![]() ![]() Thus, in considering whether it should avail itself of the Fund’s resources, the member should consider whether by the end of the financial year it will have made net use of its own monetary reserves. The member can offset against this only one half of any decrease in its monetary reserves. This formula requires that one half of any increase in the Fund’s holdings of a member’s currency during the Fund’s financial year, at the end of which the computation of the repurchase obligation is made, shall be the starting point for computing this obligation. This is intended to ensure that the Fund’s resources are maintained as a second line of reserves for all members. The repurchase provisions are expressed in a formula which ensures that no member will finance more than one half of any balance of payments deficit by drawing on the Fund, or increase its monetary reserves by adding drawings from the Fund to its foreign exchange holdings. The Fund Agreement prohibits a member from reducing the Fund’s holdings of its currency through repurchase to less than 75 per cent of that member’s quota and it also prohibits the use of any currency in making a repurchase which would increase the Fund’s holdings of that currency beyond 75 per cent of the member’s quota. It constitutes what may be called the neutral or ideal position, where the member is neither debtor nor creditor in the Fund. In the Fund Agreement a special significance is attached to the level of 75 per cent of quota. Repurchase is not carried beyond that point. Specifically, when such a member’s monetary reserves increase between April 30, the end of one financial year of the Fund, and the next April 30, repurchase becomes mandatory until the Fund’s holdings of the member’s currency are reduced to 75 per cent of the member’s quota. When a member’s reserves have improved-provided that its reserves are not less than its quota-the repurchase provisions of the Fund Agreement provide, in substance, that it must reacquire from the Fund its own currency and transfer to the Fund gold and convertible currencies in exchange. The fundamental idea on which the repurchase provisions in the Fund Agreement are based is that an increase in a member’s monetary reserves indicates an improvement in its balance of payments position. The repurchase provisions aim at protecting the liquidity of the Fund by restoring, in due course, its holdings of each member’s currency as close as possible to 75 per cent of each member’s quota, the level prescribed in the Fund Agreement. At best, such offsets will restore a few members’ positions in the Fund, but for the great majority of countries the repurchase provisions will be the more important. For most currencies this possibility is limited in view of the long-established commercial practice of making nearly all international payments in a very small number of currencies. The revolving character of the Fund’s resources is also maintained when a drawing by any member of another member’s currency is offset by the drawing of its currency from the Fund by another member: for example, member A, whose currency is the peso, may draw the currency of member B, while A’s own pesos are drawn by member C. These obligations are designed to ensure the revolving character of the Fund’s resources. ![]() Broadly speaking, repurchase obligations require a member to repurchase specified amounts of its currency from the Fund, in exchange for gold and convertible currency of other members. WHEN A MEMBER has drawn upon the Fund’s resources it will, whenever the conditions specified by the Articles are present, incur a repurchase obligation under the Articles of Agreement. ![]() In this article he explains the repurchase obligations which are designed to maintain the revolving character of the Fund’s resources under the Fund’s Articles of Agreement. I) the author described the system of quotas, subscriptions, and charges on which the Fund’s financial structure is based. In the last issue of Finance and Development (Vol. ![]()
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