de Vries, Margaret Garritsen, The International Monetary Fund 1966-1971: The System Under Stress, Vol. I: Narrative (Washington: International Monetary Fund, 1976).
Frenkel, Jacob A., “International Liquidity and Monetary Control,” in International Money and Credit: The Policy Roles, ed. by George M. von Furstenberg (Washington: International Monetary Fund, 1983), pp. 65–109.
International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 1982 (Washington, 1982).
International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 1983 (Washington, 1983).
Machlup, Fritz, “Euro-Dollars, Once Again,” Quarterly Review, Banca Nazion-ale del Lavoro (Rome), No. 101 (June 1972), pp. 119–37.
Rhomberg, Rudolf R., “Zahlungsbilanzfinanzierung und Reserveschaffung,” in Geldwertstabilitat und Wirtschaftswachstum, ed. by Hans Seidel (Göttingen, Federal Republic of Germany: Vandenhoeck & Ruprecht, 1984), pp. 147–69.
Mr. Rhomberg, Deputy Director of the Research Department, is a graduate of the University of Vienna and of Yale University. He has been a member of the faculty of the University of Connecticut and of Yale University. He has contributed chapters to several books on economic subjects and articles to economic journals.
This paper was originally prepared for a seminar on “Monetary Stability and Economic Growth,” organized by the Fund in cooperation with the Austrian National Bank and held in Baden, Austria, on October 11-14, 1983 (see Rhomberg (1984)).
The SDR envisaged in this section is not identical in all of its characteristics with the SDR actually issued by the International Monetary Fund in accordance with its present Articles of Agreement.
The question of how SDRs could be injected into the world economy, by allocation or in other ways, is taken up later in this section, under “Financing of Payments Imbalances.”
In the system envisaged in the text, all exchange rates could be devalued, or could depreciate, simultaneously against the SDK. By contrast, under current rules for the valuation of the SDR on the basis of a basket of currencies, depreciation of one of the basket currencies against the SDR would entail appreciation of at least one other basket currency.
Adjustment to a shortage of reserves would be more compelling, however, than adjustment to a surfeit.
Such a transfer would be in the nature of foreign aid because in the pure SDR system, in contrast to the present SDR system, no charges would be paid on the amount of allocations received.
In the SDR system in operation at present, little or no seignorage accrues. Recipients of allocations pay interest on them (called “charges”) to the Fund, while the Fund pays interest at the same rate to holders of SDRs. Under these rules, SDR allocation has the character of an exchange of assets. In the terminology of monetary theory, it is “inside money.” In the early years of operation of the SDR system, rates of interest and charges were low (1.5 percent a year; de Vries (1976, p. 182)) relative to market rates. SDRs were considered more nearly an “outside money”—paper gold, as the press called them at the time—and seignorage accrued to the recipients of allocations at a level depending on the excess of market rates over the SDR interest rate of 1.5 percent.
Even when private gold holdings were in some countries restricted by law, as in the United States from 1933 to 1974, gold continued to be an important medium for the private holding of wealth in the world economy.
For this reason, additions to gold reserves, produced at a marginal cost equal to their value, did not involve seignorage.
The more elegant prefix “xeno-” fas in “xenomarkets” and “xenocurrencies”), suggested by Fritz Machlup (1972, p. 120), has unfortunately not succeeded in replacing the awkward (and somewhat imprecise) customary prefix “Euro-” used in the text.
This concept was called “official settlements balance” (see International Monetary Fund (1977, pp. 53-54)). It included changes in official U.S. reserve holdings, which would, however, be zero in a pure dollar standard.
Consequently, very little if any seignorage would accrue to the United States; any excess of U.S. lending rates above deposit or Treasury bill rates would largely reflect risk elements.
The first of these risks combines moderate potential losses with relatively high probabilities of occurrence, whereas the second attaches relatively low probabilities to large potential losses.
The present period of stringency in international capital markets marks an exception to the general statement in the text. The credit rating of some basically creditworthy countries may be temporarily impaired through “contagion”—that is, through association (geographic or other) with countries whose credit standing has been damaged.
Article VIII, Section 7.