Surplus country adjustment: revisiting the post-World War II Scarce Currency Clause

The Scarce Currency Clause (SCC) in the IMF’s Articles of Agreement (Article VII) was originally designed to establish an effective, automatic mechanism to stimulate the surplus countries to adopt adjustment policies and to correct chronic imbalances. The clause formally authorises countries with a chronic deficit to apply trade discrimination against a surplus country, by imposing tariffs and other restrictions on its exports. But the SCC has never been applied, and its permanence in the IMF’s Articles of Agreement appears today as a relic of the past, an example of post-war international cooperation. This paper presents an analytical survey of the debate on the SCC in the first decade of the IMF, exploring the contemporary opinions on the possibility that this instrument could be effectively used to correct the chronic imbalances in the post-war world and to resolve the problem of dollar shortage. More recently, the persistence of current global trade imbalances has stimulated a renewed reflection on the automatic instrument for encouraging or compelling countries to undertake necessary adjustments. The paper is focusing on recent proposals for correcting imbalances against surplus countries.