Chapter

chapter 4 Membership and Currency

Author(s):
International Monetary Fund
Published Date:
October 1985
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Currency as Criterion

It is probable that the drafters of the Articles had in mind as the norm a member with a currency of its own that was subject, at least legally, to regulation by no other country.1 One reason for withholding membership from the dependent territories referred to in Article XX, Section 2 (g), may have been the belief that most of them would not have a currency of their own or a currency that was subject to their exclusive control.

There is evidence for this hypothesis in various provisions. For example, Article XX, Section 4 (g), requires a member, when communicating to the Fund an initial par value for the currency of its metropolitan territory, to communicate simultaneously a value “in terms of that currency” for each separate currency, “where such exists,” in the territories in respect of which the member has accepted the Articles under Article XX, Section 2 (g). Under Article IV, Section 9, a member proposing a change in the par value of its currency is deemed, unless it declares otherwise, to be proposing a corresponding change in the par value of the separate currencies of all territories in respect of which it has accepted the Articles under Article XX, Section 2 (g).

Although the norm for membership in the Fund was probably intended to be a country with a currency of its own that was subject to regulation by no other country, there were departures from that norm even among the countries listed in Schedule A. In addition, the Articles recognize that a member may have no central bank of its own,2 and this also was a characteristic of some of the countries that sent delegations to the Bretton Woods Conference. The Fund has been confronted with many departures from the norm when considering applications for membership and when dealing with subsequent developments in the affairs of its members. Most of these departures have raised the question for the Fund, when considering applications, whether the applicant met the criterion of ability to perform the obligations imposed by the Articles.

No Domestic Currency

The Republic of the Sudan applied for membership on June 20, 1956. At that time the principal currency in use was the Egyptian pound, which circulated in the form of notes and coins, and British coins also were in circulation. A Sudanese currency had been established by law on June 17, 1956, but was not in circulation at the time of the application. When the Sudanese authorities applied, they informed the Managing Director that they intended to issue a Sudanese currency and that they were negotiating with Egypt on the repatriation of the Egyptian currency in circulation. In the membership committee the question was asked in July 1956 whether the absence of a domestic currency had any bearing on the application. The committee and the staff held the view that “no great importance should be attached to this matter at present,” perhaps because the Sudan was in the process of arranging to issue a currency. The Sudan became a member on September 5, 1957. The first issue of Sudanese currency, in the form of coins, had been made in January of that year.

As late as February 1956 the staff had been of the opinion that the existence of a domestic currency was a criterion for membership, and in mid-1956 it was still reluctant to abandon this opinion. The position of the staff seems to have been not that the possession of a currency indicates that an applicant is a country, but that in the absence of a currency many of the obligations under the Articles would have no relevance to an applicant. When the representatives of the Gold Coast (which became Ghana) were making informal inquiries about the requirements for membership, they wondered how the absence of a domestic currency would affect an application in circumstances in which the authorities were arranging to issue a currency. They were told that while it was certainly intended that every member would have its own currency in due course, an application could be filed and “processed to a considerable extent under present circumstances.” Ghana became a member on September 20, 1957 and issued its own currency in mid-1958.

Domestic Currency Not Main Circulating Medium

Liberia participated in the Bretton Woods Conference and therefore was eligible to join the Fund as an original member, but it did not exercise this privilege. On June 7, 1948, Liberia applied for membership under Article II, Section 2.

At one time, both British and U. S. currency circulated as legal tender in Liberia, but from the beginning of 1944 the U. S. dollar became the only foreign currency that had this status. By a statute of June 7, 1935, the Liberian dollar was established as the indigenous monetary unit and its gold content was fixed at 15 5/21 grains of gold, 9/10 fine, which at that time was the gold content of the U. S. dollar. The same statute gave the President of Liberia the authority to establish the relation of the Liberian dollar to foreign coins, and by an Executive Order of 1943 he established a relationship of equality between the Liberian dollar and the U. S. dollar. The main circulating medium was the U. S. dollar, but there was in addition a Liberian coinage in silver and copper. Liberia had no central bank. There was some disposition in the staff to advise the committee that the membership resolution should require Liberia to adopt a national currency, in accordance with the opinion that the possession of a domestic currency was a condition that an applicant must meet, but when it was discovered that there was a national currency this line of thought was abandoned.

Liberia allowed the membership resolution to lapse without taking up membership, but submitted a new application in 1961. Meanwhile, a new Code of Laws had been enacted in 1956, but in connection with the Liberian dollar and the quality of the U. S. dollar as legal tender, the provisions of the Code were in substance no more than a re-enactment of the earlier legal provisions.3 The monetary unit was declared to be the gold dollar, consisting of 100 cents and fixed in value at 15 5/21 grains of gold, 9/10 fine. Section 1171 of the Code provides as follows:

Legal tender: interchangeability of Liberian and United States dollars.—The following constitute legal tender in the Republic of Liberia for the discharge of public and private obligations: Liberian coins authorized to be minted under the provisions of section 1173 below; American coins; and the United States dollar. As long as the Liberian and United States dollars are based on the same value, Liberian coins and the United States dollar currency or coins shall be interchangeable in Liberia at the rate of one hundred Liberian cents for the United States dollar.

In studying the new application, the staff remarked that Liberia’s currency system was similar to that of Panama, and that Panama had had no difficulties in performing its obligations under the Articles. Under Law No. 84 of June 28, 1904, the monetary unit of Panama was the balboa but “the present gold dollar of the United States of America and its multiples shall be legal tender in the Republic for its nominal value, equivalent to one balboa.” According to a report written in the early years of the Fund, only a small amount of national currency had been issued and most of it had disappeared from circulation through hoarding, although statistics were kept in balboas.

The Dominican Republic, an original member, had used the U. S. dollar as the main circulating medium and had issued only silver coins in its own currency. A central bank began to operate and to issue Dominican peso notes on October 23, 1947. The monetary law creating the bank provided for the withdrawal of U. S. dollars from circulation and their replacement by pesos. The conversion took place in three periods of three months each. During the first period, dollars could be converted into pesos but holders could reconvert their pesos into dollars. During the second period, the dollar ceased to be legal tender for internal use and was not paid out for pesos. During the third period, a banking charge was made for the conversion of dollars. Residents continued to be able to hold dollar accounts but could draw on them only for payments abroad.

Liberia joined the Fund on March 28, 1962, under a second resolution. The portion of Liberia’s subscription that was not payable in gold was paid in Liberian currency and nonnegotiable, noninterest-bearing notes denominated in Liberian currency. Liberia has engaged in a number of transactions and operations with the Fund, including purchases of the currencies of other members, and when these have required transfers of the member’s own currency to the Fund they have been made in Liberian dollars. All nonnegotiable, noninterest-bearing notes held by the Fund, whether in payment of subscription or in discharge of other obligations, are accepted by the Fund on the understanding that the member will be able to encash the notes on demand. The member must have adequate arrangements, therefore, for performing the obligation to encash the notes with its own currency should this be necessary.

