Dear Ed [Ritchie], I am attaching hereto two copies of a rather long memorandum summarizing the Article VIII-Article XIV discussions in the Fund Board.

Yours sincerely,

L. Rasminsky

Confidential
[Ottawa], June 14, 1955

Under Article VIII of the Fund Agreement, members undertake, subject to specified exceptions, not to impose restrictions on the making of payments and transfers for current international transactions without the approval of the Fund. This Article also prohibits the use of discriminatory currency arrangements or multiple currency practices, except as authorized by the Agreement or approved by the Fund.

A major exception to the above obligations is contained in Article XIV which provides that in the postwar transitional period members may maintain and adapt to changing circumstances their restrictions on current payments and transfers. Additionally, members whose territories were occupied by the enemy may, under this Article, introduce new restrictions on their payments. It is, however, laid down that members availing themselves of these transitional arrangements shall withdraw their restrictions as soon as they are satisfied that in their absence they will be able to settle their balance of payments in a manner which will not unduly encumber their access to the resources of the Fund. Thus, the criterion for the continued maintenance of restrictions under Article XIV is the balance of payments position of the member concerned.

The great majority of Fund members are still availing themselves of the Article XIV transitional arrangements. A few, such as the U.S., Canada, and certain Latin American countries whose currencies are convertible, have accepted the full obligations of Article VIII. The currencies of members who have accepted Article VIII are regarded by the fund as convertible, whereas those of Article XIV countries are regarded as inconvertible. Apart from this, the most important difference between the régimes under the two Articles is that under Article VIII the prior approval of the Fund must be obtained for the introduction of restrictions, whereas under Article XIV members may adapt and change their restrictions, being obliged only to consult with the Fund. Whereas the criterion for the maintenance of restrictions under Article XIV is the member's balance of payments position, the criterion for approval of the restrictions under Article VIII is not spelled out in the Agreement and depends on the purposes of the Fund, particularly the establishment of a multilateral system for current payments.

With the general improvement in the world's payments situation in recent years, and with the approach of sterling and certain other European currencies to general convertibility, questions arise as to the appropriateness of such countries remaining under Article XIV, whether the transitional period as such could be ended, and as to the policies and practices to be followed by the Fund when additional countries make their currencies generally convertible and come under Article VIII.

The various issues involved in the possible movement of a number of important Fund members from inconvertibility to convertibility for their currencies and from the régime of Article XIV to that of Article VIII were discussed in the Fund Executive Board on June 8, 1955, taking as a point of departure the most recent staff paper on the subject, (SM/55/35, a copy of which is attached together with a related legal paper setting forth the comparative obligations of members under Articles VIII and XIV).? Special significance is attached to this discussion not only because of the possibility of early moves to convertibility by the U.K. and certain European countries, but also because entry into force of important provisions of the revised GATT (annual consultation on trade restrictions and exceptions to the rule of non-discriminatory trade) is tied to the assumption of Article VIII responsibilities in the Fund by members accounting for 50% of world trade. (Since Canada and the U.S. which account for over 27% of world trade are already under Article VIII the 50 per cent figure would be reached if the obligations of Article VIII were assumed by the U.K. and one other country). Moreover, the right to impose discriminatory trade restrictions under the new GATT is tied almost exclusively to restrictions on payments and transfers permitted by the Fund under either Article XIV or Article VIII.

In considering the question of the transition of members from Article XIV to Article VIII, the Fund staff rejected two extreme possibilities. First, the wholesale transfer of all members to VIII, which would involve the approval under VIII of a high proportion of restrictions now maintained under XIV, and, on the other hand, a strict policy of admitting to Article VIII only members whose currencies have been made convertible in the truest sense of the word, i.e. countries which have completely liquidated their exchange restrictions and discrimination. The reasons leading the staff to reject these two possibilities are set forth on pages 3 and 4 of the attached paper, SM/55/35.

