Wednesday, December 3, 2014

Fraser - A Biographyof the Exchange Stabilization Fund


From Obscurity to Notoriety: 

A Biographyof the Exchange Stabilization Fund


--- pg 138

"6. Gold was held as an ESF asset only until 1975. See the discussion in section 2C. below. Note,however, that at IMF gold auctions in 1977, the Treasury purchased gold which it sold to the ESF (Trea-sury AR 1977, p. 158). The official source does not explain why the ESF acquired this gold and how it disposed of it. An entry for gold appears on the ESF balance sheet at the end of the first three quarters of1977 and not thereafter."
"...Balance-of-Payments Concerns. A deterioration in the U.S. balance of payments,  as measured by outflows of gold and dollars to countries in surplus, aroused the concern of the Kennedy administration when it took office in January 1961. The lossof gold to foreigners in that month was seen as an expression of a lack of confidencein the administration's commitment to a dollar convertible into gold at a fixed price.The twin goals became to eliminate the balance-of-payments deficit and to checkspeculation against the dollar. To achieve the second goal the Treasury wanted to bein the same position as other countries that influenced the exchange value of theircurrencies. That required resources to buy and sell other currencies or, in officialparlance, sales and purchases of dollars.To that end the ESF began to operate directly in the foreign exchange market. ByJune 1961 it had bought spot $25.4 million sterling, $20.1 million D-marks, and$65 million Swiss francs to counter threats against the dollar.In March 1961, after revaluations of the D-mark and the Dutch guilder, the ESFmade forward sales of D-marks to drive down the forward premium on the mark(discount on the dollar). The Treasury's forward mark commitments were liquidatedby early December; it used marks it had acquired in April 1961 from a German debtrepayment to the United States to settle in part forward contracts that were maturingin the fall of 1961.There were similar forward operations by the Treasury in Swiss francs and Dutchguilders to bring down the premium on these currencies. As a response to the rise inthe exchange value of the Italian lira in 1961 to its upper limit against the dollar, theTreasury took over forward lire contracts from the Italian foreign exchange officeand drew on a $150 million line of credit in lire it obtained by issuing three-monthcertificates of indebtedness to support spot and forward operations in lire. As a re-sult dollar accumulations in Italy were lessened.Even these limited operations strained the resources of the ESF. In June 1961 ithad $200 million capital plus $136 million in net earnings accumulated over itstwenty-seven-year life. Average annual net earnings approximated $5 million, fromincome on gold bullion sales, gold and exchange transactions, and interest on itsgovernment securities portfolio. To finance its foreign exchange purchases of rough-ly $100 million in 1961, the ESF had reduced its account at the Federal ReserveBank of New York by $91 million and sold U.S. government securities. The Treasury's immediate aim was to find ways to supplement ESF foreign cur-rency balances.9 It did so first by persuading the G-10 countries to create a facilitythat would expand the IMF's ability to lend. The IMF held only about $1.5 billion incurrencies other than dollars. The new facility, established in December 1961, wasthe General Arrangements to Borrow (GAB), which provided the IMF with a$6 billion line of credit from central banks in surplus to assist countries in deficit, inparticular, the United States. The U.S. quota in the IMF was nearly $6 billion, so itcould not draw enough to meet its reserve needs; the GAB was intended to serve asa supplementary source of liquidity for the United States. The IMF would sell to theUnited States for dollars foreign convertible currencies borrowed from other countries. These currencies would enable the United States to buy up dollars offered inthe market and to redeem dollars foreign central banks did not want to hold, thusmaintaining U.S. monetary gold reserves.The Treasury next persuaded the Federal Reserve to serve as its partner in ex-change market intervention. So begins the second period of ESF intervention operations.The Federal Reserve as ESF Partner. The Federal Open Market Committee(FOMC) authorized open market transactions in foreign currencies for the accountof the Federal Reserve System on February 13, 1962. Before that date the FederalReserve Bank of New York served as the agent only of the ESF in executing itslimited foreign currency transactions. Since that date it has served both the ESF andthe Federal Reserve System. In support of its decision to engage in intervention op-erations, the FOMC cited "the need to supplement the relatively small resourceswhich the Treasury Stabilization Fund had available and had been using to defendthe dollar from speculative attack in the foreign exchange markets since 1961"(Board AR 1962, p. 11).Since this paper is a study of the ESF, 1 shall refer to the Federal Reserve's opera-tions only in relation to the conduct of the ESF. The first imperative for the FederalReserve, once it determined that it had the legal authority to intervene, was to ac-quire foreign currencies for its future operations. It did so by purchasing from theESF in 1962 dollar equivalents of $32 million in D-marks, and of one-half milliondollars each in Swiss francs, Dutch guilders, and Italian lire to open accounts at thecentral banks that issued these currencies.This initial Federal Reserve purchase of currencies owned by the ESF has beencited as the origin of "warehousing," the euphemism that later came into use to de-scribe the provision of funds to the ESF outside the Congressional appropriationsprocess (Todd 1992, pp. 132-33).10 It was not until 1977, however, that warehous-ing of foreign currencies for the ESF was formally authorized by the Federal Re-serve..."


