is also appended a file of a few preliminary documents which includes a suggested agenda which might accompany the invitations, and a suggested program of the conference.

[Subenclosure 1]

Suggested Plan for a United and Associated Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations

It is yet too soon to know the precise form or the approximate magnitude of post-war monetary problems. But one thing is certain. No matter how long the war lasts nor how it is won, we shall be faced with three inescapable problems: to prevent the disruption of foreign exchanges and the collapse of monetary and credit systems; to assure the restoration of foreign trade; and to supply the huge volume of capital that will be needed virtually throughout the world for reconstruction, for relief, and for economic recovery.

If we are to avoid drifting from the peace table into a period of chaotic competition, monetary disorders, depressions, political disruption, and finally into new wars within as well as among nations, we must be equipped to grapple with these three problems and to make substantial progress toward their solution.

Specific plans must be formulated now.

Clearly the task can be successfully handled only through international action. In most discussions of post-war problems this fact has been recognized, yet to date—though a number of persons have pointed to the solution in general terms—no detailed plans sufficiently realistic or practical to give promise of accomplishing the task have been formulated or discussed. It is high time that such plans were drafted. It is time that detailed and workable plans be prepared providing for the creation of agencies with resources, powers and structure adequate to meet the three major post-war needs.

Such agencies should, of course, be designed to deal chiefly with post-war problems. But their establishment must not be postponed until the end of hostilities. It takes many months to set up such agencies. First, a plan has to be perfected. Then it has to be carefully considered by a number of countries. In each country, again, acceptance can follow only upon legislation. That alone will consume many months and possibly longer. And even when the plan is finally accepted, much time will be further consumed in the collection of personnel, and the performance of the preliminary ground work which must be done before effective operations can begin. Altogether, a year may be required before a proposal can be transformed into an operating agency.

Obviously, therefore, even though no important immediate ends will be served by having such agencies functioning during war time, it will be an error to wait until the end of the war is in sight before beginning serious discussion of plans for establishing such agencies. No one knows how soon the war will end, and no one can know how long it will take to get plans approved and the agencies started. Yet, if we are to “win the peace”, which will follow the war, we must have adequate economic instruments with which to carry on effective work as soon as the war is over. It would be ill advised, if not positively dangerous, to leave ourselves at the end of the war unprepared for the stupendous task of world-wide economic reconstruction.

Specific proposals will help win the war.

But there is an additional important reason for initiating at once serious discussion of specific proposals. Such discussion will be a factor toward winning the war. It has been frequently suggested, and with much cogency, that the task of securing the defeat of the Axis powers would be made easier if the victims of aggression, actual and potential, could have more assurance that a victory by the United Nations will not mean in the economic sphere, a mere return to the pre-war pattern of every-country-for-itself, of inevitable depression, of possible wide-spread economic chaos with the weaker nations succumbing first under the law-of-the-jungle that characterized international economic practices of the pre-war decade. That assurance must be given now. The people of the anti-Axis powers must be encouraged to feel themselves on solid international ground, they must be given to understand that a United Nations victory will not usher in another two decades of economic uneasiness, bickering, ferment, and disruption. They must be assured that something will be done in the sphere of international economic relations that is new, that is powerful enough and comprehensive enough to give expectation of successfully filling a world need. They must have assurance that methods and resources are being prepared to provide them with capital to help them rebuild their devastated areas, reconstruct their war-distorted economies, and help free them from the strangulating grasp of lost markets and depleted reserves. Finally, they must have assurance that the United States does not intend to desert the war-worn and impoverished nations after the war is won, but proposes to help them in the long and difficult task of economic reconstruction. To help them, not primarily for altruistic motives, but from recognition of the truth that prosperity, like peace, is indivisible. To give that assurance now is to unify and encourage the anti-Axis forces, to greatly strengthen their will and effort to win.

Nor will the effect be on the anti-Axis powers alone. Whether within the Axis countries the will to fight would be weakened by such arrangements is not certain, but assuredly it would not be strengthened. And certainly the people in the invaded countries, and the wavering elements in the Axis-dominated and Axis influenced countries would be given additional cause to throw in their lot more definitely and openly with the anti-Axis forces if there is real promise that an orderly prosperous world will emerge from a United Nations victory.

Two International Government Agencies must be established—a Stabilization Fund and a Bank for Reconstruction.

