Thursday, August 18, 2016

FRB - AG - Remarks by Chairman Alan Greenspan - Currency reserves and debt

Remarks by Chairman Alan GreenspanCurrency reserves and debt

Before the World Bank Conference 

on Recent Trends in Reserves Management, Washington, D.C.

April 29, 1999




One way to address the issue of the management of foreign exchange reserves is to
start with an economic system in which no reserves are required. There are two.
The first is the obvious case of a single world currency.
The second is a more useful starting point: a fully functioning, fully adhered to,
floating rate world.


All requirements for foreign exchange in this idealized, I should say, hypothetical,
system could be met in real time in the marketplace at whatever exchange rate prevails.
No foreign exchange reserves would be needed.


If markets are functioning effectively, exchange rates are merely another price
to which decisionmakers--both public and private--need respond.
Risk-adjusted competitive rates of return on capital in all currencies would converge,
and an optimized distribution of goods and services enhancing all nations' standard
of living would evolve.


Only liquid reserves denominated in domestic currency would be required by public
and private market participants. And in the case of a central bank of a fiat currency regime,
such reserves can be created without limit.


But, clearly, the real world is not perceived to work that way..

Read in full here ->


Source: https://www.federalreserve.gov/boarddocs/speeches/1999/19990429.htm




Wednesday, August 17, 2016

OECD - Crisis Management in the International Monetary and Financial System

Crisis Management in the International Monetary and Financial System

OECD Working Party 3 (1961-1979)

by Kazuhiko YAGO


"The postwar international financial system went along with several “forums” of decision making, official as well as unofficial. Starting with the Bretton Woods Institutions, namely the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, the World Bank), bi-lateral negotiations between the United States and the European countries took part in the “forum” for reconstruction; the Bank for International Settlements (BIS) and the European Payments Union (EPU) began to play important roles in the 1950s; several “Groups”, from the G10, C20 to the G5, G7, faced the reform of the Bretton Woods System. Of the above “forums”, one of the most enigmatic bodies was the Working Party 3 (WP3) of the Organisation for Economic Cooperation and Development (OECD). Set up in 1961 as a mere technical working group for the Economic Policy Committee (EPC) of the OECD, the WP3 soon became an important meeting place to discuss the overall strategies of the world economy. Chaired by Emile van Lennep (later Secretary General of the OECD), the WP3 brought together not only the brightest agents of the OECD member countries, but also representatives of the BIS and the IMF..."

Source: http://www.waseda.jp/w-com/quotient/publications/pdf/wcom439_09.pdf

Monday, July 25, 2016

Oldies 1969 goldies - 115. Talking Paper Prepared in the Department of the Treasury

VG/LIM/69-17 (Corr.)
PRESIDENT NIXON'S TRIP TO EUROPE
February-March 1969
International Monetary System (for use in United Kingdom, Germany, Belgium, Italy; see separate talking paper for France)
1. We are both interested in improving the international monetary system.
2. In this context, it is essential to bring inflation under control in the United States. This is a major goal of my Administration.
3. We have been looking in a preliminary way at a number of proposals to see whether there are responsible improvements that can be made in the system. On most of these we have no final view. I would be glad to hear what is in your mind.
4. We have decided that an early and substantial activation of the Special Drawing Rights would be extremely useful. This would be a demonstration to the exchange and gold markets that we “mean business”, as we say in the United States. A hesitant approach in timing or magnitude would encourage those who profit from uncertainty. It would leave individual monetary authorities under political pressure to build up their gold reserves to an unnecessary and undesirable degree. I want to make clear that we do not regard activation of Special Drawing Rights as absolving us from the fiscal and monetary discipline needed to improve our balance of payments position.
5. (If the discussion proceeds to more specific questions as to where and how many Special Drawing Rights we would like to see created, the following might be added.) I understand that during the negotiations, illustrative figures were mentioned for activation at the rate of about $1.5-$2 billion a year for the initial period of five years. My advisers say it would be the part of wisdom to begin with a substantially [Page 304]higher figure, particularly in 1969 and 1970. Ideally we would like to see activation before August, to be announced at the end of September at the IMF Annual Meeting.
6. There is a second problem that concerns us. The process of international adjustment of balances of payments has become too dependent upon selective controls and restraints. We would like to stop the drift in this direction and search for other methods of reducing excessive and persistent deficits and surpluses.
7. We owe it to ourselves to explore every possible new proposal for improving the system, including those under discussion in academic circles. We must be careful to do so without upsetting confidence.
8. Whatever changes we might encourage in the monetary system, none will avoid periodic crises affecting individual currencies. As a result, we will continue to need intensive financial cooperation.
8a. (Only for Germany and Italy) We appreciate the efforts made by your country to channel excessive inflows of capital out of reserves and into international monetary and capital markets, as well as your participation in financial assistance for countries facing exchange difficulties.
9. I share the view that, unless we have reached a closer meeting of minds, it would be dangerous to undertake a formal international monetary conference.
10. Finally, you should know that I am not going to seek an answer to these problems through a change in the monetary price of gold.2 I do not see the need or reason for such action.
Final Note
11. If any interest is expressed in pursuing bilateral discussions with the United States, you might say that Secretary Kennedy would be [Page 305]glad to meet with representatives of the country concerned in Washington.
  1. Source: Washington National Records Center, Department of the Treasury,Volcker Group Masters: FRC 56 86 30, VG/LIM/1-VG/LIM/30. Confidential; Limdis. An attached cover note from Willis to members of the VolckerGroup, dated February 19, indicates that page 1 was a corrected copy. A February 17 draft, labeled “2nd draft,” indicates Willis prepared it. (Ibid., Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Current Problems and Contingency Planning 11/68-4/69) President Nixontraveled to Belgium, the United Kingdom, the Federal Republic of Germany, Italy, and France February 23-March 2. See Document 116 for a Talking Paper prepared for the President's use in France.
  2. On February 20 Chairman of the Council of Economic Advisers McCrackensent President Nixon a memorandum regarding De Gaulle and the price of gold. McCracken saw no need for the President to respond directly to an anticipated request, “on a metaphysical level,” to increase the price of gold but to emphasize “our interest in a better monetary system, and our concern about growing controls over trade and capital movements.”McCracken saw no advantage to increasing the gold price but concluded: “It is equally important not to allow the French, or anyone else, to see any signs of flexibility on gold except in the context of our general position. If we are to be cooperative on gold, there must be a total package that makes it worth our while.” (National Archives, Nixon Presidential Materials, NSCFiles, President's Trip Files, Box 442, Feb-March 69 Trip to Europe) On February 22 Arthur Burns also sent the President a memorandum on gold.Burns wrote: “you have been correctly advised to show no interest on our part in an increase in the price of gold… . By all means let us try to keep the official price as it is, but let us also watch carefully the costs that we may incur through such a policy. And whatever else we may do, let us not develop any romantic ideas about a fluctuating exchange rate: there is too much history that tells us that a fluctuating exchange rate, besides causing a serious shrinkage of trade, is also apt to give rise to international political turmoil.” (Ibid.