As a practical programme of action, the staff proposed that on the introduction of general convertibility for their currencies, such countries as the U.K. should immediately come under Article VIII with the exchange restrictions remaining in their system at that time. They would be given a specified period in which to eliminate such remaining restrictions, which in the meantime would enjoy the temporary approval of the fund under Article VIII. According to staff thinking on the subject, the specified time period could be either uniform for the various countries becoming convertible or vary from country to country depending on circumstances. To help in the process of removing the remaining restrictions, the Fund resources would be available to members. At the end of the period the new Article VIII country would be expected to have eliminated its restrictions on the convertibility of its currency among members of the Fund for current transactions. (Note that this would appear to rule out Swiss-type convertibility).

A number of countries, particularly the Netherlands and Belgium, fear that in moving to convertibility and Article VIII, their position would be prejudiced, particularly from the trade point of view, by the right which inconvertible countries remaining under Article XIV would continue to enjoy in changing their exchange restrictions without the necessity of obtaining prior Fund approval, or put another way that the inconvertible countries would take the occasion to discriminate against them. To meet these fears, the staff envisaged some strengthening of existing policies and procedures in relation to Article XIV countries which would encourage the remaining Article XIV countries to eliminate their restrictions so far as possible consistent with their balance of payments position. In this connection, use might be made of that part of Article XIV which permits the Fund to make a formal "representation" to a member that conditions are favourable for the withdrawal of its restrictions.

The discussion in the Executive Board may be summarized under two main headings: (a) timing and procedure of the move from Article XIV to Article VIII, and (b) policy to be followed in approving restrictions under VIII. These subjects are dealt with in the following paragraphs. At the end of the paper an attempt was made to indicate the areas of agreement established and the probable direction of future discussions. This latter section also covers certain points which came up in private talks of Rasminsky with various Board members after the meeting.

U.S. Position

Southard indicated his sympathy with the staff view that the advent of convertibility for sterling and other currencies should be the signal for a new Fund policy vis-à-vis its members. However, if this hoped for development were to be long delayed he considered that something would in any case have to be done to overcome the anomaly that some Fund members were under Article VIII and others continued under a different régime, which could no longer be justified on the basis of postwar difficulties. He agreed that at the time of convertibility the countries concerned would not be in a position simultaneously to do away with all their remaining restrictions and discrimination. He, therefore, agreed that a transitional period of limited duration should be provided in which such restrictions would be eliminated. He was of an open mind whether this transitional period should be under Article XIV or whether on C-day countries should, as the staff proposed, come under Article VIII. He expressed two main doubts about the staff proposals. Firstly, they did not look to a definite termination of the Article XIV transitional period and secondly, the proposals would continue the differential treatment with respect to restrictions as between convertible (VIII) and inconvertible (XIV) countries. While he agreed that some differentiation was inevitable, he felt that the staff paper went too far in the direction of leaving countries under Article XIV for an indefinite period - a position which might prejudice the willingness of stronger countries to make their currencies convertible and come under Article VIII. In this connection, he proposed that consideration should be given to ways and means of ending the transitional period, including study of the legal issue involved. It might not be possible to set a date related to the introduction of convertibility for certain currencies, but the Fund should be able to look forward to the definite end of the traditional arrangements in the not too distant future.