A vital part of that promise rests on international monetary and banking collaboration. The United Nations and the Nations associated with them must undertake cooperatively two tasks as soon as possible: first, to provide an instrument with the means and the procedure to stabilize foreign exchange rates and strengthen the monetary systems of the United Nations; and second, to establish an agency with resources and powers adequate to provide capital for economic reconstruction, to facilitate rapid and smooth transition from war-time economies to peace-time economies, to provide relief for stricken peoples during the immediate post-war period, to increase foreign trade, and permanently increase the productivity of the United Nations.

Those two tasks should be kept distinct. Though in some of their facets and in many of their consequences there is considerable interdependence and interaction, the two are different enough to call for separate instrumentalities. Each is sufficiently specialized to require different resources, different responsibilities, and different procedures and criteria for action. To supply the United Nations with necessary capital not otherwise available except possibly on too costly terms should be the function of a bank created for that specific purpose; whereas monetary stabilization—a highly specialized function calling for a special structure, special personnel, and special organization—would best be performed by a stabilization fund created to perform that special function.

It is therefore recommended that immediate consideration be given to formulating plans for the establishment of two separate institutions:

1. A United and Associated Nations Stabilization Fund, and

2. A Bank for Reconstruction and Development of the United and Associated Nations.

While either agency could function without the existence of the other, the creation of both would nevertheless aid greatly in the functioning of each. Doubtless one agency with the combined functions of both could be set up, but it could operate only with a loss of effectiveness, risk of over-centralization of power, and danger of making costly errors of judgment. The best promise of successful operation seems to lie in the creation of two separate institutions, linked together by one or two directors in common.

Proposals must be drafted by experts of many governments meeting for that purpose.

It is hoped that some time soon, representatives of various interested governments will meet in conference to explore the possibility of working out a plan for the establishment of an international stabilization fund and bank. To facilitate the preliminary work of such a committee, and to provide the officials of the interested governments with a proposal set in specific enough terms to encourage and justify fruitful discussion prior to a meeting, the following report has been, prepared. It contains a suggested plan for a fund and for a bank, and also some discussion of the various points involved.

Anyone familiar with the task of setting up new and complex organizations such as the two envisaged will fully appreciate that no single person, no matter how well informed on the subject, can hope to draft a plan that would meet with general approval. This is especially true of a proposal calling for international collaboration and requiring acceptance by several governments. To draft a plan that is likely to meet with approval of various governments is a task beyond the competence even of a group of economists from any single country. The details of any plan submitted for consideration would have to be subjected to careful evaluation and examination by a number of men, some of whom should be expert in the handling of international economic problems and monetary theory, and others at home in related fields. In addition to monetary problems, questions of sovereignty, of national interest, and of broad economic policy are involved in some of the more important provisions, and these inevitably must be the subject of controversy and compromise. They are also matters that must be discussed in detail and at length by high officials whose responsibilities include the shaping and administration of monetary and financial policy.

The proposals and comments that follow are submitted with the intent of providing a starting point for intelligent discussion and of calling attention to some of the difficulties which would have to be satisfactorily met before a workable and acceptable plan may emerge. The proposals have been set forth only in outline and for the most part only those points are included which are essential to an understanding of the plan.

It is certain that some of the powers and requirements included in the outline of the Fund and the Bank will not survive discussion, prejudice and fear of departure from the usual. Some may not stand the test of political reality, and some may be unacceptable on technical grounds, while others may be generally regarded as going too far toward “internationalism.” Yet most of them appear as desirable objectives in most writings or conferences on post-war economies and are worth considering.

Willingness to depart from tradition and break new ground is essential if meaningful results are to be obtained.

It will perhaps help toward understanding and induce a more sympathetic approach to the proposals which follow to state at the outset that something much more than the usual banking and stabilization functions are envisaged in the plan. There is urgent need for instruments which will pave the way and make easy a high degree of cooperation and collaboration among the United Nations in economic fields hitherto held too sacrosanct for international action or multilateral sovereignty. A breach must be made and widened in the outmoded and disastrous economic policy of each-country-for-itself-and-the-devil-take-the-weakest. Just as the failure to develop an effective League of Nations has made possible two devastating wars within one generation, so the absence of a high degree of economic collaboration among the leading nations will, during the coming decade, inevitably result in economic warfare that will be but the prelude and instigator of military warfare on an even vaster scale.