Tuesday, December 2, 2014




"How much gold should be sold is a matter ofjudgment. It is 
possible to mount a case for selling it all, but short of this 
there is scope to sell about half the gold and still have 
reasonable holdings by world standards. As noted, 
Australia's gold holdings in terms of GDP are towards 
the top end of the range for countries outside Europe. 
If anything, Australia, as a large gold producer, 
should be at the bottom of this range - ie, as a nation, 
we have very large reserves of gold in the ground 
and the question arises as to why we would want 
to hold much in central bank vaults..."

Financial Markets Group! Business Services Group 
27 November 1996

Friday, November 21, 2014


Robert J. Shiller
February 1998

Box 2125, Yale Station
New Haven, Connecticut 06520


"Historical Antecedents of Indexed Units of Account
While the UF is apparently the first successful unit of account indexed to a true price index, the use of units of account separate from money has been known for millennia. Of course, historically, units of account precede money altogether, at least precedes money as we know it. Trade in terms of precious metals themselves, rather than any money, actually preceded the invention of coinage in the seventh century B.C. Units of weight, such as the talent or the shekel, evolved into units of money when coins were minted that had specified relations to the weight. But, since governments could not be trusted to maintain the weight of the coinage, a tradition developed to write contracts in units that did not correspond to any current coins:

Einaudi (1953, pp. 234–235) wrote:
Today each country has only one monetary unit: the lira, the franc, mark, pound
sterling, or dollar. This is the system established by the French assemblies at the
end of the eighteenth century. . . . Prior to the French Revolution, the monetary
system of most European countries was based on altogether different principles.
Contemporary authors could take these principles for granted and did not have to
explain them to others. Their strange terminology causes us, who live in another
world, to wander for a while in a dark forest. By and by, we finally understand the
tacit assumptions of their discourses. The key, needed to interpret the apparent
confusion of the monetary treatises written prior to the eighteenth century, is the
disjunction between a monetary unit and a standard of value and of deferred payment

and another monetary unit used as a medium of exchange.
In medieval and renaissance times, even contracts that were explicitly written in terms of units of currency that were currently circulating as coins sometimes were understood to be executed in terms of some other measure. For example, in Milan in 1445, a debt of one florin would not be paid with one of the gold florin coins, but rather in an amount computed under the assumption that the florin was still worth 384 silver deniers (and not the 768 deniers that the florin coin was then worth), see Cipolla (1956).
Since there were often no coins currently circulating corresponding to these units, the actual units of account were often called “imaginary money.” They were also called “moneta numeraria,” “money of account,” “ideal money,” “political money,” or “ghost money.” From the time of Charlemagne, trade and contracts in Europe were substantially based on the moneta numeraria called the pound, (or equivalently, “livre” or “lira), which was always worth 20 sous (shillings) and each sou worth 12 deniers (pence), see Einaudi (1953). Ultimately, the standard of value represented by this system was the silver denarius issued by Charlemagne in the late eighth century and early ninth centuries, coins that were no longer circulating, or even seen, later in the middle ages and renaissance. Charlemagne’s denarius weighed one 240th of a troy pound, while the earlier Roman denarius had gone through repeated debasements, and was not a unit of account in medieval or renaissance times. Because they are even fractions, the sou (at twelve deniers) and pound were natural units of account, but Charlemagne never issued coins representing these values. Actual exchange was executed in terms of current coinage, which had many names from the realms that issued them, names such as angels, blanks, crowns, crazies, doblons, dollars, douzains, ducats, ducatoons, écus, farthings, florins, guilders, louis, moutons, nobles, obols, phillipi, reals, sovereigns, stivers, and testoons. Many of each of these would circulate simultaneously in each country, a situation that would create tremendous confusion if there were not a standard unit of account..."



