List of References
Bogetic, Zeljko, 1999, “Official or ‘Full’ Dollarization: Current Experiences and Issues,” International Monetary Fund, mimeograph.
Porter, Richard D. and Judson, Ruth A. 1996, “The Location of U.S. Currency: How Much is Abroad?” Federal Reserve Bulletin, Vol. 82, (October).
Sahay, Ratna and Vegh, Carlos A. 1996, “Dollarization in Transition Economies: Evidence and Policy Implications” in Mizen Paul and Pentecost Eric (eds.), The Macroeconomics of International Currencies: Theory, Policy, and Evidence, Edward Elgar Press.
Savastano, Miguel A., 1996, “Dollarization in Latin America: Recent Evidence and Policy Issues” in Mizen Paul and Pentecost Eric (eds.), The Macroeconomics of International Currencies: Theory, Policy, and Evidence, Edward Elgar Press.
Summers, Lawrence H., 1999, Text delivered to the Senate Banking Committee Subcommittee on Economic Policy and Subcommittee on International Trade and Finance, (April 22).
Prepared by Michael Leidy.
Panama adopted the U.S. dollar as legal tender shortly after independence in 1904. See Savastano (1996) for a discussion of dollarization in Latin America.
See Porter and Judson (1996) for a review of the various ways in which the quantity of dollars held abroad can be estimated and for a sense of the uncertainty associated with such estimates.
By comparison, work at the Deutsche Bundesbank suggests that between 30 percent and 40 percent of deutsche marks are held abroad (Porter and Judson, 1996).
These amounts are the so-called “statutory transfers.” The Omnibus Budget Reconciliation Act of 1993 requires that surplus Federal Reserve Bank earnings be transferred from the regional Federal Reserve banks to the Board, and then to the U.S. Treasury. These earnings are principally from holdings of U.S. Treasury securities. Federal Reserve holdings of U.S. Treasury and federal agency securities in 1998 were valued at $473 billion.
This range also encompasses the U.S. Administration’s view that “Foreign holdings of U.S. currency are conservatively estimated at 60 percent of the total in circulation.” (Economic Report of the President, February 1999).
The most likely factor on the horizon that might eventually lead to a degree of dedollarization is the emergence of the euro. Of the national currencies it replaced, the mark had the most significant overseas holdings. The euro could emerge over the years as a strong competitor to the dollar, but significant shifts in currency holdings are not likely to take place suddenly on a large scale.
For example, even a 75 percent reduction in total world dollarization, assuming that the current foreign share of dollars outstanding is 70 percent, would have increased the federal budget deficit by only about 0.1 percent of GDP in FY 1997.
This section focuses on the possible implications for the United States of “full dollarization.” The potential costs and benefits for Argentina, or any other country, are discussed in detail in the forthcoming Board seminar paper on full dollarization.
The stock of peso currency in circulation in Argentina in 1998 was equivalent to about $13.5 billion. This would yield $709 million in additional seigniorage for the United States assuming a 5.25 percent average yield on United States government securities.
Any provision calling upon the United States to share seigniorage would require an appropriation from Congress. Present arrangements with Panama and other countries using the dollar as legal tender do not include any provisions for seigniorage-sharing.