The Fund and the Bank described in the following pages are envisaged as economic instruments that most easily and effectively can facilitate that high degree of economic collaboration. It will be at once apparent that the resources, powers and requirements for membership, accorded both agencies go far beyond the usual attributes of monetary stabilization and of banking. They must if they are to be the stepping stone from shortsighted disastrous economic nationalism to intelligent international collaboration. Timidity will not serve. It is my conviction that the long-time effectiveness of both agencies will be measured by the degree to which boldness and vision are displayed in their organization and objectives.

Part I, which follows, consists of an outline of (1) a United and Associated Nations Stabilization Fund, and (2) of a Bank for Reconstruction of the United and Associated Nations.

Part II consists of a brief explanation and discussion of the proposed Fund, and Part III of the proposed Bank.²⁷

[Subenclosure 2—Extract²⁸]

Preliminary Draft Proposal for United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations, Prepared by Mr. Harry Dexter White, Assistant to the Secretary of the Treasury, April 1942

. . . . . . . . . . . . . .

PART I

A. Suggested Outline of a United and Associated Nations Stabilization Fund

I. The Purposes of the Fund are:

1. To stabilize foreign exchange rates of the United Nations.

2. To encourage the flow of productive capital among the United Nations.

3. To liberate blocked balances.

4. To help correct the maldistribution of gold among the United Nations.

5. To facilitate the settlement and servicing of international debts—both public and private.

6. To shorten the periods of disturbing disequilibrium in the international accounts of member countries and help stabilize price levels.

7. To reduce the necessity and use of foreign exchange controls.

8. To eliminate multiple currency practices and bilateral clearing arrangements.

9. To promote sound note issuing and credit policies and practices among the United Nations.

10. To reduce barriers to foreign trade.

11. To promote more efficient and less expensive clearings of international exchange transactions.

II. Powers.

To help attain the objectives listed above, the Fund shall have the following powers:

1. Buy, sell and hold gold, currencies, foreign exchange bills of exchange, and government bonds of the “member” countries, and act as a clearing house for international movement of funds, balances, checks, drafts, acceptances, gold.

2. The Treasury of each member country (or its agent, a stabilization fund or central bank) shall have the privilege of purchasing from the Fund the currency of any member country which the Fund holds, provided:

a. The currency demanded from the Fund is required to meet adverse balance of payments to the country whose currency is being demanded.

b. The sum in the Fund of the currency of the country making the purchase shall be, after adding the sum proposed to be purchased, not more than 100 percent of the total sum—gold, currency, and notes—originally contributed to the Fund.

c. The rate of exchange shall be the one determined by the Fund.

3. Should a country wish to sell its currency to the Fund in an amount in excess of the above quota, approval by four-fifths of the member votes would be required. The Fund could decide to purchase the excess of the currency in question if:

a. It is believed the anticipated balance of payments of the country in question was such as to warrant the expectation that the “excess” could be disposed of within a reasonable time, or

b. The country in question had gold holdings which, together with gold it expected to accumulate within a reasonable time, were adequate to replace the excess, and

c. The country in question agreed to adopt and carry out measures designed to correct the disequilibrium in the country’s balance of payments, which the Fund recommended—after careful examination of the situation.

4. The governments of member countries may sell to the Fund, blocked foreign balances acquired from their nationals, provided all the following conditions are met:

a. The foreign balances were in member countries and were either partly or wholly blocked.

b. The foreign balances were included in the sum reported (for the purpose of this provision) by the member government as blocked on date of its becoming a member.

c. The country selling the blocked balances to the Fund agreed to begin repurchasing 40 percent of the amount sold to the Fund, at the price received, and at a rate not to be less than 2 percent a year. The repurchases to begin not later than three years after date of sale, and the currency to be used in repayment to be either the currency received or the local currency, as desired by the Fund.

d. The country in which the blocked balances are held agrees to transfer those balances to the Fund, and purchase back 40 percent of them from the Fund, at the rate of 2 percent a year, beginning not later than three years after the date of transfer. The Fund may accept government bonds payable in gold in lieu of part of the blocked balances, and shall be free to sell such bonds under certain conditions.

e. If the country selling the blocked foreign balances to the Fund asks for foreign exchange rather than local currency, it must need the foreign exchange for the purpose of meeting adverse balance of payments arising from any cause except acquisitions of gold, or accumulation of foreign balances.

f. The country in which the blocked funds are kept agrees not to impose any restrictions on the installments of the 40 percent portion gradually to be repurchased by country owning the blocked balances.

g. A charge of 1 percent, payable in the currency of the country paying shall be levied against the country selling its blocked funds, and a charge of 1 percent payable by country in which blocked account exists.

h. The Fund shall determine from time to time what shall be the maximum proportion of the blocked balances it can afford to take over under this provision.

i. The Fund on its part agrees not to sell the blocked balances acquired under the above authority, except with the permission, or at the request of the country in which the blocked balances are being held but can invest those balances in regular or special government securities of that country.