Canadian Position

Rasminsky suggested that in general the Fund's attitude to the problems before it should be conditioned by the desire to attain the objective of multilateralism and to serve the interests of its members. He agreed that it was realistic to assume that on the introduction of legal convertibility the countries concerned would still be maintaining a body of restrictions and discrimination. For this reason, he was in favour of a transitional or grace period of specified and short duration, during which the Fund would expect such members to liquidate their remaining discrimination and restrictions (except for such nominal restrictions as the Fund could properly approve under Article VIII). The Fund should be prepared to make its resources available to aid in this process. At the end of the prescribed period there should be no substantive restrictions on the convertibility of the currencies of the countries concerned among members of the Fund so far as current transactions were concerned. It this connection, he questioned the staff view that after convertibility there might be special problems in the early elimination of regional discrimination since once currencies were convertible it was, from a payments standpoint, a matter of indifference where imports came from and the sensible thing would be to buy from the cheapest source. Rasminsky disagreed with the staff suggestion that the transitional period should take place under VIII. He believed that during the prescribed period the convertible countries should remain under XIV, and when their restrictions had been eliminated at the end of the period they should come under VIII - thus Article VIII would be reserved for countries whose convertibility was real. The alternative policy would mean diluting Article VIII which contains the essence of the rule of multilateral payments. Moreover, if countries were brought under VIII with their present restrictions and discrimination, dangerous precedents of approval for such restrictions would be set. Finally, technical difficulties would arise in connection with repurchase obligations - a repurchase obligation might be incurred by the accumulation of an Article VIII country's currency which, because of approved restrictions, was not fully convertible in the hands of the holder. Rasminsky was not inclined to regard as decisive the fact that the entry into force of certain of the GATT provisions was linked to the assumption of Fund Article VIII responsibility by members accounting for 50% of world trade. He was of the opinion that this consideration of itself should not lead the Fund to opt for placing members under Article VIII as soon as their currencies had been made convertible, irrespective of the restrictions on payments which they maintained. So far as the right to discriminate under GATT was concerned, it was mainly the U.K. and one or two other sterling area countries operating under the "Havana option" which would be affected by the coming into force of the new Article XIV of GATT, and the 50% condition would be fulfilled as soon as the U.K. and one other country had come under Article VIII.

As a practical procedure, Rasminsky thought that countries going convertible should remain under Article XIV for a fixed period of short duration, after which they would be expected to come under Article VIII without discrimination or any significant non-discriminatory restrictions on current payments. At the same time, the Fund should let it be known that it intended to examine closely all the restrictions being maintained by the other Article XIV countries in view of the new conditions which had been established. During the course of this examination, which might last for a year or so following C-day, the Fund would expect those Article XIV countries whose payments position did not justify the maintenance of restrictions to move under Article VIII. The other Article XIV countries whose payments difficulties warranted the substantial use of restrictions would be expected to remain under XIV until their payments situation had sufficiently improved to warrant their coming under VIII.

The U.K. Position

Lord Harcourt, while appreciating the difficulties, considered that the staff arguments against the fairly early termination of the postwar transitional period were not conclusive. He expressed the hope that in due course, and as a matter of policy, the Article XIV transitional period could be brought to end. A logical point of time would be when a number of major currencies, including sterling, had been made convertible. He recognized that this implied the approval of a body of restrictions under Article VIII with its consequent dilution. However, he believed that for some of the member countries restrictions were pretty well inevitable and it would be more realistic to recognize them under a universal Article VIII régime than to maintain the pretence that they were the result of postwar difficulties (the U.K. is clearly anxious that in due course other countries should be made subject to the same régime of Fund discipline as they themselves expect under Article VIII).

Harcourt was not prepared to agree, as the staff had argued, that the introduction of convertibility and the acceptance of Article VIII obligations should be simultaneous. He believed that countries going convertible would still be maintaining restrictions and discrimination and would need a transitional period in which to get rid of them. In the U.K. view, this transitional period should be under Article XIV rather than Article VIII. A transitional period was required because the abandonment of discrimination would increase the totality of the payments burden of the countries concerned. There should, therefore, be a year or perhaps more in which the strains of convertibility could be taken gradually, at the end of which the countries would come under Article VIII with restrictions and discrimination eliminated so far as possible. (Rasminsky registered his reservation about the view that a justification for discrimination could be found in the need to control aggregate imports and pointed out that this could be done by other non-discriminatory methods).

As a second stage after a number of countries had made their currencies convertible and come under Article VIII, a further transitional period might be prescribed at the end of which all the remaining Article XIV countries would be expected to reduce their restrictions so far as possible and then come under Article VIII.

