Note: Except for those of UPU, ITU and WIPO, which have always been denominated in Swiss francs, those of WMO and GATT, which have been switched to Swiss francs, and that of IMO, which has been switched to sterling, the budgets of organizations of the UN system are expressed in US dollars.
Final accounts are therefore required in dollars, although much of the expenditure is in other currencies and the day-to-day accounts of some offices may be maintained in local currency. The regulations of organizations give the executive head power to fix an accounting rate of exchange - that is, the rate of exchange at which non-dollar transactions will be converted to dollars in the accounts of the organization. This accounting rate is normally, though not necessarily, used for payroll purposes. The accounting rate is usually referred to as the operational rate of exchange.
Where there is an official (IMF) exchange rate organizations normally, but not necessarily, use it as their accounting and payroll rate. Since the actual rate at which the currency can be bought and sold may differ from the IMF rate (or the mid-point of the range of rates permitted by IMF), organizations may need to modify their accounting rates from time to time. In headquarters areas such charges are agreed among the organizations concerned: for field areas the rates are promulgated by UNDP after consultation with UN.
Up to 1971 exchange-rate changes consisted mostly, though not wholly, of devaluations of local currency against the US dollar. From 1971 onwards the "floating" of a number of major currencies and the depreciation of the US dollar heightened the importance of certain problems relating to the determination and application of accounting rates of exchange. The issues were accordingly discussed in CCAQ.
The budgetary impact of currency instability, and means of dealing with it, which became issues of major concern in CCAQ discussions from 1972 onwards, are the subject of Section 16.4.
(1) At its 34th session (October 1971, CO-ORDINATION/R.903, paras. 18-28), CCAQ(FB) agreed that:
(a) No hard and fast rules could be made to lay down the extent and duration of variations in market rates which would compel a change in the UN accounting rate;
(b) An intergovernmental agreement or decision to change the official parity, on the other hand, should be reflected by a corresponding change in the UN accounting rate, on the same date or as soon as feasible thereafter;
(c) The date on which the new accounting rate should be applied to payroll required further study. In principle, salaries and allowances should be paid at the UN operational rate in force on the date of payment, but this would mean that staff invariably benefited in devaluations and were invariably affected adversely on revaluations.
(2) ACC, after reviewing the matter, (CO-ORDINATION/R.907, para 61) decided that under the eventual final rules regarding dates of application the same timing must apply to changes resulting from both devaluations and upward revaluations, and must not give the impression of bias in favour of the staff.
(3) The matter was reconsidered at the 35th session of CCAQ(PER) (March 1972: CO-ORDINATION/R.931, paras. 48-53), which recommended that, subject to review by financial and other services concerned:
(a) If the change in operational rate occurred on or before the 15th of a month, it should be applied to payroll from the lst of the same month - that is, the whole month's pay would be paid at the new rate;
(b) If the change occurred on or after the 16th, it should be applied to payroll from the lst of the following month;
(c) Pensionable remuneration of General Service staff should be calculated in dollars under the same principles. Thus, if the change occurred on or before the 15th, the current month's pensionable remuneration would be calculated at the new rate; it after, at the old rate.
This solution was to be applied to payments at the duty station but might not be appropriate for entitlements paid in other countries. CCAQ did not have time to study this question fully, but felt that prima facie all entitlements fixed in the currency in which salary was fixed (e.g. US dollars) but payable neither in dollars nor in currency of the duty station should (a) if paid through commercial banks, yield whatever the current bank rate yielded; (b) if paid by a UN organization in another country, be paid at the payroll rate being applied by that organization on the date of payment.
(4) At the 37th session (March 1973: CO-ORDINATION/R.984, para. 7) CCAQ noted that the recommendation above had, after review by financial services, been approved at the ACC level by correspondence.
(5) At the 60th session (March 1984) the Committee returned to matters relating to the establishment of operational exchange rates, with special reference to the frequency of changes in the rates. It agreed that the procedures followed should be clarified and requested the secretariat to gather information on this subject for its consideration (ACC/1984/10, para. 70). At the 62nd session (March 1985) the information collected was reviewed. The only issue that appeared to call for comment was that of mid-month changes in operational rates. It was agreed that such changes should be avoided as far as possible (ACC/1985/7, paras. 26 and 27).
(6) At the 63rd session (September 1985) it was noted that UN and UNDP, which had decided to make all local payments in US dollars in Bolivia, would maintain that decision until the exchange rate had become more stable. UNDP described the action that had taken or intended to take to obtain the most favourable legal rate of exchange in Somalia under the relevant standard Basic Assistance Agreement. It undertook to notify agencies as promptly as possible when difficulties arose in respect of exchange rates on future occasions (ACC/1985/17, paras. 25 and 26). An exchange of information on difficulties in obtaining the most favourable legal rate of exchange in certain countries also took place at the 65th session (September 1986: ACC/1986/12, para. 33).
(7) For discussion at the 70th session of the valuation in financial statements of cash and investments in currencies other than the US dollar, see section 17.1.
(8) At the 71st session (September 1989), following representations by UNDP and in consultation with the Executive Secretary of ICSC, the Committee agreed that from 1 October 1989 use of the operational (as opposed to the tourist) exchange rate would be resumed to calculate post-adjustment multipliers for Brazil (ACC/1989/15, para. 48).
(9) Problems arising in the organizations because of late receipts from ICSC of information on post-adjustment multipliers and DSA rates, derived from operational exchange rates, are dealt with in section 20.5.
(10) At its 88th session (April 1998: ACC/1998/5, para. 44) CCAQ(PER) agreed to keep the issue of the impact of the "euro" under review as a number of entitlements were currently expressed in separate European currencies.
(11) At its 89th session (February 1999: ACC/1999/6, para. 54) CCAQ(FB) reviewed its experience with fixing the UN rates of exchange for the Euro, effective January 1999. It was noted that the new procedures with respect to the Euro rate were effective and did not require revision. The Committee agreed to revert to the issue of assessments and reporting in Euros at a later session.
(12) At its ninth session (CEB/2008/HLCM/FB/18, paras. 85-96), the FB Network reviewed FAO’s proposal and approved it for recommendation to the EC, with a slight change. The proposed wording of paragraph 4.3 of the Special Conditions, to be used in agreements where the recipient organisation prefers this to the standard provisions, is:
“In the event of a final surplus balance (of total financing over expenditures), at the financial closure of the project the surplus balance in USD in the Organisation’s accounts will be converted into Euro using the rate of exchange at the time when the refund is made and the resulting Euro equivalent will be refunded to the Contracting Authority"
The UN Comptroller would submit the proposed new version of paragraph 4.3 of the Special Conditions to the EC Representatives within the provided deadline of end of July.
(13) At its thirteenth session (CEB/2010/HLCM/FB/30, paras.20-23), the FB Network approved the updated Working Guidelines for the UN Operational Rate of Exchange (CEB/2010/HLCM/FB/22).
(14) At the same session (CEB/2010/5, paras.100-113), the Committee endorsed the FB Network decision to approve the modified Working Guidelines for the UN Operational Rate of Exchange taking effect as of 1 October 2010.