The amendment of the IMF agreement and the increase in IMF quotas require congressional approval. After a final technical review by the IMF Executive Committee, the entire package is expected to be submitted to Congress in mid-April. Although some Members have expressed some concerns about certain aspects of the gold agreement, I expect Congresses to support the package as a whole. We have kept Congress informed during the negotiation of the agreement and will work closely with key members and committees to prepare for the formal presentation of the legislation. The misdirection of exchange rates and the resulting build-up of the dollar, which soon surpassed U.S. gold stocks, have caused increasing tensions in the monetary system. The dangers have not been detected only in academic settings. When the author arrived at the Fund`s headquarters in early 1969 to take up his new position and paid tribute to the members of the Executive Board, his visit to Mr. Kafka was interrupted by a telephone call.
The Uk-trained Brazilian director had agreed to give a speech in a few weeks. What would be his subject? „Oh,“ Mr. Kafka replied with his usual, unwavering humour, „the imminent collapse of the international monetary system, I think.“ In any event, the U.S. Congress will likely continue to consider the issue, as the gold agreement has already raised serious concerns. That even led former Finance Minister Fowler to break with his policy of silence, as he says, to avoid the attitude of a quarterback monday morning – and to testify before Congress, contrary to the agreement, criticizing in particular the unsatisfactory and unsuccessful combination of abolishing the official price of gold with the implicit absence of all restrictions after two years. 25 As Mr. Fowler explains, the abolition of the official price of gold implies a modification of the Fund`s articles, a law that, given IMF rules and U.S. electoral strength and legislation, can only be implemented with the legal authorization of Congress. However, the Group of Ten gold agreements are expected to come into force this spring. Nevertheless, it could be the spring of 1977, before Congress seriously considered the ratification of the proposed amendments to the Fund. In the meantime, the special gold agreements will be only one year and the time has come to renegotiate.
It would be hardly surprising if Congress asked how these renegotiations were going. The proposed solution was to set up an alternative account in the Fund, in which countries could deposit these dollar assets in exchange for special notes to be created for this purpose. A similar solution was discussed for gold. In order to avoid the accumulation of dollars in the future, countries would have the obligation (or right) to deposit newly acquired dollar assets into the replacement account in exchange for SDR. The surrogate account, on the other hand, would present these dollars to the US authorities for counting in the DSDs. (Similarly, the United States would be entitled to purchase DSDs from the surrogate account for payment of dollars if they are in surplus and, therefore, if other countries` dollar holdings decline.) The surrogate account would thus exempt the United States from the obligation to convert the „old“ dollars, but the United States, like other countries, would require to settle future foreign exchange reserve deficits, i.e. to pay, while ensuring that they would receive reserves if they had a surplus and not just a reduction in their liabilities.