In the discussions of membership for Liberia in 1961 it was noted that, because the U. S. dollar was the main medium of circulation, the country’s official holdings of U. S. dollars were more in the nature of working balances. As a consequence, a gold subscription based on the normal formula of 25 per cent of quota, or 10 per cent of official holdings of gold and convertible currencies if it should be less, would result in a smaller gold subscription than the amount that would be payable if the U. S. dollar were not legal tender. It was also noted, however, that if ever the national currency became the main medium of circulation, the monetary reserves of Liberia would be greatly increased by the withdrawal of U. S. dollars from circulation. The result might be a large obligation on the part of Liberia to repurchase its own currency from the Fund with gold or the convertible currencies of other members under Article V, Section 7 (b). The Fund decided that there would be no special modification of the normal formula by which to determine the gold subscription, although the earlier resolution for Liberia had prescribed a gold subscription equal to not less than 25 per cent of quota.

Special problems arise in connection with the Fund’s operations and transactions when a member has no central bank and the currency of another member is the main circulating medium even though the member has an indigenous currency, but the Fund has never regarded these problems as hindrances to membership. For example, the volume of money and the balance of payments are directly linked to each other and it may be difficult to segregate internal and external problems, but this segregation is necessary if the member wishes to use the Fund’s resources. The Fund makes its resources available to help members “correct maladjustments in their balance of payments” and “shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members,”4 but not to provide budgetary assistance. The Fund has found it possible, however, to recognize certain problems as external. For example, the member may have to discharge heavy short-term or medium-term commitments, or there may be a decline in world prices for its main exports, or it may be entering into international understandings on the rearrangement of its foreign indebtedness, or it may need support for a program of financial stabilization. As mentioned above, Liberia has made use of the Fund’s resources, and so has Panama.

Even though the U. S. dollar is legal tender and the main currency circulating in a member country other than the United States, the member’s official holdings of dollars are regarded as part of its monetary reserves under the Articles. Monetary reserves or changes in them may affect a member’s obligations, including its obligations to repurchase its currency from the Fund under Article V, Section 7 (b). A member’s official holdings are its central holdings of convertible currencies, special drawing rights, and gold, that is, the holdings of these assets by its treasury, central bank, stabilization fund, or similar fiscal agency.5 The absence of a central bank and of holdings by the treasury and the stabilization fund does not necessarily mean that the member has no official holdings, because another bank may be deemed by the Fund to be a similar fiscal agency. In calculating the monetary reserves of Panama, the Fund has always treated the holdings of U. S. dollars by the National Bank of Panama and its branches, even though the bank is not a central bank, as the monetary reserves of Panama. The holdings of the Bank of Monrovia, which acts as the Liberian Government’s banker, have been treated in the same way in the calculation of Liberia’s monetary reserves.

The double aspect of the U. S. dollar in a country such as Liberia or Panama could produce other unusual consequences. Under Article XIX (c), the holdings of a member’s other official institutions or other banks within its territories may be deemed by the Executive Directors to be part of the member’s official holdings to the extent that they are substantially in excess of working balances. The determination of what are working balances for this purpose is made “in the light of all the facts of the individual case, and no rigid rule can be formulated for their measurement. The general idea is that a working balance is one which is necessary to meet the requirements of its owner, taking into account normal receipts and payments, for a period not unreasonably protracted.” 6 Banks in a member’s territories in which the convertible currency of another member circulates as legal tender are likely to regard their holdings of that currency as holdings of the local currency with which they conduct their normal business, and they would probably be surprised to be told that some portion of those holdings is considered by the Fund to be part of the country’s monetary reserves. The Fund, however, has never deemed any holdings to be substantially in excess of working balances under Article XIX (c).

Currency of Another Member as Domestic Currency

It has been seen that the Fund has admitted countries in which another member’s currency has circulated without being recognized as the domestic currency, and that in some, but not in all, cases the local authorities themselves have issued a domestic currency. A third group of countries, of which Botswana is an example, can be distinguished from the other two groups. In Botswana the currency of another member, the South African rand, not only circulates but is also recognized as the domestic currency of Botswana.7 Moreover, because Botswana does not share in the control of the South African rand, it can be distinguished from members that share in the control of a common currency. These members are discussed in a later section of this chapter.

Botswana became a member on July 24, 1968 under a resolution in the standard form.8 Paragraph 3 declares that the balance of the country’s subscription “shall be paid in the currency of Botswana.” Similarly, paragraph 5, which deals with the determination of an initial par value, declares that Botswana “shall communicate to the Fund a proposed par value for its currency.” Proclamation No. 73 of 1960 of the Bechuanaland Protectorate (later Botswana) provided only that the currency of South Africa would be legal tender in Bechuanaland.

The application of Botswana created no great concern about the ability of such a country to perform the obligations of the Articles in respect of the rand, because that was already the duty of the issuer of the currency. What could be expected of Botswana was that it would not frustrate South Africa’s observance of its obligations in relation to the rand, and what could be expected of South Africa was that it would not impede the use of the rand in the Fund’s transactions and operations involving Botswana.

The decision to accept Botswana as a member is not necessarily a precedent for an applicant that uses a nonmember’s currency as its domestic currency and therefore wishes to pay its subscription in that currency. The Fund is not authorized to hold a nonmember’s currency,9 but it did not consider receipt of one member’s currency from two members as troublesome because separate accounts could be maintained with the two members. Each member must designate its central bank as a depository for all of “its currency” held by the Fund, or if it has no central bank it must designate another institution that is acceptable to the Fund.10 Because Botswana had no central bank, it designated a private banking institution in its territory as the depository for the Fund’s holdings of the rand subscribed by it or deriving from its subsequent financial relations with the Fund.11

The Fund did suggest that Botswana should obtain an assurance from South Africa that Botswana would be able, without restriction or limitation, to use any rand it held to make payments to the Fund in discharge of its obligations to the Fund that were payable in its currency and that the Fund would not be impeded in the use of its holdings of rand received from Botswana. South Africa gave this assurance as to payments by Botswana, but the assurance was not legally necessary because the Fund’s right to use its holdings of any currency is made explicit in Article IX, Section 6.

The Minister of Finance of Botswana informed the Fund, in accordance with paragraph 5 of the membership resolution, that the South African rand was the currency of Botswana, and he then set forth the par value for the rand that had already been established. On August 13, 1969 the Fund adopted the following decision:

The Fund notes, in accordance with the communication of Botswana, that the South African rand is the currency of Botswana. The par value of the South African rand, as established in agreement with the Fund effective February 14, 1961, is:

1.24414grams of fine gold per South African rand;
25.0000South African rand per troy ounce of fine gold;
0.714286South African rand per U.S. dollar;
140.000U. S. cents per South African rand.

The decision did not establish a new par value under the Articles. It simply noted the one already established for the rand, whereas the normal decision on the establishment of an initial par value in 1969 would have taken the following form:

  • 1. The Government of … has proposed an initial par value for the [member’s currency]. Expressed in terms of gold and in terms of the U. S. dollar of the weight and fineness in effect on July 1, 1944, the proposed par value for the [currency] is. …
  • 2. The Fund agrees to the proposed par value.

Following the changes made by South Africa in the par value of the rand, Botswana communicated with the Fund, and the Fund adopted decisions in the following form:

The Fund notes, in accordance with the communication of Botswana, that the South African rand continues to be the currency of Botswana. The par value of the South African rand, as established in agreement with the Fund effective December 21, 1971 [October 24, 1972], is. …

The pattern established for Botswana has been applied to Lesotho and Swaziland as well, because these members also use the rand as their currency.