In the discussion of Harcourt's proposal for a two-stage universal transition to Article VIII, he was closely questioned as to the position of the U.K. so far as its restrictions would be concerned at the end of the first grace period, when the U.K. would expect to come under VIII. Bury, the Australian Director, argued that one year would be far too short a period to expect sterling area countries to get rid of existing trade and payments discrimination. The dismantling of discrimination would involve heavily increased calls for dollars on the central reserves and should not be contemplated in so short a period. This view related particularly to the early introduction of sterling convertibility. If on the other hand sterling convertibility was delayed for another year, it should be possible to move in the direction of non-discrimination and a one-year transitional period after the formal act of convertibility might then be feasible. Even so, he was of the view that the degree of liberalization and non-discrimination would vary between sterling area countries at the end of the grace period. Under this pressure, Harcourt altered his position and emphasized that the U.K. could not, of course, guarantee to eliminate all its restrictions and discrimination at the end of the prescribed period after the introduction of convertibility. He thought it might be necessary at that stage to ask the Fund to approve whatever restrictions remained under Article VIII. At one point, he seemed to agree that a fixed period for the elimination of restrictions remaining after convertibility might not be appropriate. Later in the debate, Keogh, the U.K. Alternate, endeavoured to clarify the U.K. position and to emphasize that it was the U.K.'s intention to do away with all restrictions and discrimination so far as possible during any grace period which might be prescribed. It was made clear in the U.K. presentation that the U.K. was not considering the elimination of its exchange control machinery which would be maintained to control capital movements, as provided for under Article VI of the Agreement.

In response to a question whether other independent sterling area countries would move to Article VIII with the U.K. at the end of the grace period, Harcourt indicated that this was his understanding. This statement forced comments from both Bury and Prasad to the effect that such an assumption might not be warranted. Bury reiterated that it might not be possible for Australia to eliminate its discrimination in a fixed time period since important switches of resources allocation would be involved. Prasad emphasized that the question of whether independent sterling area countries would move with the U.K. was entirely open and would be for discussion and agreement amongst the countries concerned when the time came. It was not clear that an underdeveloped country, such as India, could forego Article XIV at the same time as the U.K.

The German Position

The German attitude as expressed by Donner was similar in most respects to that of Harcourt in his initial statement. He believed that there should be a fixed grace period for convertible countries under Article XIV before they would be expected to come under VIII, and that countries coming under VIII should have eliminated, or all but eliminated, their restrictions. (His position on this point was close to Rasminsky's). Finally, he considered that in due course and perhaps after a further grace period the Article XIV transitional arrangements might be brought to an end, with all countries assuming the obligations of Article VIII.

The Benelux Position

Van Campenhout expressed the view that the Fund should not take a doctrinal position on the obligations of its members under Article XIV on the one hand, and Article VIII on the other. The objective should be to work for the elimination of restrictions. He was opposed to pushing countries under Article VIII, until all but their marginal restrictions had been eliminated. He hoped that these conditions could be established by countries in a reasonable period after the introduction of convertibility for their currencies. He believed that world traders would expect countries coming under Article VIII to have reduced their restrictions to a minimum.

Van Campenhout questioned the staff view that at the end of the prescribed transitional period convertible countries should have no restrictions on the convertibility of their currencies for current transactions among members of the Fund. He believed it would be difficult to apply this principle to relations with certain countries remaining inconvertible, - Swiss-type convertibility. From this point of view, he believed that it would be difficult to fix a realistic grace period since the ability of countries like Belgium to eliminate all restrictions of payments would depend on the policies of the inconvertible countries. Although Crena de Iongh did not speak specifically to this point, it can be assumed that the Netherlands position is much the same since they are the leading advocates of the right of convertible countries to maintain restrictions vis-à-vis inconvertible countries. Crena limited his contribution to this part of the debate to an expression of agreement with the U.S. view that the transitional arrangements should be brought to an end and all countries subjected to the Article VIII provisions.