Sunday, November 16, 2014

EC - Report on economic and monetary union in the European Community

Report on economic and monetary union in the European Community

Collection of papers submitted to the Committee for the Study of Economic and Monetary Union


Friday, November 14, 2014

BdF - Managing Gold as a Central Bank


Alexandre Gautier
Director of Market Operations Department, Banque de France

III. Gold and Banque de France Asset Allocation
1. A Changing Environment Long Before the Crisis
An important point from a Banque de France and probably Eurosystem perspective is to be really aware that we have been in a changing environment for many, many years and I would just like to focus on a few points:
(M: Yes, it is known we are going off the USD as the only reserve currency IMS)
 Due to the Eurosystem, the European Central Bank has its own FX reserves. This means that in case of intervention we will first use ECB reserves and then the FX reserves of the national central banks. This is why we do not have the same liquidity constraint, so it was also an important evolution.
(M: explains also why ECB has a veto on member state reserves, other member states assets are not harmonized so for better eficiency it has to be this way)
 Under pressure from the public and shareholders, we have to move in a more efficient way to manage the Bank and a way to do this is to reduce cost, but another way is to increase income.
(M: appologises to soften poblic opinion that gold was sold in past at lower prices)
 Due to the functioning of the Eurosystem, we have regular meetings of national central banks where we discuss many topics in market operations and, of course, financial instruments. When you want to introduce, for example, futures or options, you will probably find another central bank within the Eurosystem that already has this instrument among their available financial instruments. Therefore, it helps you to implement new financial instruments.
(M: Gold policy is a shared and coordinated issue)
 When we recruit people from university, they all have a minimum background in finance and are all fully aware of the asset allocation process and so on, meaning that it is also a help for us to move towards better allocation of our assets.
 The question of IT systems was a big issue in our case. We also need up to date IT systems to be able to move towards more diversification.

H/T to 

Tuesday, October 14, 2014

IMF - Cooperation on trial


"The International Monetary Fund is again offering to the public a major work describing its history. This new sequel of three volumes covers the period 1972 to 1978. An earlier set of three volumes, published in 1969, recounted the origins of the Fund and the first twenty years of its existence, and an additional two volumes, published in 1976, related the Fund's history from 1966 to 1971.
The seven years covered here, spanning most of the decade of the 1970s, were particularly turbulent for the international monetary system and for the Fund. To help its members deal with the severe economic problems that arose in those years, the Fund initiated many activities, greatly increased its lending, and, following the collapse of the par value system and of negotiations to introduce a fully reformed system in the near future, undertook to supervise a gradually evolving international monetary system. Volume I and Volume II, Narrative and Analysis, describe at length these economic problems and the Fund's actions. Considerable effort has been made to explain not only what happened but also why. Volume III reproduces the most important documents published by the Fund from 1972 to 1978 and makes available several papers previously unpublished.
Many problems for which the Fund has had to take on increasing responsibility in the years after 1978, such as those arising out of the heavy external indebtedness of a number of developing members, increasing protectionism, the flow of international capital, and the need for Fund surveillance of exchange rates, originated in the period described here. Hence, in publishing these volumes, the Fund hopes to promote understanding of its present work, as well as its past. Margaret Garritsen de Vries, the Historian of the International Monetary Fund, who came to the Fund in 1946 as one of its first staff members and who was the author of the History for 1966-71 and part of the History for 1945-65, has written this History. As in the past, she has had full access to the Fund's records and has interviewed governors of the Fund, members of the Executive Board, and colleagues on the Fund staff. While these volumes are once again, as the Forewords to earlier volumes state, "history written from the inside," they are the personal responsibility of the author, and no statement or opinion expressed should be understood as committing the Fund in any way."

August 1985 J. de Larosiere

Managing Director
International Monetary Fund


Laffer - Reinstatement of the Dollar: The Blueprint

Restoration of a link between gold and the dollar does not, per se, guarantee stability.  Done improperly, such a policy change could cause enormous dislocations to the economy.  The blueprint for a successful return to dollar convertibility, presented here, includes a transition period to assure that it is the gold market, not the economy, that makes the initial adjustment inherent in a return to a gold based monetary system.  “Safety valves” also are provided to minimize the chances of altercations in the gold market being force upon the economy as a whole.