Two or More Currencies

When Nepal applied for membership, two currencies were in circulation within its territory. The circumstances of Nepal differed from those of the Dominican Republic, Panama, and Liberia, however, because both currencies circulated in substantial amounts and also because they did not circulate side by side. The currency issued by Nepal itself, the Nepalese rupee, circulated in the northern part of the country, and the Indian rupee circulated in the southern part. The origin of the practice has been traced back to about 1857, when trade between Nepal and British India had become substantial. To assist in this trade, coins and notes from India were allowed to circulate in Nepal. This practice was not the result of any agreement between the two countries, and no law seems to have been adopted to declare the Indian rupee legal tender. The Nepalese authorities informed the Fund that they intended to make arrangements for the Nepalese rupee to circulate as the sole currency, and it is perhaps for this reason that no question about currency was raised in the Fund’s consideration of Nepal’s application. The Government has concluded that the existence of two currencies inhibits the efficient conduct of monetary policy and control, and has been extending the area in which only the Nepalese currency circulates.12 It has taken other steps to increase the role of the domestic currency, including elimination of the right to make domestic payments in Indian rupees.13

It would have been difficult to question the effect of the circulation of two currencies on an application for membership, if only because two currencies were circulating in an original member country when it had been included in Schedule A, with the difference, however, that this phenomenon was regulated by agreement between the two issuing countries. The Economic Union of Belgium and Luxembourg was established by an agreement of July 25, 1921 that became effective on May 1, 1922 and was modified by conventions signed in Brussels on May 23, 1935 (with effect from August 6, 1935) and in London on August 31, 1944.14 The agreement of 1921 provided for the circulation of the Belgian franc in Luxembourg, but the Belgian franc was not made legal tender in Luxembourg until the agreement of 1935, which also regulated the volume and denominations of the currency of Luxembourg.

Under the agreement of August 31, 1944 and other legal instruments, the Belgian and Luxembourg francs were to have the same par values. The Government of Luxembourg undertook to conduct its monetary policy in a manner compatible with the policy of Belgium insofar as this should prove possible, although the Government of Luxembourg reserved the right to carry out this policy in a manner that might differ from the methods employed by the Belgian Government. The two countries were to constitute a single area of exchange control with laws that would contain the same provisions, although the laws would be issued separately and include definitions of the territory and residents of the legislating country only. An Exchange Institute was to be responsible for the policy and application of exchange control. The Institute would have a council of nine, of whom two would be designated by the Government of Luxembourg and one would be the Governor of the National Bank of Belgium, who would be the chairman of the Institute. By agreement between the National Bank of Belgium and the Institute, the Bank was to administer the exchange control. The activities of the Institute were to be supervised by the Minister of Finance of Belgium through an official designated by the King. This official would be authorized to suspend any decision of the Institute on the ground that it was contrary to law or to interests of state. The final approval or rejection of his decisions was to be made by the Minister of Finance. The Fund has always regarded Belgium and Luxembourg as separate members, even though it has consulted with them jointly, and it has always treated the Luxembourg franc as the currency of Luxembourg for the purposes of the Articles.

Nepal and Luxembourg are somewhat special examples of the existence of two currencies in circulation at the time when membership is assumed. The country that is ceasing to use the currency issued by a Currency Board is a more common example. On July 1, 1959, the Central Bank of Nigeria began to issue a new currency, the Nigerian pound, that was to supersede the West African pound issued by the West African Currency Board. The Board’s currency was to continue to be legal tender for a time, and the two currencies were circulating side by side when Nigeria applied for membership.

More than one currency circulated in other countries that had been parties to arrangements involving Currency Boards. When Jamaica applied for membership on June 29, 1962 it already had its own currency, which its new central bank, the Bank of Jamaica, had been issuing since May 1, 1961. Notes and coins of the British Caribbean Currency Board (Eastern Group) were still legal tender under reciprocal arrangements among the Governments of Jamaica, Barbados, British Guiana, Trinidad and Tobago, the Leeward Islands (Antigua, St. Kitts, and Monserrat), and the Windward Islands (Grenada, St. Vincent, St. Lucia, and Dominica). In addition, British coins were legal tender up to defined amounts.

In Chapter 13, there is a discussion of the amalgamation of Egypt and Syria to form the United Arab Republic, the Fund’s recognition of the United Arab Republic, and the Fund’s acceptance of certain arrangements in relation to that member and its two regions. The effect of those arrangements was to produce yet another variant of the situation in which two currencies circulate within a member’s territory. The United Arab Republic became a single member of the Fund with each region having its own currency and with the Fund continuing to hold both currencies. This situation was accepted even though the two currencies were not freely interchangeable. Egypt continued to impose the restrictions on trade with Syria and on payments and transfers to Syria that had been in existence before the amalgamation. In addition, certain free market arrangements of Syria, as a result of which no fixed relationship existed between the two currencies, were maintained after the amalgamation.

The special circumstances of the United Arab Republic developed after Egypt and Syria had become members of the Fund, and although the United Arab Republic was recognized as a new country, the Fund decided that the United Arab Republic need not apply for membership. The Fund has adapted itself flexibly to the despotism of facts and has attempted to deal with new developments in a practical manner. It is impossible therefore to assert that the Fund’s treatment of the amalgamation of Egypt and Syria to form the United Arab Republic will remain exceptional, but it may be limited as a precedent. The Fund’s willingness to hold the two currencies of a member was based on the understanding that the separate monetary systems of the two regions were being maintained only transitionally and that unification of them was foreseen. The circumstances of the United Arab Republic are distinguishable, therefore, from those of other countries, such as the Kingdom of the Netherlands, in which there is a different currency in each of its three territories.

The circumstances of the Kingdom of the Netherlands and of the United Arab Republic bring to light a textual difficulty in the Articles. The assumption of the Articles is that a member will have one currency in its metropolitan territory and that all other currencies in the territories in respect of which the member has accepted the Articles will be “separate currencies.” 15 The United Arab Republic, however, had two metropolitan currencies. Certainly, neither currency was a “separate currency” of the other region. The Netherlands originally accepted the Articles in respect of Surinam and the Netherlands Antilles under Article XX, Section 2 (g), but with the formation of the tripartite Kingdom these two territories were no longer dependencies and subject to that provision. If, however, the word “metropolitan” has the meaning of main territory, it would not apply to the overseas territories of Surinam and the Netherlands Antilles. A question might arise because the Articles provide that a member that says nothing about its separate currencies when proposing a change in the par value of its metropolitan currency is deemed to be proposing corresponding changes in the par values of the separate currencies as well.16 The problem is not severe because the question whether a proposed change was intended to apply to all currencies would produce a prompt clarification.

