Mr. Altman, Deputy Director of the Research and Statistics Department, and Fund Historian, is a graduate of Cornell University and of the University of Chicago. He taught economics at Ohio State University and was on the staff of the National Resources Planning Board and of the French Supply Council. He was Director of Administration of the Fund until 1954. He is the author of Savings, Investment, and National Income and of a number of papers published in technical journals.
There have been many proposals for composite reserve units, and some initial proposals have subsequently been modified. This paper concentrates upon the essence of these proposals and disregards their differences.
The average annual increase since 1950 has been about $500 million. These dollar balances, through a series of redepositings and lendings, may have supported much larger amounts of assets and liabilities denominated in dollars.
The Balance of Payments Statistics of the United States: A Review and Appraisal (Report of the Review Committee for Balance of Payments Statistics to the Bureau of the Budget, April 1965).
Including $1.4 billion of nonmarketable securities denominated in foreign currencies and in dollars.
Germany’s owned reserves of $7.5 billion consist of gold (59 per cent), foreign exchange (27 per cent), and gold tranche position in the Fund (14 per cent). Italy’s reserves are $4.0 billion, and the percentage distribution is 59, 31, and 9, respectively.
See O.L. Altman, “Quelques aspects du problème de l’or,” Cahiers de I’lnstitut de Science Economique Appliquée (Paris), July 1962; Poul Høst-Madsen, “Gold Outflows from the United States, 1958-63,” Staff Papers, Vol. XI (1964), pp. 248-61.
Belgium, Canada, France, the Federal Republic of Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States.
Even some of those who most seriously propose an increase in the price of gold do not suggest increasing the stock of liquidity, but rather using revaluation profits to reduce reserve holdings of dollars and sterling. See, for example, “The Case for Going Back to Gold,” by M.A. Heilperin, in World Monetary Reform: Plans and Issues, ed. by Herbert G. Grubel (Stanford, California, 1963), pp. 329-42.
Annual Report, 1965, Chap. 2, and the comment, “It is widely agreed that there is no urgent need for supplementing the volume of reserves” (p. 15); Annual Report, 1964, Chap. 3, and the comment, “On the occasion of the last Annual Meeting of the Board of Governors of the Fund, it appeared to be generally agreed that international liquidity was adequate. The studies which have been in process during the year have not led to any different conclusion” (p. 29). It may be objected that these views reflect the characteristics and responsibilities of the Fund as it is now constituted. There is no reason, however, to believe that its views would be different if its charter had been revised to convert it into an international central bank charged with maintaining an appropriate level of international liquidity.
It would also appear to be difficult to conclude that the level of international liquidity was inadequate during the last 20 years. For example, the IMF report, International Reserves and Liquidity (Washington, 1958), recommended an increase in Fund quotas but no other changes in the level of international liquidity; and Robert Triffin’s proposals in Gold and the Dollar Crisis (New Haven, 1960) dealt with improving the stability and managing the future expansion of international liquidity but not with remedying any inadequacy at that time.
Several new types of reserve assets have been invented recently. There have been the so-called Roosa bonds, which are now held by 6 countries in the amount of $1.5 billion; of these, $1.1 billion are denominated in the currency of the creditor and are thus free from the risk of loss should there be a devaluation of the dollar. A network of swap transactions between the United States and many other countries has been created and in many instances been drawn upon; this network improves international liquidity, but the stage at which the amount of swap transactions should be added to totals of international liquidity is not clear. Finally, a gold tranche position in the Fund has gained general acceptance as a reserve asset that should be added to holdings of gold and foreign exchange.
The amount of liquidity created or eliminated depends upon a number of factors, some of which are discussed in section II of this paper.
See International Monetary Fund, Annual Report, 1962, p. 99.
Nevertheless, there is clearly a conceptual difference between the situation when country A, wishing to increase its holdings of dollars, reduces its imports from the United States, and that in which the United States increases its imports from A and pays out dollars which end up in A’s official reserves. Both cases contribute to a balance of payments deficit, and the contribution is measured by the increase in A’s official dollar holdings. But since the cause of the deficit is different, the policy to cope with the deficit may also be different. This is not necessarily an argument for measuring the deficit differently—adjusting it for the foreign official demand for dollars. This would be difficult, as it would involve analysis of the motives behind changes in official holdings of dollars. But different inferences may legitimately be drawn in the two cases.