Monday, October 13, 2014

FRASER - Report to the Congress of the Commission on the Role of Gold in the Domestic and International Monetary Systems

This report was submitted pursuant to Public Law 96-389, to conduct a study to assess and make recommendations with regard to the policy of the U.S. Government concerning the role of gold in the domestic and international monetary systems. Volume 1 addresses monetary standards and includes a gold market statistical compendium. Volume 2 contains five annexes to the report including supplementary and dissenting views and summaries of statements submitted to the commission.


Thursday, September 4, 2014

Three Evolutionary Proposals for Reform of the International Monetary System

Three Evolutionary Proposals for Reform of the International Monetary System
by Edwin M. Truman,

Peterson Institute for International Economics Extension of prepared remarks delivered at the Bank of Italy’s Conference in Memory of Tommaso Padoa-Schioppa. December 16, 2011
Note: In preparing these extended remarks, I have benefitted from the advice and encouragement of C. Fred. Bergsten, Andrew Crockett, Joseph Gagnon, Isabelle Mateos y Lago, and John Williamson, who are not responsible f or the views expressed.

"It is an honor and special pers onal pleasure to participate in this conference in memory of Tommaso Padoa-Schioppa....


Tuesday, June 10, 2014

IMF - Update of the International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template

Last Updated: September 11, 2013 The IMF Statistics Department, in consultation with the Reserve Assets Technical Expert Group, member countries, and other IMF departments, has prepared the updated International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template (Guidelines). The Guidelines were initially released in 2001, and this update was needed to ensure consistency with the Data Template on International Reserves and Foreign Currency Liquidity (“Reserves Data Template”) itself, which was modified in 2009 as a consequence of the Executive Board’s Decision to strengthen the effectiveness of Article VIII section (5) of the Fund’s Articles of Agreement. In addition, some clarifications to the Guidelines were necessary to ensure consistency with the text of the sixth edition of the Balance of Payments and International Investment Position Manual. Some clarifications to the Guidelines were also necessary based on the IMF Statistics Department’s experience with member countries that report on the Reserves Data Template. The updated Guidelines include three new appendices. Appendix 6, “Reserve Assets and Currency Unions”, provides further methodological guidance for reserve assets in the circumstance where an economy is a member of a currency union. Appendix 7, “Frequently Asked Questions on the Characteristics of Reserve Assets”, provides information to assist countries in identifying reserve assets. Appendix 8, “Statistical Treatment of Lending to the IMF, Lending to IMF Managed Trusts, and Special Drawing Rights”, clarifies the statistical treatment in the cases where the IMF is actively engaged as a principal, manager, or administrator of positions or transactions. The updated Guidelines contribute to the IMF's initiatives to enhance data transparency among its member countries and to provide international methodological standards. They therefore support analysis and financial surveillance, and the adoption of sound macroeconomic policies. Source:

Wednesday, April 16, 2014

Ch.Noyer: ...we will use every instrument within our mandate...

"Should we note a deviation from this path, we will use every instrument within our mandate, including unconventional ones, in order to cope effectively with risks of a too prolonged period of low inflation," European Central Banker Christian Noyer told a luncheon at the New York Stock Exchange.


Wednesday, March 5, 2014

HK - JY - The Future of the Monetary System of Hong Kong

The Future of the Monetary System of Hong Kong
Professor the Honourable Joseph Yam,
Working Paper No. 9
June 2012 
"...More often than not,
regrettably, without the pressures of a crisis
that is either looming large or already ongoing, 
significant differences of opinion not resolved 
would result in the status quo 
being maintained. 
Reform of the monetary system in peaceful time takes leadership, 
foresight, courage and effective persuasion,..."






JUNE 23, 2011

Printed for the use of the Committee on Financial Services
Serial No. 112–41


Friday, February 28, 2014

FONAD - JJT - Global Imbalances and Developing Countries: Remedies for a Failing International Financial System

Forum on Debt and Development (FONDAD)
FONDAD is an independent policy research centre and forum for international
discussion established in the Netherlands. Supported by a
worldwide network of experts, it provides policy-oriented research on a
range of North-South problems, with particular emphasis on international
financial issues. Through research, seminars and publications,
FONDAD aims to provide factual background information and practical
strategies for policymakers and other interested groups in industrial,
developing and transition countries.
Director: Jan Joost Teunissen