When the Netherlands changed the par value of the guilder in March 1961 and established a “central rate” 17 in December 1971, it stated that these actions did not affect the currencies of the Netherlands Antilles and Surinam. The Fund, in its decisions on these occasions, treated the statement as having been made under Article IV, Section 9. That provision refers to “the metropolitan currency” and “the separate currencies of all territories in respect of which it [the member] has accepted this Agreement under Article XX, Section 2 (g).” The Fund’s practice seems to have regarded the concept of separate currencies as broader and to include overseas territories that are not subject to Article XX, Section 2 (g). On one occasion the Netherlands, through its executive director, referred to the guilder as the “metropolitan” currency. Memoranda prepared in the Fund have referred to “the Kingdom of the Netherlands—Surinam” or “the Kingdom of the Netherlands—Netherlands Antilles.”

Common Currencies

Syria and Lebanon

Syria and Lebanon, two of the first four applicants for which the Fund adopted individual membership resolutions,18 possessed currencies that nominally were distinct from each other but in fact were a common currency. The notes of one country carried the word Syrie and the other Liban, but they circulated and were freely accepted in both countries. The relation between the two currencies was governed by a convention of the two Governments with the Bank of Syria and Lebanon (Banque du Syrie et du Liban), signed by the Lebanese Government in 1937 and by the Syrian Government in 1938. The terms of the convention were modified by a series of decrees issued by the French High Commissioner after the outbreak of war in September 1939 and by the French Delegate-General after the British and the Free French took control of the countries in 1941. On January 25, 1944, an agreement was reached by the Syrian and Lebanese Governments, the French Committee of National Liberation, and the British Government that dealt with the rates of exchange between the Syrian-Lebanese pound and the franc and between the Syrian-Lebanese pound and sterling, and provided that these rates were not to be changed without prior consultation with the Governments of Syria and Lebanon. By an agreement of April 18, 1944, to which the two Governments and the French Committee were parties, the management of exchange control was transferred by the French Delegation to the local governments, and its foreign exchange assets, most of which consisted of French francs, were assigned to the Bank of Syria and Lebanon. The Bank was the bank of issue and fiscal agent for both countries and held the currency reserve of the two in common. The two countries relied on France for the conversion of their holdings of francs into other currencies that were needed for overseas payments. The exchange made available in this way was apportioned by France between the two Governments, each of which managed the exchange it received from France and operated its own import and exchange controls.

A study by the staff of the Fund raised the question whether, in view of the close relationship between the monetary systems of the two countries, it was desirable that they have separate quotas, but it was concluded that they should because each had political independence. In a memorandum dated August 29, 1946, the staff advised the membership committee as follows:

From the Fund’s point of view, there is no reason to be disturbed about establishing separate quotas for the two countries. Obviously, it would be very difficult to prevent import goods from moving between the two countries so that any attempt to isolate the exchange reserves of the two countries to pay for their own consumed imports is difficult, if not impossible. That is a problem which is of more concern to the two countries than it is to the Fund. After all, separate quotas are assigned to Belgium and Luxembourg, whose currency and trade relations are as closely interwoven as those of Syria and Lebanon.

Malaya—Malaysia

Malaya, which had been established in 1948 as a federation of nine states and two settlements, became an independent state on August 31, 1957. Before that date it had been a dependency of the United Kingdom. The colonies of Singapore, Sarawak, and British North Borneo and the State of Brunei were other British dependencies. The United Kingdom had accepted the Articles in respect of all five of these dependencies in accordance with Article XX, Section 2 (g).

The Malayan dollar was the currency of the five dependencies. It had been administered from January 1, 1952 by a Board of Commissioners of Currency (the Commission) on the basis of an ordinance adopted pursuant to the Malaya-British Borneo Currency Agreement, 1950, to which the governments of the five dependencies were parties. One commissioner was the Financial Secretary of Malaya, another the Financial Secretary of Singapore, a third was appointed jointly by the other three dependencies, and two more were appointed by all five governments and did not represent any one territory. The duties and powers of the Commission could be discharged or exercised by any three commissioners. Under the Currency Agreement, the Commission had the sole right to issue currency for the dependencies. Specified assets and future receipts were transferred to the Commission as a currency fund for ensuring conversion of the currency into sterling. The assets were held in sterling with the Crown Agents in London on behalf of the Commission. If the currency fund was inadequate to meet the demands for conversion, or if it was less than the currency issue, the five governments were responsible for the deficiency in prescribed proportions. If there was a surplus, it was to go into a surplus fund in which they would share in the same proportions.

The five governments undertook by appropriate legislation to give legal effect in their respective territories to the provisions of the Currency Agreement of 1950 insofar as might be necessary. Pursuant to this obligation, Malaya adopted the Currency Ordinance, 1951. It provided that the Malayan dollar to be issued by the Commission would be legal tender in the Federation and would be equal to 2s. 4d. in sterling. The Commission was empowered to impose a levy at such rate as it might prescribe on conversions involving the Malayan dollar and sterling. At the time of Malaya’s application to become a member of the Fund, the levy was ⅛ of 1 penny, which was well within the margins for exchange transactions under the Articles.

The Commission’s functions did not include regulation of the banking or credit policies or external financial affairs of the five dependencies. The Malayan dollar was a “separate currency” of the United Kingdom. The par value for it was established by the United Kingdom in accordance with Article XX, Section 4 (g), and was changed in 1949 in accordance with Article IV, Section 9.

The problem that was considered in connection with Malaya’s application to become a member of the Fund after it attained independence was whether the Fund could be satisfied that the obligations of membership would be performed in circumstances in which Malaya’s currency was also the currency of territories that would continue to be dependencies of the United Kingdom, and in which Malaya shared control of the currency with those other territories. Malaya was not able to change the par value of the Malayan dollar or the commission levied on exchange transactions involving that currency and sterling without the consent of the other governments. Under the Currency Agreement, the Secretary of State for the Colonies of the Government of the United Kingdom supervised the activities of the Commission and was the arbitrator in “any dispute arising from the interpretation” of the agreement. Malaya seems to have assumed that this language would cover any case in which the Commission proposed to take an action in relation to the par value of the Malayan dollar or the margins for exchange transactions involving that currency that would be inconsistent with the obligations of Malaya under the Articles. Malaya suggested to the Fund, therefore, that it should request the Secretary of State to give an assurance that he would not agree to any action that would change the par value of the Malayan dollar or the margins for exchange transactions without the consent of Malaya, so that Malaya would be able to give an assurance that it was in a position to fulfill its obligations under the Articles with respect to its currency. Malaya noted that the United Kingdom had accepted the Articles in respect of the other governments participating in the Currency Agreement.

The theory advanced by Malaya, which the Fund accepted, was that the Fund could be assured that the obligations of the Articles with respect to the Malayan dollar would be observed because all the participants in the Currency Agreement had common control of the currency and were bound, directly or indirectly, to observe the obligations of the Articles. Malaya would be bound directly as a member; the other governments would be bound indirectly because of the undertaking of the United Kingdom in respect of them under Article XX, Section 2 (g). The implicit finding of the Fund that there was sufficient assurance that the obligations of the Articles would be observed, even though this involved an assumption as to the conduct of another member, was consistent with the approach that the Fund had adopted in connection with the applications of Italy, Austria, Germany, and Japan, and indeed, Austria’s application was referred to as a precedent.