Wednesday, June 1, 2016

Two esseys by Jude Wanniski


1/ It's a Big World -December 1, 1998

"...The idea that mankind is cooking the earth by burning hydrocarbons makes sense when you hear an advocate explain it. When I heard opponents oppose it, I found they made sense too. If there is a political draw, the tendency is to split the difference. But I was not happy with this outcome and again went to Easterbrook, who covered the environment for Newsweek. I found in his book, A Moment on the Earth, that he comes down about 90% for the skeptics. I then decided to make some inquiries of my own. I began with ...

...That seemed like a lot of hydrocarbons. Holy smokes, billions of barrels!!! But I wanted to imagine it in one place. How much area would it cover if it were a giant pool of petroleum? After some simple arithmetic, I realized the pool was not as big as I thought it might be, and would not put a dent in any of the Great Lakes, I wondered how many Lake Tahoes it would fill. We called Tahoe and were quickly told they had a precise estimate of the number of barrels of water in that alpine lake on the Nevada/California border. Eleanor, can you believe 946 billion barrels? In other words, if you drained all the water out of Tahoe and filled it with all the oil ever consumer by mankind, it would not quite fill ONE FIFTH of the cavity!..." 

Source: http://www.polyconomics.com/memos/mm-981201.htm


2/ One Energy Crisis After Another - December 8, 2004

"...The reason there were no shortages prior to the “floating dollar” that we are still living with is that the energy industry knew that if the dollar/price of gold was $35 oz today and would be $35 oz ten years from now, the price of oil at $2.50 bbl today would be in the ballpark of $2.50 ten years from now. The oil market, without having meetings to regulate supply in an attempt to fix the oil price, would automatically operate in a way that always kept a 10% surplus of an oil delivery system ready to go if there was an unexpected disruption… a worker’s strike, a hurricane, a war, tensions in the Middle East that looked like war, etc. There was never, ever any discussion about the United States having a “strategic petroleum reserve” on hand to meet such contingencies. If there was a disruption over here, our private oil companies could easily switch to the buffer supplies over there. The price of delivery might increase by a few cents a barrel, but once the crisis passed everything would go back to normal...."


Source: http://www.polyconomics.com/memos/mm-041208.htm

Spiegel 1971 - Karl Blessing interview

"THIS LETTER IS UNFORTUNATELY STILL VALID TODAY"


Karl Blessing died during his vacation in southern France last week aged 71. He was the president of the Deutsche Bundesbank from 1958 to 1969. The last major interview before his death was granted to SPIEGEL editor Leo Brawand for a nonfiction book, under the title "Where is the German economy heading?" that will be released next autumn in Munich based publisher Kurt Desch.

From the interview we have extracted the following excerpt about inflation:

QUESTION: Mr. Blessing, it is possible to have full employment, price stability and a balance of payments equilibrium at the same time?
BLESSING: This is an idealism that is very beautiful, but not feasible in this world.