Global Imbalances and Developing Countries Remedies for a Failing International Financial System

Edited by
Jan Joost Teunissen and
Age Akkerman

Acknowledgements ix
Notes on the Contributors x
Abbreviations xv

I/ Introduction 1
Jan Joost Teunissen

II/ Global Imbalances and the Implications for Africa 8
Louis Kasekende

1 Why Worry About the Global Imbalances? 9

2 Global Adjustment Scenarios 11

3 Where is Africa in All These? 12

4 Conclusion 17

III/ East Asia’s Role in Resolving the New Global Imbalances 19
Masaru Yoshitomi, Li-Gang Liu and Willem Thorbecke

1 The Nature of the New Global Imbalances 20

2 The Sustainability of the New Global Imbalances 23

3 Necessary Adjustment Policies in the US 25

4 East Asia’s Role in Resolving the Current Global Imbalances 27

5 Conclusion 32

IV/ An African Perspective: Comments on Yoshitomi, Liu and
Thorbecke 37

Brian Kahn

1 The Investment-Savings Balance and Exchange Rate Policies 37

2 Systemic Crises and Concerted Action 39

3 Accumulation of Foreign Reserves 40

4 Concluding Remarks 41

V/ Rebalancing Savings-Investment Gaps in East Asia 42
Yonghyup Oh and Seeun Jeong

1 Should East Asian Capital Be Relocated Within the Region? 44

2 Barriers to Capital Market Integration in East Asia 49

3 Concluding Remarks 52

VI/ The Need for a Longer Policy Horizon: A Less Orthodox Approach 57
William R. White

1 Secular Trends 59

2 Current Exposures: Do They Warrant a Policy Response? 71

3 Towards a Domestic Macrofinancial Stabilisation Framework? 77

4 Towards an International Macrofinancial Stabilisation Framework 86

5 Conclusion 88

VII/ Global Imbalances and the Role of the IMF 93
Ariel Buira and Martín Abeles

1 The Risk Posed by Global Macroeconomic Imbalances 95

2 The Fund’s Potential Role in Dealing With Global Imbalances 109

3 A G-20 Accord and the Need for a Counter-Cyclical Facility 114
4 Conclusion 119

VIII/ Global Imbalances and the Role of the IMF: A Comment on
Ariel Buira and Martín Abeles 124

Mark Allen

IX/ The Future of the International Monetary System 128
John Williamson

X/ A More Balanced International Monetary System 133
Jane D’Arista

1 Creating a Public International Investment Fund for Emerging Economies 135

2 Reforming the International Payments System 137

XI/ Reforming the International Monetary System: Comments on
Jane D’Arista and John Williamson 141

Henk Brouwer

XII/ A Response to the Comments of Henk Brouwer 145
Jane D’Arista

 Contents of the Previous Volume

Global Imbalances and the US Debt Problem: Should Developing
Countries Support the US Dollar?

I/ Should Developing Countries Support the US Dollar?
By Way of Introduction
Jan Joost Teunissen

II/ Global Imbalances and Emerging Markets
Barry Eichengreen and Yung Chul Park

III/ Global Imbalances and Latin America: A Comment on
Eichengreen and Park

Barbara Stallings

IV/ The Dilemmas and Dangers of the Build-Up of US Debt:
Proposals for Policy Responses

Jane D’Arista and Stephany Griffith-Jones

V/ Currency Asymmetry, Global Imbalances, and Rethinking of the
International Currency System

FAN Gang

VI/ China’s Macroeconomic Imbalances: The Liquidity Tango Mechanism
Wing Thye Woo

VII/ How Effective Is Monetary Policy in China? A Comment on
Woo’s “Inflationary Tango”

Zdenĕk Drábek

VIII/ Asian Monetary Coordination and Global Imbalances
Yonghyup Oh

IX/ Understanding Imbalances in a Globalised International
Economic System

Jan A. Kregel

X/ Policy Recommendations for the US, Europe and Asia:
By Way of Epilogue

Jan Joost Teunissen


Tuesday, January 28, 2014

OPEC - Keynote speech to the "Middle East and North Africa Energy 2014"

Delivered by HE Abdalla S. El-Badri, OPEC Secretary General, at the Chatham House Conference: Middle East and North Africa Energy 2014, Theme: 'New Uncertainties and New Opportunities', Session One: 'Gulf Region Scenarios', London, U.K, 27-28 January 2014