Although the reasoning by which the Fund was able to be satisfied that the obligations of the Articles would be observed rested in part on the obligations that bound the United Kingdom in respect of the other four territories, the prospect that Singapore might become independent did not induce the Fund to come to a different conclusion on the eligibility of Malaya for membership. The Fund’s reaction to the application was not based on the assumption that Singapore would apply for membership when it became independent, because there could be no certainty that it would apply. The attitude of the Fund seems to have been that eligibility for membership should be determined in relation to existing and foreseeable circumstances, and if there should be complications after membership, practical solutions would be sought for them. In this attitude, there is once again an echo of the Fund’s reactions to the applications of Italy, Austria, Germany, and Japan. In the case of Malaya, it became necessary to find practical solutions because of the existence of a common currency and because of subsequent developments involving Singapore.

Malaya established a par value for its currency with effect from July 20, 1962. As a result, repurchase obligations could accrue for Malaya under Article V, Section 7 (b), as of the end of each financial year of the Fund (April 30) after July 20, 1962. It became necessary, therefore, to calculate the monetary reserves of Malaya in accordance with the provisions of the Articles.19 Sterling became a convertible currency under the Articles on February 15, 1961, and therefore the holdings of sterling by other members, including Malaya, became part of the monetary reserves of those members.20

The basic problem in calculating the monetary reserves of Malaya was to determine whether some part of the assets held by the Commission, all of which were in sterling, must be deemed to belong to Malaya. The Fund decided that the Commission was a “similar fiscal agency” of Malaya,21 from which it followed that some part of its holdings constituted the monetary reserves of Malaya, but the problem then was to determine the proportion. Malaya proposed that the proportion should be determined in accordance with the formula in the Second Schedule of the Malaya-British North Borneo Currency Agreement, 1960, which had taken effect on January 1, 1961.

The formula, which could be varied with the unanimous approval of all participating governments, involved the deduction from the Commission’s holdings of an amount equal to the proportion of the currency in circulation in Brunei, North Borneo, and Sarawak to the total circulation, and then a division of the balance between Malaya and Singapore in accordance with a prescribed mode of calculation. The purpose of the formula was to determine the rights and obligations of the five participating governments, including their shares of surplus income or of liabilities, resulting from the operations of the Commission. These determinations were made for each fiscal year, which ended on December 31, in order to allocate the surplus income or the deficiencies resulting from the operations of the Commission, and at other times for other purposes. The Fund decided that in calculating the monetary reserves of Malaya it would apply the latest determination that had been made under the formula for any purpose under the Schedule.

A similar solution was adopted for another aspect of the calculation of monetary reserves. Before the amendment of the Articles on July 28, 1969, a deduction was made in the calculation of a member’s monetary reserves in respect of its “currency liabilities,” i.e., the holdings of the member’s currency by the official institutions of, and banks in, other member countries.22 Were the liabilities to all of these holders of Malayan dollars to be regarded as currency liabilities of Malaya? A deduction of that amount would have been unjustifiable, and therefore the formula for apportionment that was applied to determine Malaya’s holdings was applied in order to arrive at its currency liabilities as well.23

A member’s holdings of an inconvertible currency are not part of its monetary reserves as defined by the Articles, but the Fund requests information on these holdings for statistical purposes.24 The Fund’s opinion was that Malaya’s balances of Malayan dollars held in Singapore should be entered in the reports to the Fund as holdings of foreign exchange. The Malayan dollar was the currency of Malaya, but it was also the currency of Singapore, and in Singapore was held as the currency of that territory. This view led to the result, when the United Kingdom accepted the obligations of convertibility under the Articles for sterling and for the separate currencies of all territories in respect of which it had accepted the Articles under Article XX, Section 2 (g), that the Malayan dollar as the currency of Singapore became a convertible currency under the Articles whereas the Malayan dollar as the currency of Malaya remained an inconvertible currency. One consequence of the first part of this proposition was that the holdings in Singapore of Malayan central institutions were included in Malaya’s monetary reserves for the purposes of the Articles.

The later history of the Malayan dollar under the Articles continued to produce novel developments. In accordance with the Central Bank (Malaya) Ordinance, 1958, the Central Bank of Malaya (Bank Negara Tanah Malayu) began to operate on January 26, 1959, but it was not responsible immediately for the issue of currency in the Federation. That function remained with the Commission for the time being. On September 16, 1963, the Federation of Malaysia, consisting of Malaya, Singapore, Sarawak, and British North Borneo (Sabah), came into being. At that point, therefore, the Malayan dollar ceased to be a separate currency of the United Kingdom in respect of any of these territories, although it continued to have that status in respect of Brunei. The Currency Agreement of 1960 became an agreement between Malaysia and Brunei. On August 9, 1965, Singapore ceased to be one of the states of Malaysia and became a separate independent state, but the common currency arrangements continued in operation. Under Section 9 of the Constitution and Malaysia (Singapore Amendment) Act, 1965, Singapore became an independent member of the Commission under the Currency Agreement, which therefore consisted of Malaysia, Brunei, and Singapore. Thereupon, the Malayan dollar became at the same time the currency of a member (Malaysia), of a nonmember (Singapore), and of a territory in respect of which the United Kingdom had accepted the obligations of the Articles (Brunei).

Singapore applied for membership in the Fund immediately after it became independent, and assumed membership on August 3, 1966. The Commission ceased to have any functions in connection with the issue of currency from June 12, 1967, from which date Malaysia, Singapore, and Brunei were to have their own currencies—the Malaysian dollar, the Singapore dollar, and the Brunei dollar. The three parties entered into an agreement under which their currencies would be freely interchangeable at par.25 Singapore paid its currency subscription in Singapore dollars after establishing a par value for the currency with effect from June 12, 1967. The old Malayan dollar ceased to be legal tender in any of the countries on January 16, 1969.

Tanganyika—Tanzania

The precedent of the membership of Malaya was followed without difficulty in connection with the application of Tanganyika, which later became Tanzania. Tanganyika, Kenya, Uganda, Aden, and Zanzibar were all territories in respect of which the United Kingdom had accepted the obligations of the Articles under Article XX, Section 2 (g). The East African shilling, for which the East African Currency Board was the issuing authority, circulated freely in all five territories.26 Membership of the Board had been changed in 1960 from British Government representatives to the Secretary-General of the East African Common Services Organization, officials of the five territories, and a technical expert. There were common market arrangements and many common services for Tanganyika, Kenya, and Uganda. It was difficult to arrive at an estimate of the balance of payments of each with the world beyond the common market. The Board had in recent years exercised some functions of a central banking character. Tanganyika had no central bank and no independent reserves. When Tanganyika applied for membership in the Fund on August 16, 1961, no question was raised about the applicant’s ability to perform the obligations of the Articles. Had there been any question, there is no doubt that it would have been resolved by invoking the continuing responsibility of the United Kingdom under the Articles for the other four territories.

Tanganyika became a member of the Fund on September 10, 1962. At that date, therefore, its currency was the currency of a member and of four territories in respect of which the United Kingdom had accepted the Articles under Article XX, Section 2 (g).