5. The Fund would fix the rates at which it will exchange one member’s currency for another, and the rates at which it will buy and sell gold with local currencies. The guiding principle in the fixing of such rates shall be stability in exchange relationships. Changes in the rates shall be made only when essential to correction of a fundamental disequilibrium, and only with the consent of four-fifths of member votes.

6. The Fund shall have authority to deal only with the Treasuries of the participating countries, or with official stabilization funds of those countries, and with the bank designated by participating government as its fiscal agent, and with international banks owned by governments.

7. The Fund shall not have the authority to engage in any transactions within a member country, or with any corporation or part of the government of that country without the consent of the Board representative of that country.

8. The Fund shall have the authority to buy and sell currencies of non-member countries, but shall not be authorized to hold such currencies beyond sixty days after date of purchase, except with the approval of four-fifths of the member votes.

9. The Fund shall have the authority to borrow, at such rates as the Fund may recommend, the currency of any country, provided four-fifths of the member votes approve the terms, amount and condition of such borrowing.

10. The Fund shall have the authority to invest any currency it holds in “short-term” securities—commercial or government—of the country of that currency provided a four-fifths vote of the member votes shall approve, and provide further that the approving votes shall include that of the Board representative of the country in which the investment is to be made.

11. The Fund shall have authority to sell the obligation it holds of the member countries provided four-fifths of the member votes approve, and provided the representative of the country in which the securities are to be sold approves.

12. No sale of any currency from the Fund shall be made to a member without approval of four-fifths of member votes when the currency so sold is to be used or is to make possible adjustment of a foreign debt, including, of course, debts already in default.

13. Any member country can borrow local currency from the Fund for one year or less up to 75 percent of the currency of that country held by the Fund, provided such loan is approved by three-fourths of the member votes. A country borrowing such funds shall pay to the Fund an interest rate of 1 percent a year.

14. A very moderate service charge shall be made by the Fund on all exchange and gold transactions.

III. Eligibility for Membership.

Any member of the United or Associated Nations is eligible for membership in the Fund provided it agrees:

1. To abandon, not later than one year after joining the Fund, or after the cessation of hostilities, whichever is later, all restrictions and controls over foreign exchange transactions with member countries, except with the approval of the Fund.

2. To alter exchange rates on the currencies of other countries only with the consent of the Fund and only to the extent and in the direction approved fey the Fund, with the exception of a narrow range fixed by the Fund and permitted to all member currencies.

3. (a) Not to accept or permit deposits or investments from any member country except with the permission of the government of that country, and

(b) To make available to the government of any member country at its request all property in form of deposits, investments, securities of the nationals of that member country.

4. Not to enter upon any bilateral clearing arrangements.

5. Not to adopt any monetary or general price measure or policy, the effect of which, in the opinion of a majority of the member votes, would be to bring about sooner or later a serious disequilibrium in the balance of payments, if four-fifths of the member votes of the Fund submitted to the country in question their disapproval of the adoption of the measure.

6. To embark upon a program of gradual reduction of existing trade barriers—import duties, import quotas, administrative devices—and further agree not to adopt any increase in tariff schedules, or other devices having as their purpose higher trade obstacles, without giving reasonable opportunity for the Fund to study the effect of the contemplated change on exchange rates and register its opinion. In rendering its opinion, the Fund will make recommendation to which the member governments agree to give serious consideration.

7. Not to permit any defaults on foreign obligations of the government, Central Bank or government agency without approval of the Fund.

8. Not to subsidize—directly or indirectly—the exportation of any commodity or services to member countries without consent of the Fund.

IV. Composition of the Fund.

1. The Fund shall consist of gold, currencies of member countries, and member government securities in such amounts as shall be indicated by a formula set forth in the agreement.

