Floating currencies, SDRs and gold : Further legal development

The changes that have occurred in international monetary arrange ments in the period since August 15, 1971 have provoked novel problems of international and domestic monetary law. It is useful to recall briefly some of the main events:

(1) From August 15, 1971 to December 18, 1971, following the declaration by the President of the United States that holdings of U.S. dollars by the monetary authorities of other countries would not be converted by the United States, many currencies, including the U.S. dollar, floated independently. Although the par value system established by the original Articles of Agreement of the International Monetary Fund still remained in force legally, the system was not in operation. The decision of the Fund of December 18, 1971¹ that accompanied the Smithsonian agreement attempted to introduce an orderly system of relationships among the currencies of all members of the Fund on the basis of par values and "central rates" coupled with margins for exchange transactions that were wider than those permitted by the Articles. Central rates were defined directly or indirectly in terms of gold. The maintenance by members of central rates, whether with or without the wider margins included in the decision, or the maintenance of par values and wider margins in accordance with the decision, did not bring these practices into conformity with the Articles. Conformity required that exchange transactions be conducted within margins around parities that were consistent with the Articles. In short, the exchange arrangements defined by the decision, although designed to achieve maximum stability, were nevertheless extralegal.