Uganda attained independence on October 9, 1962 and Kenya on December 12, 1963. Uganda became a member of the Fund on September 27, 1963 and Kenya on February 3, 1964. On October 9, 1962, therefore, the East African shilling became the currency of a member (Tanganyika), a nonmember (Uganda), and territories to which Article XX, Section 2 (g), applied. From September 27, 1963, the shilling became the currency of two members and of territories to which Article XX, Section 2 (g), applied. On December 9, 1963, Zanzibar became independent. With the independence of Kenya on December 12, 1963, the shilling became the currency of two members (Tanganyika and Uganda) and two nonmembers (Kenya and Zanzibar), and then, when Kenya joined the Fund on February 3, 1964, the currency of three members and one nonmember. Tanganyika and Zanzibar combined to form a single country and a single member of the Fund on April 26, 1964, with the name of United Republic of Tanganyika and Zanzibar, which was changed later to United Republic of Tanzania.27 The currency continued to circulate in Aden until July 1965, when Aden joined the currency system of the Federation of South Arabia.

This kaleidoscopic history of the status of the East African shilling caused no complications in relations with the Fund, even though it became necessary for all three members to make payments to the Fund in that currency. Although a currency subscription is not exigible until an initial par value is established, the currency portion of an increase in quota must be paid even though the original subscription has not yet been paid.28 Under the resolutions of the Board of Governors resulting from the fourth quinquennial review of quotas, one of the conditions precedent to the increase in a member’s quota was that it had paid its increase in subscription.29 Tanzania, Uganda, and Kenya received increases in quota from $25 million to $32 million under the First Resolution, and were required therefore to pay 75 per cent of the increase in currency and 25 per cent in gold. All three paid the currency subscription on the basis of a provisional rate of exchange that was equal to the official rate for the East African shilling. These payments were made into separate accounts of the Fund established with the East African Currency Board in Nairobi, which had been designated by the three members as the depository for the Fund’s holdings of their currencies.

On June 10, 1965 the three states announced that they intended to establish their own central banks. The Bank of Tanzania began to operate in December 1965 and to issue a new currency, the Tanzania shilling, on June 14, 1966. The Bank of Uganda and the Central Bank of Kenya began to operate and to issue their new currencies, the Uganda and the Kenya shillings, in August and September 1966, respectively. The statute of each central bank provided that the notes and coins that had been legal tender before the statute became effective were to remain legal tender until action was taken by the finance minister, in consultation with the central bank, to direct that some or all categories should cease to have the quality of legal tender. Until that action was taken, the notes and coins would be exchanged by the bank on demand at par and free of charge. After the declaration that the notes and coins were to cease to be legal tender, they were to be exchanged in accordance with the procedure that the bank, with the approval of the minister, should determine. By a joint decision of the three states, the notes of the East African Currency Board ceased to be legal tender on September 14, 1967, but its coins continued to circulate as legal tender thereafter.

Par values for the currencies of Tanzania, Uganda, and Kenya were established under their membership resolutions by decisions of the Executive Directors adopted respectively on August 3, August 12, and September 9, 1966, with effect respectively from August 4, August 15, and September 14, 1966. In each case, the par value was 1 shilling equals 0.124 414 gram of fine gold, or $0.14. These par values were the same as the official rate for the East African shilling.

In accordance with the Treaty for East African Cooperation that was signed on June 6, 1967, the East African Community came into being on December 1, 1967.30 The treaty establishes common institutions, including a common market, and calls for the harmonization of monetary policies. The governors of the three central banks must meet at least four times in each year to consult, and to coordinate and review their monetary and balance of payments policies. Although each partner state maintains its own currency, they constitute in fact a joint monetary area. Initially, the banknotes of all three partners circulated freely throughout their territories and were accepted by the public at par. In addition, each partner undertook to exchange the notes of the others, and to effect remittances expeditiously at par without charging any commission.31 All bona fide payments for current transactions as listed in the treaty were to be made freely among the three countries.32 Payments and transfers of capital also were to be free except to the extent that a partner state might consider that the control of some of them was necessary for furthering its economic development and an increase in trade consistent with the aims of the Community, but the exercise of this exceptional power was subject to certain safeguards. The free regime for payments among the three countries began to erode in 1970 and had largely disappeared by the end of 1972.

Even when the relations among Tanzania, Uganda, and Kenya in trade and payments, as well as in other matters, were at their closest, the three countries were treated as separate members of the Fund in all respects. At all times, they have been distinct from each other in their relations with the Fund and have been regarded by the Fund as distinct in their relations with each other and with the rest of the world. For example, all three members have availed themselves of the transitional arrangements of Article XIV, and the Fund has consulted with them separately under Section 4 of that Article both before and after they adopted separate currencies.

CFA Franc

The applications of Togo on July 8, 1960 and Senegal on December 16, 1960 created new problems. These countries, together with Mali, Mauritania, Ivory Coast, Dahomey, Niger, and Upper Volta, were formerly part of French West Africa. They had a common currency, the CFA franc. Five banks issued CFA francs in various parts of the world, and the CFA franc issued by each bank was legal tender within the area served by the issuing bank. The eight countries had a common central bank, the Central Bank of West African States (Banque Centrale des Etats de l’Afrique de l’Ouest), which was established by a decree signed by the President of France on April 4, 1959. The board of directors of the Central Bank consisted of 16 members, of whom France appointed 8 and the participating countries 1 each. The president of the Bank was appointed by the President of France acting in his capacity as President of the (French) Community. The CFA franc was convertible into French francs at a fixed rate of exchange. The foreign exchange reserves of the participating countries were held in French francs by the Central Bank, which did not publish data showing whether the reserves and liabilities were allocated to the participants. Payments and receipts in foreign currency were settled through an operations account of the Bank with the French Treasury.

Some of the countries of former French West Africa had concluded individual agreements of economic and financial cooperation with France after attaining independence. The Federation of Mali, which had been formed by the Republics of Senegal and (French) Sudan and had come into existence on April 4, 1959, had entered into an agreement with France (on June 22, 1960), but Togo had not. Under the agreement, the Federation was to be completely independent in economic and financial matters and free to enter into trade, tariff, and financial agreements with other countries. It was to remain part of the French franc area and of the West African Monetary Union, and was to coordinate its international economic and financial policies with the other members of the franc area. The Federation was to apply the restrictive system of the franc area, but might make changes in consultation with France. The Federation’s receipts in foreign currency were to be paid into the common currency pool of the franc area, from which it would be able to draw the foreign exchange needed for making payments. For these purposes, the Federation maintained an account with the French Exchange Stabilization Fund, to which supplementary allocations might be made from the pool by agreement with France if the earnings of the Federation were inadequate. The CFA currency issued by the Central Bank of West African States was to remain legal tender. A Franco-Mali committee would make periodic reviews of all problems arising under the agreement.

The Federation was to be free to establish its own monetary system and its own central bank if it wished. If either the Federation or France decided to terminate the monetary arrangements, the two countries would consult in order to reach agreement on new arrangements. Article 25 of the agreement provided that the exchange rate between the currency used by the Federation and the French franc could be changed only with the consent of both parties, and France undertook to consult the Federation before changing the exchange rate between the French franc and other currencies and to negotiate with the Federation the measures that were appropriate for safeguarding the Federation’s interests.

The Federation of Mali was dissolved, but, by an exchange of letters in September 1960 between the President of the Council of the Republic of Senegal and the Prime Minister of France, it was agreed that “in accordance with the principles of international law on the succession of States, the Republic of Senegal, in matters concerning it, succeeds to the rights and obligations arising from the cooperation agreements of June 22, 1960 between the Republic of France and the Federation of Mali, without prejudice to such adaptations as may by mutual agreement be considered necessary.”

