Table of Contents

  • This paper, by Mr. Fred Hirsch of Nuffield College, Oxford, was commissioned by the Commonwealth Secretariat as a background document for the Commonwealth Finance Ministers Meeting in Dar-es-Salaam in September 1973. It is thus a sequel to the study on International Monetary Reform prepared by Mr. A. F. W. Plumptre for the 1972 Meeting of Commonwealth Finance Ministers and published by the Secretariat in October 1972 as the first of the series of Commonwealth Economic Papers.

  • The 1973 annual meeting of the International Monetary Fund in Nairobi is the first to have taken place on the African continent. It also marks the ten-year anniversary of the placing of international monetary reform on the official agenda. The obstinate persistence of this issue as a preoccupation of governments and financial officials reflects both its complexity and its real importance.

  • A widely held view on the background and rationale of reform is that the international monetary system designed at Bretton Woods at the end of World War II served the world well for the first postwar generation, but that a new system is now required to cope with the changed requirements of the 1970s and beyond. It follows from this approach that the amendments required in the new system should be based on the evolving changes that have taken place in the structure of the world economy. The most important of these changes has been the diffusion of economic strength among at least the major countries, with a corresponding decline in the relative economic strength of the United States.

  • The Bretton Woods objective of stable but adjustable exchange rates sought to provide for adjustments in exchange rates to accommodate countries' domestic needs while avoiding unnecessary fluctuations produced by either aggressive national policy actions or spontaneous excesses of the market. This objective was and remains sound. The still unresolved problem is how to implement it.

  • The interest of the less developed countries in future arrangements for reserve settlements and reserve holding is direct, substantial and many sided. These countries have a special interest in the development of a reserve system on a deliberative and organized international basis. They have a special interest in regular allocations of Special Drawing Rights.

  • The discussions and negotiations on international monetary reform that have taken place in the past year have been carried out by the specially created Committee of Twenty, meeting at both ministerial level and deputies level. A final judgment of the success of this organisational innovation must await the outcome of the reform exercise. But there is no doubt that the formation of the committee has filled an important gap in the previous administrative structure of the IMF.