The total subscription to the Fund shall be the equivalent of at least $5 billion. The Bank of the United Nations should subscribe $100 million to the Fund.

2. The contribution of each country shall consist of 25 percent cash and 25 percent in interest-bearing government securities (interest and principal payable in gold or its equivalent). The remaining 50 percent to be paid in such installments and in such form as shall be determined from time to time by the Fund.

The initial payment of 25 percent cash shall consist of at least one-half in gold, the remainder in local currency.

V. Management.

1. The management of the Fund shall be vested in a Board of Directors consisting of the representatives appointed by the member governments. Each government shall appoint one representative.

2. The Board shall elect a chairman and a small operating committee. The Chairman shall be chief of the operating committee. The members of the operating committee should devote full time to the management of the Fund, should be assisted by an appropriate technical staff, and should receive an adequate salary. The Chief of the operating committee with the approval of the Board shall appoint the heads of the departments.

3. In all voting by the Board each representative shall have one hundred votes, plus one vote for the equivalent of every million dollars subscribed to the Fund by his government.

4. A country can replace, wholly or in part, its bonds with currency or gold. The number of votes its representatives can cast will alter accordingly.

5. All decisions, except where specifically provided otherwise, shall be decided by the majority of the votes cast.

6. The President of the Bank for the United Nations shall be a member of the Board and shall have 100 votes. He shall have no additional votes notwithstanding the Bank’s participation in the Fund.

VI. The rules and regulations regarding the type, amount and conditions of day-to-day transactions to be handled by the operating committee, shall be promulgated by four-fifths of the member votes.

VII. No change in the gold value of any currency of the participating countries shall be permitted to alter the gold value of the total currency holdings in the Fund. Thus, if the currency of any of the participating countries should depreciate, that country must deliver to the Fund an amount of its local currency equal to the decreased value of that currency held by the Fund. Likewise, if the currency of a particular country should increase, the Fund must deliver to that country an amount (in the currency of that country) equal to the resultant increase in the gold value of the Fund’s holdings. This provision does not apply to currencies acquired under paragraph 4 under section on “Powers.”

VIII. A country failing to contribute to the Fund sums due the Fund shall be dropped as a member, provided a majority of the member votes so decide. Any member dropped shall have returned to it an amount (in its own currency) equal to its contribution minus any sum due by that country to the Fund.

IX. Net profits earned by the Fund shall be distributed in the following manner:

1. 50 percent to reserves until the reserves are equal to 10 percent of the assets of the Fund.

2. 50 percent to be divided each year among the members in form of the local currency. That is, each country shall distribute its dividends in its own currency.

X. The member governments agree to furnish the Fund with all information it needs for its operations, and to furnish such reports as it may require, in the form and at the times requested by the Fund.

B. Suggested Outline of a Bank for Reconstruction and Development of the United and Associated Nations

I. The objectives of the Bank are:

1. To provide capital for the economic reconstruction of the member countries.

2. To facilitate a rapid and smooth transition from a wartime economy to a peace-time economy in the member countries.

3. To supply short-term capital for the financing of foreign trade among the member countries—where such capital is not available from private sources at reasonable rates.

4. To help strengthen the monetary and credit structures of the member countries by redistributing the world gold supply.

5. To eliminate the danger of world-wide crises that are financial in origin, and reduce the likelihood, intensity and duration of world-wide economic depressions.

6. To help stabilize the prices of essential raw materials and other important commodities.

7. To raise the productivity and hence the standard of living of the peoples of the member countries.

8. To promote a greater degree of economic cooperation and collaboration among the member countries.

9. To make easier the solution of many of the economic and political problems that will confront the “peace conference”.

10. To enhance the opportunity throughout the world for a healthy development of democratic institutions.

11. To provide for the financing and distribution of foodstuffs and other essential commodities needed for the relief of populations devastated by war conditions.

12. To promote an equitable access to scarce essential raw materials.

II. To help carry out these objectives, the Bank shall have the following powers:

1. Make short-term and long-term loans to any participating government and to any political subdivisions or business enterprise therein, provided:

a. The servicing of the loan is fully guaranteed by the national government.

b. The funds cannot be borrowed from private investors except at high rates of interest.

c. The loan is made only after a careful study and written report by a competent committee on the merits of the project and the loan.

d. Only when the committee’s report definitely indicates that the loan would serve directly or indirectly to permanently raise the standard of living of the borrowing country, except where the purpose of the loan is to provide emergency relief for devastated areas of war-impoverished inhabitants.

e. Only at very low rates of interest—preferably not higher than 3 percent, with a schedule of repayment appropriate to the project.