It may contract by more than its surplus if members of the sterling area pay with gold that they purchased from Britain with sterling, or members of the French franc area pay with gold that they purchased from France with francs.
These figures for the United States assume gold holdings of $15 billion, equal to 60 per cent of its reserves, and foreign currencies and gold tranche position equal to 30 and 10 per cent, respectively. A gold tranche position of $2.5 billion for the United States assumes that other members of the Fund will draw dollars totaling $1.2 billion.
These proposals were discussed by Mr. R.V. Roosa when he was Under Secretary of the U.S. Treasury; see “Assuring the Free World’s Liquidity,” in World Monetary Reform (cited above, fn. 8). There is no implication here that they were or are U.S. policy. The present writer noted in an earlier paper that “under the Roosa Plan, countries can operate with exchange reserves consisting of many currencies only if all countries together act as they do now collectively in the IMF, or if the United States is willing to act unilaterally, on a large scale, like the IMF in acquiring and spending currencies other than the dollar”; see O.L. Altman, ‘The Changing Gold Exchange Standard and the Role of the International Monetary Fund,” Banca Nazionale del Lavoro, Quarterly Review (Rome), June 1963, p. 22.
It is inappropriate, however, to go further and to characterize owned reserves as those that can be used unconditionally and borrowed reserves as those that can only be used conditionally. This characterization confuses the way of obtaining reserves with the way of using them.
See International Monetary Fund, Annual Report, 1965, pp. 124-32.
Ibid; also Annual Report, 1959, pp. 185-89.
This refers to the level of unconditional liquidity. The amount of conditional liquidity is undoubtedly increased.
The repurchase provisions are stated in the Fund’s Articles of Agreement, Article V, Section 7. In general, a member is required to repurchase its own currency from the Fund (without reducing the Fund’s holdings below 75 per cent of its quota and without raising the Fund’s holdings of the tendered currency above 75 per cent of that member’s quota) to the extent of one half of the increase in its reserves each year.
See Annual Report, 1952, pp. 87-90, and Selected Decisions of the Executive Directors and Selected Documents (Washington, 1965, hereafter cited as Selected Decisions), pp. 21-26; also Annual Report, 1965, p. 123, and Selected Decisions, p. 49.
This policy applied to quota increases under the First and Second Resolutions, i.e., to the general quota increase of 50 per cent and to the special increases for countries with small quotas. The Fund re-examined and confirmed this policy in 1961 and 1965.
See Annual Report, 1963, pp. 196-99, and Selected Decisions, pp. 40-43.
Other characteristics would include the following: (1) The value of CRU would be bolstered with a gold guarantee. (2) Participating countries would be required to hold CRU in their reserves according to some uniform agreed formula, e.g., as a stated proportion of gold or of total reserves. Each participating country could use CRU to meet its gold payments to other participants in some stated proportion to gold; and, correspondingly, each would be required to accept CRU in lieu of gold in this same proportion. CRU would not be used in transactions with members outside the group. (3) Virtually all proposals to date for a CRU-type reserve have required that a large majority within the group of countries would create and distribute it, and at least one proposal has required unanimity. (4) CRU is envisioned as a liability of, or a claim on, a designated trustee, who would hold as counterpart assets an equal amount of national currencies paid over to him by countries in the group. From the point of view of the trustee, this is equivalent to issuing warehouse receipts against a group of currencies; from the point of view of each participating country, this is equivalent to buying an international currency with domestic money.
In all the CRU schemes proposed to date, members would deposit their own currencies; if the IMF were to be made a member of the group, it would deposit its own promissory note. In fact, CRU schemes could be started, and they would work just as well, if currencies were not deposited.
Reforming the World’s Money (London and New York, 1965), Chap. 5.
It would indeed be inflationary except in periods of drastic unemployment and economic disequilibrium. All such proposals for domestic action would surely be characterized as schemes to introduce fiat money. The money supply within any one country is based upon monetization of the debts of government, business enterprises, and individuals. These are overwhelmingly the debts, i.e., the balance of payments deficits, of residents.
Annual Report, 1965, p. 19.