The Japanese Position

Yumoto was attracted by Harcourt's plan that countries going convertible should stay under Article XIV for a specified grace period before assuming the full obligations of Article VIII. This seemed sound to him since all countries had an interest in the strength and convertibility of major currencies, particularly sterling, and it would be most unfortunate if, having moved forward, it became necessary to retreat into inconvertibility. He thought that the U.K. and other main trading countries should in advance of the introduction of convertibility relax their restrictions in order to see in advance what the pressures of convertibility would be, and thus ensure success for the move when it was made. As to remaining Article XIV countries, he thought that they should reduce their restrictions, particularly after major currencies had been made convertible, and if the improvement in the payments situation was maintained the Fund might take policy decisions designed to bring about the removal of restrictions by these countries. The Japanese view was that countries whose currencies became convertible should abandon their discrimination, including any regional discrimination which might still be in existence.

The Position of India, Italy and China (Taiwan)

These countries may be grouped, broadly speaking, as in agreement with the staff view that it may be necessary for some countries to continue under Article XIV for a considerable and possibly an indefinite period. They also subscribe to the view that the Fund should not declare the termination of Article XIV, that countries should not be pushed to accept the obligations of Article VIII, and that in general the Fund should proceed to attain its objectives through persuasion and flexibility of approach and through the liberal use of Fund's resources, rather than in any aggressive or doctrinal way. Prasad, for India, made the additional point that underdeveloped countries undertaking development programmes are in a special position not contemplated when the Articles of Agreement were drawn. They are likely to encounter continuing payments difficulties over a considerable period of time and will probably have to resort to the use of both discriminatory and non-discriminatory exchange restrictions. In the circumstances, it might not be possible for such countries to accept the prior approval procedure and other obligations of Article VIII. It would be undesirable to set up strict rules if countries would not in practice be strong enough to live up to them. In general, it was Prasad's feeling that progress in the commercial policy field had not gone far enough to create an environment in which all countries could be expected to accept strict obligations on the payments side. In the light of these considerations, he thought that the idea of a transitional period for countries going convertible was useful and should be longer rather than shorter. While he agreed that approval for restrictions under Article VIII should be temporary, he believed the Fund should hesitate to prescribe a fixed time limit which, he thought, would encourage speculation. As regards countries continuing under Article XIV, he would agree to the Fund exerting a little objective pressure in the direction of having restrictions removed in the new circumstances created by the convertibility of currencies.

The Position of France

De Largentaye, the French representative, took no important part in the debate. The French position on the general issues is, however, well known. Broadly speaking, the French give lip service to the objective of multilateralism but believe in practice that discrimination and regionalism should be the rule until the conditions are such that multilateralism is a practical objective. De Largentaye's main point in the debate was that the Fund does not have the legal right to terminate the postwar transitional period and Article XIV. In this, he had the support of the Belgian, and apparently the Italian, Executive Directors. Neither the U.K. nor the U.S. Director is convinced that the legal obstacles to termination of Article XIV cannot be overcome. However, even if this turns out to be the case, and the Board agrees to a legal opinion to this effect, Southard believes that the substance of the ending of the transitional period can be accomplished. For example, the Fund could issue a policy declaration that within a certain period countries should accept the obligations of Article VIII; if certain of them were not prepared in practice to respond, the Fund could use the formal "representation" procedure provided for in Article XIV, Section 4.

The lead in this discussion was taken by the Canadian representative, because the question is critical to the future effectiveness of the Fund in dealing with restrictions, because it is a matter on which clarification is necessary at a time when countries are considering moving to Article VIII, and because in earlier Fund discussions doubt had been expressed in some quarters about the extent to which the balance of payments criterion should be the main standard against which the need to impose restrictions should be judged.

Article VIII indicates that prior Fund approval is required for the imposition of restrictions but does not indicate on what basis such approval would be given. Accordingly, reference must be made to the Fund's "Purposes" of which the most relevant is

"to assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade."