QUESTION: Other countries don't take it as seriously with monetary. You know the quote of the "Financial Times" in London, there is always the German hunter Schmidt, who does a false step?
BLESSING: I would assume the wrong step and would correct every time needed by a change in exchange rates, that is how far I am today.

QUESTION: That would ideally mean floating exchange rates or very large bands for exchange rates?
BLESSING: I would not introduce floating exchange rates, but I would ask: When does a balance of payments imbalance occur? If a fundamental imbalance is present, every two or every three years, you have to change the mark currency exchange rate.

QUESTION: What do you think of the Brussels proposals, to get closer to monetary union in Western Europe initially through a coordinated monetary policy for a transitional period from 1971 to 1973, and especially in budgetary policy with a binding coordination rule ?
BLESSING: It will be extremely difficult, a very difficult undertaking, the good Mr. Werner, I know him very well, I often had contact with him, is an idealist. If his plan were possible it would be wonderful. But the conditions are different. How do you want to force a national parliament to make certain things or not to do them?

QUESTION: Exactly, because all that has a domestic political effect
BLESSING: ... internal political effects that can lead to other election results or anything else. How can you do that? The French - the good Giscard d'Estaing is considered a monetarist. He wants to move forward through the currencies in the EEC. But when it comes to give up sovereign rights or to pool, then the French Government does not want to participate. So what is the logic in that. If a wage explosion comes as Italians did in the fall of 1969 or à la France in May 1968, how do you want to have a single currency, a monetary union? This is only possible if all the politicians are willing to waive sovereign rights and to transfer the sovereignty to a headquarters in Brussels.

QUESTION: At a central European central bank?
BLESSING: Yes, if one were to create a European central bank, a Federal Reserve System of Europe, which is autonomous from the governments - and within this system governments would only be able to finance budget deficits to some degree - then you could get it right.

QUESTION: It is to be expected, that the dollar flow to Europe because of the American Chronic payment deficit contributes to our inflation ...
BLESSING: ... it has contributed to a significant extent

QUESTION: ... that inflow could be slowed down through the construction of such a European currency, so to speak, as a counterweight to the dollar.
BLESSING: There is no doubt that we could, if we had really the political will in the EEC, to form a hard currency block whose rates could then fluctuate against the dollar. We could then leave the dollar standard, that we have today. Because in practical terms we a dollar standard.

QUESTION: Yes, sure, and is it not that we - for example, and also you during your time at the Bundesbank and still today - by retaining American US Treasury securities, and large dollar holdings and by not exchanging dollars to gold we substantially support the Americans ...
BLESSING: ... and have supported the Americans. I tell you today that I myself personally feel guilty regarding this question. I should have been more rigorous with America. The dollars that arrived in Germany should simply have been rigorously exchanged to Gold,

QUESTION: With the support of the central banks, the Americans have never come under pressure?
BLESSING: No, they have never come under pressure with their monetary policy. They always made promises: Well, next year it will be different, in the next two years we will get the budget and everything in order, we are strong. They are strong as an economic nation. But they never made it, there was always something else. Then came the Vietnam war, President Johnson and his financial policies, with a 25-billion-dollar budget deficit in one year. All those were reasons for the inflation. I often said to my American colleagues: It's always continues with you, then the story with the troops started.

QUESTION: You mean the threat of the Americans: If you do not support the dollar in this way, we pull the troops back from the Federal Republic?
BLESSING: It was never a verbal threat, but the threat was always there in the background. The former High Commissioner McCloy was once at the German Government and said: Listen, we had a Senate decision and there will be soon a majority that might want to get as back. We have to do something. He called me on a Sunday afternoon at half past three at home and said: "I have to fly back tonight, can we meet?" And I told him. "My dear McCloy, your situation is clear, you have a balance of payments problem and nothing more. You've seen we have been reasonable and have not converted our dollars to gold. I am willing to give you that even in writing for a certain period. Unfortunately the letter I wrote still applies today.

DER SPIEGEL 19/1971


Repost from: https://docs.google.com/document/d/1UnRwDaygM4aIkFMjnEbwBNMop5KPrhfdyXQ40LdYO2E/edit?pref=2&pli=1

Friday, December 18, 2015

Dick Ware - The IMF and Gold

RESEARCH STUDY 26

The IMF and Gold

Revised edition, May 2001

(originally published as Research Study 20 in July 1998)

by Dick Ware


"...From the written material that survives it seems as though the possibility of a basket including gold was never explicitly considered. In a subsequent article, however,16 the late Sir Joseph Gold gave it as his opinion that even the partial use of gold would be precluded. As the principle architect of the text of the 2nd Amendment, his obiter dicta obviously carry weight. But, as I have suggested, times have moved on and there is no longer any need to anathematize gold, especially if its partial use in this way might improve the economic lot of a small number of countries which need all the stability they can get. The law, perhaps, is too important to be left to lawyers..."


Source:  https://www.gold.org/search/site/RS26Gold.pdf

Based on older post  http://anotherfreegoldblog.blogspot.fi/2013/11/wgc-euro-dollar-and-gold.html

Wednesday, December 16, 2015