2. Whenever possible the Bank should guarantee loans made by private investors, instead of making the loans directly, provided:

a. The rate of interest is not in excess of (say) 4 percent and

b. Not more than 80 percent of the principal and 50 percent of the interest is guaranteed.

c. The loan is not for the purpose of repayment of an old loan.

3. Issue its own demand currency notes against a 100 percent par value of the obligations of a participating government, or against obligations guaranteed by the participating government, provided there is maintained in the Bank a gold reserve of fifty percent of the notes issued. The obligations of, or guaranteed by, any single participating government shall not constitute backing for more than 10 percent of the maximum amount of notes that can be issued, The notes should be redeemable in gold on demand only by member governments.

The gold equivalent of the international unit shall be fixed by the Fund.

4. No extension of credit shall be extended by the Bank to any country, the national government of which is in whole or partial default of a foreign loan, unless

a. The defaulted loan was made between Allies in a common war, or

b. The defaulted government has agreed to renew service of the defaulted debt on a basis worked out by a special committee appointed by the Bank for that purpose, or

c. Ninety percent of the member votes approve the loan.

5. Loans made for the purpose of providing metallic reserves or otherwise strengthening monetary systems of the borrowing country shall bear lower rates of interest and may have longer terms of repayment than loans made for other purposes.

6. The Bank shall impose no condition upon an extension of credit or loan as to the particular country in which the proceeds of the loan must be spent.

7. When a loan or credit is extended to a member country, the Bank shall divide the loan into two parts: local currency and international units, according to an estimate of the portion of the loan that is to be spent at home and abroad. Service of the loan shall be either in the identical currency borrowed, or in the New International Unit or gold.

8. The Bank can organize and finance an International Essential Raw Material Development Corporation for the purpose of increasing the world supply of essential raw materials and assuring member countries an adequate supply at fair prices, provided:

a. Three-fourths of the member votes approve each separate project and amount invested.

b. The product is sold to member countries on equal terms.

9. The Bank can organize and finance an International Commodity Stabilization Corporation for the purpose of stabilizing the price of important commodities, provided:

a. At least five governments participate directly in the management and operation of the corporation and subscribe to part of the capital of the corporation.

b. The corporation will undertake to stabilize the price of any specific commodity only with the consent of the Bank.

c. The policy governing the operations of the Corporation gives, in the opinion of the Board, proper weight to the interests of world consumers as well as producers.

10. Buy, sell, hold and deal in gold, and in the obligations and securities of any participating government. Act as a clearing house of funds, balances, checks, drafts and acceptances for the account of participating governments or their fiscal agencies, and accept demand, time and custody deposits and accounts from participating governments and their fiscal agencies and central banks.

11. Discount and rediscount bills, acceptances and other obligations and instruments of credit of participating governments and fiscal agencies and central banks.

12. Act as agent or correspondent for any participating government and for fiscal agencies, central banks and political subdivisions.

13. Rediscount with any government or fiscal agency or central bank bills, acceptances and other instruments of credit taken from the Bank’s portfolio.

14. Issue or sell debentures and other securities and obligations of the Bank to obtain assets for the purposes of the Bank.

15. Deal only with (a) the governments of members of the Bank, and (b) with the central banks or fiscal agents of those countries only with the consent of the Minister of Finance of the country in question, and (c) with the United Nations Stabilization Fund, and (d) with any international bank owned jointly by some of the member governments.

16. Engage in financial and economic studies and publish reports thereof.

III. Capital structure.

1. The capital stock (expressed for convenience in terms of United States dollars) shall be authorized up to $10 billion, consisting of 10,000 shares having a par value of $1 million each. The shares purchased are to be paid for in gold and local currency. Fifty percent of the issue price of each share purchased shall be paid up at the time of subscription and the remainder as and when called for by the Bank. Of the initial 50 percent payment, half shall be in gold and half in the currency of any participating country.

2. The shares are non-transferable, but the Bank, with the approval of four-fifths of the Board of Directors, can, under certain conditions, buy back shares offered to it.