Rasminsky suggested that restrictions on payments under Article VIII should only be approved if, after careful examination of all the circumstances, the Fund was satisfied that the restriction proposed was necessary to meet balance of payments problems which could not adequately be dealt with by measures consistent with the general purposes and policies of the Fund. This should be the general rule. However, he recognized that the Fund's authority to approve restrictions under VIII was not legally limited to restrictions arising from payments difficulties. Accordingly, he agreed that on a case-by-case basis the Fund would be prepared to look at applications to impose restrictions for non-payment reasons. Such cases were likely to be the exception rather than the rule, and it would be difficult to prescribe in advance the criterion against which such applications would be judged. Therefore, the Fund should not, at this stage, go beyond indicating that in examining requests for restrictions particular regard would be had to the payments position and prospects of the member.

Rasminsky recalled that some countries (Belgium and the Netherlands) had expressed fears that strict application of the balance of payments criterion under Article VIII would not give protection against the damage which might be done to the member's trade by discrimination against the member by inconvertible countries. In this connection, he noted that it would be unrealistic to expect that the pattern of trade established in conditions of inconvertibility would remain unchanged with the advent of more general convertibility. Thus some adjustments in countries' trade patterns should be expected. He believed that the policy he had outlined for the Fund would give such countries as much protection from the trade point of view as they could expect to see under an alternative system. All convertible countries who were in fact likely to be the main competitors in inconvertible markets would be under the same Article VIII régime. As for the inconvertible countries, the Fund would be taking a closer look at the justification for their discrimination and other restrictions in conditions of general convertibility. Thus, vis-à-vis both convertible and inconvertible countries there would be a reasonable degree of protection against discriminatory restrictions. The alternative proposed was to give convertible countries the right to discriminate vis-à-vis inconvertible countries. This right would inevitably have to be generalized and there would be no advance from the present position. The Fund could not authorize one member to impose restrictions etc. in order to obtain trade advantages without doing the same for all members.

Rasminsky emphasized that he was addressing himself to the substance of discriminatory restrictions and not to the form. Thus if a country wished to handle payments to and from another country in a particular way through its exchange control machinery, there would be no reason for the Fund to object provided there was no payments discrimination in substance. For example, a country might permits its citizens to make payments to another country without any formality whatsoever and require that permission should be obtained for payments to some other country. Provided such permissions were freely granted, there would be no restrictions in substance and the Fund should not object. It cannot be said that the Dutch and Belgian representatives were swayed by these arguments but Crena de Iongh did admit that the more countries which became convertible, the less would be the risk to the trade of any one of them through discrimination by an inconvertible country.

In the discussion, the Canadian view was supported by the German representative who advocated a collective approach to the problem of trading with inconvertible countries. Some difference of opinion between Canada on the one hand and the U.S. and the U.K. on the other became apparent. This divergence reflected the U.S. and U.K. desire to get rid of Article XIV, in due course, in contrast with the tentative Canadian view that countries should remain under Article XIV for so long as their restrictions were such that they could not properly be approved under Article VIII. In the discussion, Southard said he was not dismayed by the prospect that in the end countries with considerable restrictions would have to be admitted to the company of Article VIII, and cited as examples countries with multiple rates, de facto rates, and free markets, all of which had some restrictive effects. He noted that the Fund had already approved many restrictions under Article VIII and was likely to go on doing so. Keogh, for the U.K., spoke along the same lines, emphasizing that it would be unrealistic to expect that all countries could eliminate restrictions. It was not clear from these statements whether the U.S. and the U.K. would be prepared to give broad approvals for restrictions under Article VIII for non-payment reasons, or whether it was envisaged that such approvals would be given under a liberal interpretation of the balance of payments criterion.

