Article Of The Imf
Article of the IMF provides:
Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. In an interpretation of the Article, the Executive Directors of the IMF have said that, as a result, a court or tribunal in a member country cannot refuse recognition of the exchange-control regulations of the other members which are maintained or imposed consistently with the IMF Agreement. Consequently, such contracts must be treated as unenforceable, notwithstanding that under the private international law of the forum the law under which the foreign-exchange control regulations are maintained or imposed is not the law which governs the exchange
contract or its performance.
The argument for a wide interpretation of this Article is that the paramount purpose of the Fund is to promote international monetary cooperation. If exchange control or a moratorium has been imposed by country Y, consistently with the IMF Treaty, courts in other Member
States such as country X should, in a co-operative spirit, give effect to itIn favour of a narrow interpretation is commercial convenience: it would place an intolerable burden on banks and others if they had to be conversant with the foreign-exchange law of each country involved in any particular transaction, before they could be sure that it would not be unenforceable as being in breach of exchange-control law. Not surprisingly the narrow interpretation has won the day in international financial centres such as London and New York. This may also reflect a rather unrefined sensibility to international treaty obligations in these jurisdictions.
Thus English and New York courts confine the expression 'exchange contracts' to contracts to exchange the currency of one country for the currency of another. Foreign-exchange dealings would be covered, as would currency swaps if involving the currency in question, but not loans or securities purchases, even if in that foreign currency. A more generous interpretation would be that an exchange contract is any contract which has an impact on the foreign exchange resources of the country. This will accord with the policy behind exchange control and moratorium laws, which is to protect a state's reserves of foreign
exchange.
Moreover, when Article VIII 2(b) renders exchange contracts 'unenforceable', the common law interpretation is that it means precisely that, rather than void or illegal.
Thus acts undertaken in performance of a contract caught by the section are not unlawful (e.g. set-off). Clearly an action in tort independently of the contract would be permissible. Civil law countries such as Germany have difficulty with the common law term 'unenforceable'.
In Germany it has been taken to mean a precondition to suit: the plaintiff has to prove that the exchange controls invoked by the defendant are inconsistent with the IMF Articles, or that Article VIII 2(b) does not apply for other reasons. Coupled with the generous interpretation given to the Article, the result has been that, although Germany is a major international lender, and although the Deutschmark is used as the currency for many international financial transactions, German law is hardly ever chosen as the proper law because of the fear of unenforceability.
.
