NAC Files, Lot 60D137

Minutes of Meeting (No. 139) of the National Advisory Council, Washington, October 14, 1949

confidential

[Here follow list of persons present (25) and discussion of prior agenda items.]

4. Repurchase of Currencies Resulting from Fund Drawings

Mr. Willis1 pointed out that the automatic repurchase provisions of the Articles of Agreement require that countries shall devote to repurchase of their currencies from the Fund sums related to the growth of their reserves in gold and convertible currencies. Since the latter exclude most currencies, particularly sterling, and there is a further provision that there is to be no repurchase so long as reserves are lower than the quota of the particular country, there was little expectation for repurchases under these provisions in the near future. In particular, two classes of countries were following policies that almost guaranteed they would not be in a position to repurchase. The first group comprised members such as Poland, Yugoslavia, and Czechoslovakia which have directed economies and have no interest in accumulating reserves. The second group consisted of the sterling area where reserves took the form of inconvertible currencies.

Mr. Willis continued that after considerable discussion the Staff Committee agreed to recommend to the Council that a general principle be developed of supplementing the automatic repurchase provisions by a determination in the Fund Board that the Fund adopt a policy of objecting to all future dollar drawings unless the member was willing to make an agreement or give a formal commitment to repurchase its currencies within a maximum of five years. It was felt this policy could be defended in discussion in the Fund because the Articles, while they do not provide specifically for such undertakings, do not prohibit them, and the spirit of the Fund Agreement and the [Page 751] broad intentions of the Articles clearly contemplated that the Fund would not be a mechanism through which hard currencies were continually converted into soft currencies without any prospect of repayment (NAC Document No. 897 (Revised)).2

Mr. Southard said he was fully satisfied with the logic, the language, and the tactics suggested. He assumed the Council realized the proposal would be resisted by some members who honestly believed it was contrary to the spirit and intent of the Articles, and others who would resist it because they would regard it as one more effort on the part of the United States to tighten up in the Fund. It would be his intention to press for immediate discussion in the Fund and if there were any crystallization of views that might indicate that although the present formulation could not be carried, some milder form might be approved unanimously, he would report back to the Staff and the Council to discuss whether such a compromise formulation was satisfactory. He was, however, not suggesting any reservation at the present time. At the appropriate time, the Council could decide whether to insist that the present formula was the one which would guide United States policy. The present proposal had the advantage of going into the Fund and asking for consideration of the policy rather than announcing in connection with a given drawing that the United States was going to proceed in this way.

Without further discussion, the recommended action was approved unanimously.

Action. The following action was taken (Action No. 362):

The National Advisory Council advises the U.S. Executive Director on the Fund to make a statement to the Executive Board to the effect that:

(a)
In the judgment of the United States the Fund should object to all future dollar drawings unless the member proposing the drawing is willing to make an agreement or will give a firm commitment to repurchase its currency from the Fund within a maximum of five years, preferably according to a definite schedule of repayments; and
(b)
This policy is necessitated by present conditions affecting monetary reserves and currency convertibility and it should be continued as long as the Fund considers that conditions require.

The U.S. Executive Director should also point out that a repurchase commitment or agreement would not supersede the requirements of Article V, Sec. 7(b), and that the willingness of a country to enter into a specific repurchase agreement, or to make a firm commitment to repurchase, should in no case be regarded as a substitute for the fulfillment of the criteria appropriate for drawings as previously stated to the Fund in accordance with NAC Action No. 327.

[Here follows discussion of other subjects.]

  1. George H. Willis, Acting Secretary of the NAC.
  2. Not printed.