Mr. Jaramillo, economist in the Bureau of Statistics, Research and Statistics Department, is a graduate of the National University of Colombia and of Western Michigan University. He was with the Bank of the Republic (Central Bank of Colombia) before joining the Fund in August 1964.
This paper is based on information provided to the Bureau of Statistics of the International Monetary Fund by correspondents of International Financial Statistics. Brief notes on the discount rate and discount practices in a number of countries are given in the country pages of that publication.
In definitions of discount policy, the temporary character of the operation is often emphasized. Among several other writers, Peter G. Fousek, in Foreign Central Banking: The Instruments of Monetary Policy (Federal Reserve Bank of New York, 1957), p. 13, points out that discount policy may be defined as the varying of the terms and conditions “under which the market may have temporary access to central bank credit.” (Italics provided.) As will be seen later in this paper, there are several central banks that provide credit to the banking institutions on a regular basis, and not temporarily. Therefore, the temporary character that discount operations have in certain countries, e.g., the United Kingdom, Canada, and Australia, is not a universal characteristic of borrowing from the central bank.
Graeme S. Dorrance, “The Instruments of Monetary Policy in Countries Without Highly Developed Capital Markets,” Staff Papers, Vol. XII (1965), p. 273.
For a summary of these conditions, see Dorrance, op. cit., p. 274.
For a description of monetary policies in the member countries of the European Economic Community, see European Economic Community, Monetary Committee, The Instruments of Monetary Policy in the Countries of the European Economic Community (Brussels, 1962).
R. S. Sayers, Modern Banking (London, 6th ed., 1964), p. 297.
By “private sector” is meant corporations, unincorporated businesses, households, and private nonprofit institutions serving households.
The term “official institutions” comprises municipal and local governments and state enterprises.
The term “rediscount” is also found in the literature, to mean what is usually referred to as a discount by the central bank. In this paper, the term “rediscount” is used only when a clear distinction is needed between commercial banks’ discounts of paper for the private sector and the discount of paper by the commercial banks at the central bank; “rediscount” means the latter.
In this country, there is a sharp controversy between opponents and advocates of discount operations as effective instruments of monetary policy. See, among many others, Joseph Aschheim, Techniques of Monetary Control (Baltimore, 1961), pp. 83-98; Milton Friedman, A Program for Monetary Stability (New York, 1960), pp. 35-45; Robert V. Roosa, “Credit Policy at the Discount Window: Comment,” The Quarterly Journal of Economics, Vol. LXXIII (1959), pp. 333-37; and Warren L. Smith, “The Discount Rate as a Credit-Control Weapon,” The Journal of Political Economy, Vol. LXVI (1958), pp. 171-77, and “The Instruments of General Monetary Control,” The National Banking Review (U.S. Comptroller of the Currency), Vol. 1 (1963), pp. 49-68.
Board of Governors of the Federal Reserve System, The Federal Reserve System: Purposes and Functions (Washington, 1963), p. 43.
For a description of discount administration, see George W. McKinney, The Federal Reserve Discount Window: Administration in the Fifth District (New Brunswick, N.J., 1960).
Frank Tamagna, La Banca Central en America Latina (Mexico, 1963), p. 246.
For example, in Iceland, export bills of the fishing industry; in Spain, those of the National Wheat Service, the Agricultural and Maritime Credit (Official) Banks, and several others.
Committee on the Working of the Monetary System, Report (Cmnd. 827, London, 1959, hereafter referred to as the Radcliffe Report), p. 120. (Italics provided.)
The Radcliffe Report, p. 122.
Hannan Ezekiel, “The Call Money Market in France,” Staff Papers, Vol. XII (1965), p. 392.
For the definition of “net liquidity position,” see Reserve Bank of India, Bulletin, February 1965, pp. 198-200.
Sveriges Riksbank, Yearbook, 1963 (Stockholm, 1964), p. 32.
In Chile, for example, the discount rate since April 1959 has been fixed twice a year (in June and December) and is equal to the weighted average interest rate charged by commercial banks on their own loans during the preceding year. This rate is therefore rather high, and banks do not have much inducement to discount at the Central Bank. However, in November 1963, to encourage the development of nontraditional exports, the Bank established a rate of 2 per cent per annum for discounting this kind of paper and has since provided substantial amounts of credit at that rate.