The staff felt that the eligibility of Malaya for membership was not a precedent. The Fund could be assured that the obligations of membership would be observed with respect to Malaya’s currency because it would be controlled by two members, Malaya and the United Kingdom. The currency of Togo, however, circulated in a number of other territories that were becoming independent, but not all of them, or even a majority of them, were applying for membership at the same time as Togo.

The question, therefore, was whether there was another way in which the Fund could be assured that Togo would be able to perform the obligations of membership, but the inquiry was narrowed down to the obligation to maintain rates of exchange for the CFA franc in accordance with the Articles. The Fund sought some understanding that the actions of France would strengthen the ability of the applicants to perform their obligations with respect to exchange rates notwithstanding cessation of the responsibility of France for them under the Articles, but without imposing obligations on France that in law would be obligations of the applicants once they became members. A formula was agreed in connection with the application of Togo according to which the French Ministry of Finance assured the Managing Director of the Fund, in a letter of January 30, 1961, that

… the currency of Togo, the Government of which country has expressed a desire to become a member of the Monetary Fund, is the CFA franc. This currency, which circulates in other African countries belonging to the franc area, is issued by institutes of issue the competence of which extends to several groups of countries.

The present policy of the French Government is to allow free conversion of CFA francs to French francs by the institutes of issue, the established par values being respected. The French Government considers it desirable that this policy continue in application to the CFA francs issued by the Banque des Etats de l’Afrique de l’Ouest, which are in circulation in Togo.

The staff concluded that an assurance formulated in this way was not necessary in connection with Senegal. A comparable assurance existed in the agreement for cooperation between France and the Federation of Mali, particularly in the provisions on the convertibility and exchange rates of the CFA franc circulating in the Federation, together with the understanding between France and Senegal that Senegal had succeeded to the rights and obligations of the Federation under the agreement.

On May 12, 1962, Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta signed a treaty establishing the West African Monetary Union, a common currency, and a common central bank. The old Central Bank was liquidated on October 31, 1962 and replaced by another bank with the same name but with more extensive responsibilities and a different organization. On the same date, the countries signed an agreement for cooperation with France. All the signatories except Mali, but with the addition of Togo, ratified the treaty and the agreement. It was agreed that the treaty creating the monetary union and the common central bank would not necessarily be abrogated if the agreement for cooperation should be terminated.

Each member of the Union designates two directors to the board of the new Central Bank and France designates seven, so that the voting power of France is reduced from one half to one third. A president is elected from among the directors appointed by the member countries. Most decisions are taken by a simple majority, but for some important decisions a majority of two thirds is required. For amendment of the Central Bank’s statute, a unanimous decision is necessary.

The parties to the treaty agree to adopt uniform rules on currency, banking, exchange control, and the organization and distribution of credit. They have granted the exclusive privilege of issuing currency to the Central Bank, and the notes issued in each member state of the Union are legal tender in all. The notes carry an identifying letter that enables the Bank to determine the amount of each country’s currency in circulation, but coins are not identified by country. The CFA franc continues to be the common currency, and France continues to ensure its convertibility into French francs through an operations account in the name of the Bank in the books of the French Treasury. The definition and par value of the CFA franc are not to be changed without agreement among all members of the Union and France. Members undertake to adopt appropriate measures to pool the foreign assets of the Union in the operations account. The external reserve position of each country is recorded through the operations account, and a country pays interest if its imputed share of the Central Bank’s foreign reserves is negative. The Bank may require any public or private institution in the member states to surrender to it, against CFA francs, foreign assets in French francs or in other currencies when the deposits in the operations account are exhausted. The Bank may confine the surrender to countries that are in deficit in the external transactions that they conduct through the operations account. Overdrafts on the operations account are possible. Under the treaty or the agreement, various financial controls must come into play on the basis of the condition of the operations account.33

During the period 1960–63, each of the seven members of the Union signed an agreement for financial, monetary, and economic cooperation with France. These agreements provide for continued membership in the French franc area and application of the area’s basic exchange regulations, as well as for the coordination of commercial and financial policies in relations with countries outside the franc area. Each country is free to adapt the basic exchange regulations to its own needs and to enter into financial and commercial agreements in its own behalf, although settlements with countries outside the French franc area would continue to be channeled through the Paris exchange market. “Membership in the French franc area had three implications for the bceao countries that were confirmed by the terms of the cooperation agreements, although not explicitly stated in every agreement: a fixed exchange rate between their own currency and the French franc, unlimited access to French francs, and freedom of transfer between France and these countries.” 34 Some of the bilateral agreements were made before and some after the multilateral agreement of May 12, 1962 between France on the one hand and the seven members of the Union on the other hand.

The multilateral treaty and other agreements provide for a strengthened central control by the members of the Union over their currency, with the continuation of considerable reliance on the support of France. The Central Bank began operations on November 1, 1962.

Togo became a member of the Fund on August 1, 1962 and Senegal on August 31, 1962, but the new arrangements of May 1962 could not have been taken into account when the Fund decided in favor of the applications. The Executive Directors took their decisions on September 6, 1961 to recommend that the Board of Governors adopt membership resolutions for both applicants. By September 10, 1963 all seven parties to the new arrangements had become members of the Fund. At the present time, therefore, it would be possible to apply the “Malayan” theory to the common currency of the Union, but the theory was not applicable when the Fund took its decisions.

Cameroon, the Central African Republic, Chad, Congo (Brazzaville), and Gabon shared a common central bank, the Central Bank of Equatorial African States and Cameroon (Banque Centrale des Etats de l’Afrique Equatoriale et du Cameroun), and a common currency, the CFA franc issued by that Bank, when they applied for membership in the Fund. The arrangements among these countries and with France were substantially similar to those that have been described for the seven countries that were formerly part of French West Africa. The board of the Bank consists of 16 directors. France appoints 8 directors, Cameroon 4, and the other four countries appoint 1 director each.35 The two groups of countries followed different procedures in relation to membership. The applications of the seven were not before the Fund at the same time, but the five did apply at times that enabled the Fund to deal with the applications collectively, and all became members on the same day, July 10, 1963. The “Malayan” theory could have been applied to the five.

Some Other Common Currencies

A currency circulated in more than one country as the result of currency board arrangements in parts of the sterling world. For example, when Sierra Leone applied for membership its currency was the West African pound issued by the West African Currency Board, which was established in 1912 “to provide and control the supply of currency” to the then British West African territories and to ensure the convertibility of the currency into sterling. At the time of the application by Sierra Leone, the West African pound circulated mainly in that country and The Gambia but had been replaced, except for substantial amounts of coin, in Nigeria and Ghana. These arrangements provoked no comment in the consideration of Sierra Leone’s application, but it was known that the country was considering the establishment of its own currency authority to replace the Currency Board in Sierra Leone.36

1

“Mr. Speaker, the issue by this country of its own currency will be one of the more significant marks of its attainment of full nationhood.” —Statement by the Minister of Finance in the Gold Coast Legislative Assembly on April 5, 1955, Report of the West African Currency Board for the Year Ended 30th June, 1955 (London, 1955), p. 10.