Conclusions

The discussion of Article VIII and Article XIV questions revealed a considerable area of agreement between the U.S., Germany, Canada and a number of other countries on the timing of the movement of countries to Article VIII after the introduction of convertibility for their currencies. Some of the main points of agreement and disagreement may be summarized as follows:

(a) countries making their currencies convertible would not at that point of time be expected to have done away with all their restrictions and discrimination;

(b) countries making their currencies convertible should not be expected immediately to accept the obligations of Article VIII;

(c) such countries should, however, accept these obligations after a period of grace (six to eighteen months was mentioned) during which time they would be expected to get rid of their remaining restrictions and discrimination;

(d) it might not, in practice, prove possible for these countries to have eliminated the totality of their restrictions and discrimination by the end of the grace period. Provided however that the remaining restrictions had been reduced to the practicable minimum, most of the major countries believed that it would be appropriate for the residual restrictions to be approved under Article VIII. The Canadian view was that situations of this kind should be examined on their merits to see whether in fact the remaining restrictions could properly be justified and approved under Article VIII in the light of the payments position of the member concerned;

(e) there was a considerable measure of agreement that after a number of member countries had made their currencies convertible and accepted the obligations of Article VIII, there should be a further period of perhaps one year in which the remaining Article XIV countries would be expected, in consultation with the Fund, to reduce their restrictions to a minimum. A number of countries - the U.S., the U.K., Germany and the Netherlands - considered that at about that time all countries should be brought under Article VIII in order to avoid the continuation of two different kinds of Fund régime with respect to restrictions. It was left open as to how this should be accomplished, but two main possibilities were considered. First, the termination of the postwar transitional period if this was legally possible, and secondly, the increased use of the powers of persuasion of the Fund to induce countries to come under Article VIII, whether or not the postwar transitional period was formally terminated. The Fund staff, Canada, and a number of other countries, expressed doubt, for a variety of reasons, whether it would be desirable to proceed in this way. In general they preferred to continue Article XIV in being until the payments position of Article XIV countries was such that they could come under Article VIII without substantial restrictions while strengthening the administration of Article XIV.

After the meeting, Rasminsky indicated to Southard, the U.S. Director, that the Canadian position on the question of termination of Article XIV was still open and that he did not rule out the possibility of a universal move to Article VIII in due course.

(f) There was agreement that the prior approval requirement of Article VIII could be made to work in practice. Either countries would give the Fund sufficient notice to enable considered decisions on the imposition of restrictions to be taken or, more probably, the Fund's approval would only be given for a short temporary period during which time a more complete consultation could be organized, after which the temporary approval would be reviewed;

(g) there appeared to be pretty general agreement that, as a rule, the approval of restrictions for balance of payments reasons under Article VIII should be for a temporary period, and that the Fund would at intervals possibly of one year duration, consult with the member about the need to continue the restriction, including the question of whether the Fund's approval would be renewed.

In a private discussion after the meeting, the U.S. Executive Director indicated his satisfaction with the way the discussion had gone. He suggested that a formal Fund policy statement on the transition to Article VIII of countries making their currencies convertible might be of considerable assistance in connection with the arrangements which might have to be made between the Fund and the U.K. about the possible use of the Fund's resources to support the convertibility of sterling. If the Fund policy statement indicated that countries making their currencies convertible would be expected to come under Article VIII after a short prescribed period at the end of which discrimination would have been eliminated and other restrictions on their payments almost entirely eliminated, then the U.K. on going convertible might inform the Fund and indicate publicly that it accepted the procedure outlined in the policy statement. A technique of this kind might avoid the necessity of writing detailed quid pro about the nature of the convertibility which the U.K. would maintain into any stand-by agreement. Similar considerations might apply in case the U.K. decided not to conclude the stand-by and it was agreed to proceed instead by way of a fund policy declaration to the effect that countries going convertible could count on maximum support from the Fund, i.e. drawings up to 100% of quota.

Southard also indicated in this discussion that he was more attracted that he had previously been to the idea of leaving Article XIV in existence for the time being and deferring consideration of general action to terminate it until some experience with the effects of convertibility had been gained.