3. Each eligible government can subscribe to as many shares of stock as it wishes but the maximum vote permitted any government is 25 percent of the total, irrespective of the sum subscribed. Each government must subscribe to at least a number of shares determined by some formula, such as, for example, 2 percent of its estimated annual national income.

4. Each member of the Bank shall be able to cast 50 votes plus one vote for each share of stock held. Thus a government owning one share shall be able to cast 51 votes, while a government having 1,000 shares can cast 1,050 votes.

5. The United Nations Stabilization Fund should subscribe to 100 shares but should be able to cast only 50 votes.

IV. Eligibility for Membership.

1. To be eligible for membership a government must:

a. Be a member of the United Nations Stabilization Fund.

b. Be at peace with member countries.

2. Any government that withdraws or is expelled from the Fund gives up its membership in the Bank.

3. Any member that is held by two-thirds of the members of the Board—not member votes—to have undertaken an act of military aggression against any other member of the Bank shall forfeit its membership in the Bank. Its holdings of stock shall be repurchased by the Bank at a price fixed by the Board, and the proceeds blocked until the Bank decides to release the funds.

V. Management.

1. The administration of the Bank shall be vested in the Board of Directors composed of one director and one alternate appointed by each participating government. Each government shall appoint its director and alternate in a manner to be determined by it. Such director shall serve for a period of three years, subject to the pleasure of his government.

2. The Board of Directors shall select a president of the Bank who shall be the chief of the operating staff of the Bank and also shall be ex-officio chairman of the Board, and one or more vice presidents. The president and vice presidents of the Bank shall hold office for two years, shall be eligible for reelection and may be removed for cause at any time by the Board.

3. The departmental organization of the Bank shall be determined by the Board of Directors. The heads of departments and other similar officers shall be appointed by the Board on the recommendation of the president. The remainder of the staff shall be appointed by the president.

4. The Board of Directors may also appoint from among its members an executive committee. A member of the Board of Directors of the Fund, elected by that Board, shall be a member of the executive committee of the Bank. The Board may at any meeting, by a four-fifths majority vote, authorize the president or the executive committee or any other committee of the Bank to exercise any specified powers of the Board; provided, however, that such powers shall be exercised only until the next meeting of the Board and shall be exercised in a manner consistent with the general policies and practices of the Board. The Board may also, by a four-fifths majority vote, delegate to designated officers and committees of the Bank, for such periods as it may determine, power to make loans and extend credit in such amounts as may be fixed by the Board.

5. The Board of Directors may appoint advisory committees chosen wholly or partially from persons not regularly employed by the Bank.

6. Except where otherwise provided, decisions of the Board of Directors shall be by simple majority of the votes cast. When deemed by the president to be in the best interests of the Bank, decisions of the Board may be made, without a meeting, by polling the directors on specific questions submitted to them in such manner as the Board shall by regulations provide.

7. Authorization or approval by two-thirds majority vote of the Board of Directors shall be required for the making and granting of intermediate and long-term loans and credits, including the assumption of the obligation of a guarantor on intermediate and long-term loans and credits; the acquisition and sale of, and dealing in intermediate and long-term obligations and securities; the discounting and rediscounting of intermediate and long-term paper; the issuance of debentures and other securities and obligations of the Bank; the selection or removal of the president, the vice presidents.

VI. Distribution of profits.

1. The yearly net profits shall be applied as follows:

a. Twenty-five percent of the profits shall be applied to surplus until the surplus shall be equal to 20 percent of the paid-in capital, after which all profits shall be distributed in proportion to shares held.

b. Profits shall be payable in local currency or gold.

c. Profits and accounts shall be recorded in terms of the New International Units. The rates of exchange between member country currencies shall be those used by the United Nations Stabilization Fund.

VII. If a member country elects to withdraw or is expelled from the Bank its shares of stock shall, if the Bank has a surplus, be repurchased at the price paid. If the Bank’s books show a loss the departing member country shall bear a proportionate share of such loss.

If a member withdraws or is dropped from the Fund, it also forfeits membership in the Bank unless four-fifths of the member votes favor its remaining as a member.

. . . . . . . . . . . . . .

26. For text of this resolution, see Department of State Bulletin, February 7, 1942, p. 127; for correspondence concerning the Third Meeting of the Foreign Ministers of the American Republics held at Rio de Janeiro, January 15–28, 1942, see Foreign Relations, 1942, vol. v.
27. Neither printed.
28. Filed separately under 800.515/494½.