“Money is an institution of municipal law. It is the product of the ‘jus cudendae monetae belonging to the supreme power in every state,’

“The State’s undeniable sovereignty over its currency is traditionally recognized by public international law; to the power granted by municipal law there corresponds an international right to the exercise of which other States cannot, as a rule, object. As the Permanent Court of International Justice has said, ‘it is indeed a generally accepted principle that a state is entitled to regulate its own currency.’ Money, like tariffs or taxation or the admission of aliens, is one of those matters which prima facie must be considered as falling essentially within the domestic jurisdiction of States (Art. 2(7) of the Charter of the United Nations).”—F. A. Mann, The Legal Aspect of Money: With Special Reference to Comparative Private and Public International Law, 3d ed. (Oxford, 1971), p. 485. (Hereinafter referred to as Mann, Legal Aspect of Money.)

2

Article V, Section 1; Article XIII, Section 2 (a).

3

Liberian Code of Laws of 1956: Adopted by the Legislature of the Republic of Liberia, March 22, 1956 (Ithaca, Cornell University Press), Vol. III, Title 35, Chap. 45.

4

Article I (v) and (vi).

5

Article XIX (b).

6

Decision No. 298-3, April 14, 1948, Selected Decisions, p. 123.

7

Cf. Mauritania’s application to join the United Nations. The application was opposed by Morocco on the ground that Mauritania was not independent and, notwithstanding the temporary military occupation to which it had been subject, had always been part of Morocco. Part of the evidence adduced by Morocco was that until 1912 only the currency of Morocco circulated in Mauritania.—UN General Assembly, Official Records, 15th Session, 1st Committee, 1109th Meeting, November 15, 1960, p. 131.

Mauritania was admitted to the United Nations on October 27, 1961. It applied to join the Fund on October 15, 1962, and the Board of Governors adopted a membership resolution that became effective on May 31, 1963. See Resolution No. 18-6, Summary Proceedings, 1963, pp. 239–41.

8

Resolution No. 22-7, adopted by the Board of Governors effective September 29, 1967, Summary Proceedings, 1967, pp. 269–71.

10

Article XIII, Section 2 (a).

11

The rand might be received by the Fund in discharge of repurchases by other members, and the Fund would have to decide to which account the receipts should be credited.

12

Arturo Y. Consing, “The Economy of Nepal,” Staff Papers, International Monetary Fund, Vol. X (1963), pp. 519–21. B. P. Shreshtha, An Introduction to Nepalese Economy (Kathmandu, 1962), pp. 159–80. Y. P. Pant, Central Banking in Nepal (Kathmandu, 1968), pp. 3–4. (Hereinafter referred to as Pant, Central Banking in Nepal.)

13

Pant, Central Banking in Nepal, p. 3. Nepal Rastra Bank, Annual Report, 1966–67, p. 23.

14

A further agreement, which was substituted for the earlier agreements, was signed in Brussels on January 29, 1963 and came into force on August 1, 1965 (547 U. N. T. S. 124–63).

15

Article IV, Section 9; Article XX, Section 4(g). The statement does not mean that there must be a “separate” currency in each of the territories subject to Article XX, Section 2 (g), because the metropolitan currency may circulate in them. But a question may arise if, for example, the currency is overprinted with the name of a territory and in that form is legal tender only there.

17

Decision No. 3463-(71/126), December 18, 1971, Selected Decisions pp. 12–15.

18

Resolutions Nos. 1-7 and 1-5, adopted by the Board of Governors effective October 2, 1946, Summary Proceedings, 1946, pp. 47–49, 51–52.

19

Article XIX (a) and (d).

20

Article XIX (a) and (b).

21

Article XIX (b). Decision No. 298-3, April 14, 1948, Selected Decisions, p. 122.

22

Article XIX (e) of the original Articles: “A member’s monetary reserves shall be calculated by deducting from its central holdings the currency liabilities to the Treasuries, central banks, stabilization funds, or similar fiscal agencies of other members or non-members specified under (d) above, together with similar liabilities to other official institutions and other banks in the territories of members, or non-members specified under (d) above. To these net holdings shall be added the sums deemed to be official holdings of other official institutions and other banks under (c) above,” See Joseph Gold, The Reform of the Fund, IMF Pamphlet Series, No. 12 (Washington, 1969), pp. 35–39. (Hereinafter referred to as Gold, Reform of Fund.)

23

The holdings of a member’s currency by the official institutions of, and banks in, other member countries were currency liabilities in the calculation of the member’s monetary reserves even though its currency was not convertible under the Articles.

24

See also Article XIX (g).

25

The Fund was notified, by a letter of the Minister of Finance of Malaysia dated June 6, 1967, that the joint statement was issued on June 5, 1967 in the names of the Governments of Malaysia and Singapore, together with copies of the letters that were exchanged between the Governor of the Bank Negara Malaysia and the Chairman of the Board of Commissioners of Currency, Singapore, to implement the free interchange-ability of the new currencies that were to be issued from June 12, 1967. The Fund was notified on May 9, 1973 that the agreement for the free interchangeability of currencies between Malaysia and Singapore was terminated. A similar notification was received by the Fund on May 24, 1973 that the arrangement for interchangeability between Malaysia and Brunei was terminated as of May 22, 1973. The agreement on interchange-ability between Singapore and Brunei is, however, still in effect (as of the end of 1973).

26

Joachim W. Kratz, “The East African Currency Board,” Staff Papers, International Monetary Fund, Vol. XIII (1966), pp. 229–53.

27

See Chap. 13 below.

28

Article III, Section 4 (a).

29

Par. 10 of a report of the Executive Directors to the Board of Governors entitled “Increases in Quotas of Members—Fourth Quinquennial Review,” and par. 5 of Resolution No. 20-6, adopted effective March 31, 1965, Annual Report, 1965, pp. 125, 131.

30

J. Kodwo. Bentil, “The Legal Framework and the Economic Aspects of the East African Common Market,” Journal of Law and Economic Development, Vol. IV (1969), pp. 27–47. See also International Monetary Fund, Surveys of African Economies, Vol. 2 (Washington, 1969), pp. 12–34. (Hereinafter referred to as Surveys of African Economies.)

31

Art. 24 of the treaty provides that the Finance Council may authorize the central banks to levy a charge to meet the cost of transferring currency to the partner state of origin, but no charge has been levied.

32

The list is included in Annex VII to the treaty, which sets forth 27 categories. Consistency can be ensured with Article XIX (i) of the Fund’s Articles, which contains, “without limitation,” four general categories, because Art. 25 (3) of the treaty provides that the East African Authority “may from time to time by order amend or add to Annex VII.”

33

For a more detailed account, see Surveys of African Economies, Vol. 3, pp. 71–78, 84–96, 125–42.

34

Ibid., p. 126.

35

Surveys of African Economies, Vol. 1, pp. 14–19.

36

Rwanda and Burundi at the time of their applications shared the Rwanda-Burundi franc, first issued on September 22, 1960. The monetary union was dissolved in 1964 and separate central banks, each issuing a national currency, were established. See Surveys of African Economies, Vol. 5, pp. 278, 408–409.

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