De behoefte aan monetaire reserves en de evenwichtsproblematiek

Summary

The present international monetary system of fixed rates of exchange can only be upheld subject to the condition that the national monetary authorities can obtain universally accepted purchasing power at more or less constant costs.

Universally accepted purchasing power nowadays consists of gold and dollars, dollars being the only national purchasing power giving direct access to the largest and most diversified market of goods and services and being freely convertible into gold.

Since the production of gold for monetary purposes is constantly lagging behind the increasing need for international purchasing power the percentage relation of dollars to gold in monetary reserves is bound to increase, whereas the actual possibility of converting these dollars into gold is bound to decline.

The ensuing dilemma can be met either by measures increasing the supply of gold available for monetary reserves or by measures increasing the amount of dollars held by monetary authorities outside the U.S.A. The first approach implies a continual rise in the nominal value of gold reserves, the second approach implies a continual U.S. balance of payments deficit and a pari passu increasing willingness to abstain from converting dollars into gold.

Ad (1): Some economists suppose that a satisfactory rise in the nominal value of gold reserves should be realized by an increase in the price of gold as expressed in national currencies. The fallacies of such a proposal are at least fivefold. (a) It confuses an unproven and widely contested need to increase at a stroke the already existing monetary reserves with the need to increase reserves step by step in conformity with any single or complex economic criterion. (b) The argument for an immediate general expansion of existing reserves is based on a fear of present deficits generating a worldwide deflation, overlooking the far more widespread and persistent inflationary tendencies of the last decade. (c) As far as the effect of a rise in the price of gold on future gold production is concerned it ignores the effect on the cost of future gold production. Since the cost of production is also bound to rise and will gradually annihilate the stimulating effect of the price increase, the latter will have to be repeated sooner or later, which makes the proposed remedy a much more intricate proposal than it is suggested to be. (d) The probability that a price increase will have to be repeated may affect the demand for hoarding in such a way that in spite of an increase in production the amount of gold available for monetary purposes may well become less instead of more. (e) Even if this would not be the case and if an increase in the price of gold would lead to a wave of inflationary dishoarding, the act would be a proof of poor statesmanship in so far as it would amount to an arbitrary grant of several billion dollars of windfall profits without contributing anything to the solution of the fundamental problem of a continual reserve management. This would have been made even more difficult by the additional uncertanties created by the haphazard initial step.

Ad (2): Since the unwillingness of Central Banks to keep an increasing percentage of their monetary reserves in a foreign currency is primary based on fear of a loss in value, either expressed in gold or in their own currency, proposals have been forwarded aiming at restricting the propensity to convert dollars into gold by the introduction of guarantees. Actually several forms of guarantees have already been introduced for special transactions (swaps, Roosa bonds, I.M.F. and G.A.B. drawings), but these are only palliation. The principle, however, could be generalized.

If extended to all reserves, a network of international agreements could be conceived whereby the partner countries would commit themselves to exchange periodically (say once every three months) the components of their reserves (gold, dollars and other foreign currencies) in such a way that the percentage composition of each reserve would always be the same. This could be done via an international institution as in the case of the former monthly E.P.U. settlements via the B.I.S. It would be logical that ultimately each reserve would not only contain the same percentage of gold but also the same percentages of each of the other countries' currencies. Initially the gold percentage should be the same as the present overall gold percentage of the combined reserves of the participating countries, but this percentage should be subject to revision, say, once every three or five years. Such a situation would level out the „risks” of keeping foreign currencies next to gold as part of monetary reserves; it would remove the possibility of a scramble for gold with its deflationary effects and it would subject the rate of growth of international reserves to concerted decision. It would neither interfere with commercial international capital movements nor with credits of international institutions with a conditional and temporary character.

The transition from the present situation to the ultimate one could be realized along three different lines: (a) an immediate exchange of gold, dollars and currencies of the other participant countries leading at once to an identical composition of every reserve; (b) an immediate exchange of gold and dollars between the non-dollar countries and a step by step introduction of other currencies as part of reserves; and (c) a gradual levelling out of the composition of the various reserves without any preliminary exchange but by generalizing the afore-mentioned step by step procedure. The (a) solution is to be discarded at once, since it would necessitate an enormous transfer of U.S. gold against European currencies and because it completely neglects the traditional significance of the dollar as an eminently accepted reserve medium; the (c) solution would only lead to an equalization of reserve structures after a long succession of alternate surpluses and deficits of the balances of payments of the different participating countries, a process that might well extend over several generations. The (b) solution is the one explained elaborately in an article on „The international monetary system” in the Quarterly Review of the Banco Nazionale del Lavoro, September 1963, and which was suggested by me already a year earlier in the Monetary Committee of the E.E.C.

Proposals of a more or less analogous character are those which advocate the creation of a Common Reserve Unit and are now studied in the Committee of Experts of the Group of Ten and the I.M.F.

A fundamental difference with the afore-mentioned proposal is the allocation on the basis of fixed quota's (e.g., of the I.M.F.). If the disposal over these units is unconditional, the proposals would have the effect of a redistribution of „old” reserves which have been „earned” by a surrender of goods and services. If however their availability is subject to some scrutiny of the origins of the deficit or to some conditions as to future policy, they cannot be put on par with „owned” or „earned” reserves. In the latter case, as a hybrid between reserves to be earned and credits available in case of balance of payments deficits, they have an immanent bias to be inflationary and might well necessitate, apart from quantitave restrictions, the elaboration of rules of entry to the „pool”.

A few economists (Emile Despres, Charles P. Kindleberger and Walter S. Salant) in an article on „The Dollar and World Liquidity” in The Economist of February 5, 1966, have tried to argue that the so-called deficit of the balance of payments of the U.S.A. is nothing but a normal phenomenon that should not give rise to alarm. As long as there is a surplus on current account and the overall deficit is due to a still larger surplus of capital exports, it may be assumed that the situation is either due to a relatively larger liquidity preference or a relatively larger demand for capital in the outside world as compared with the U.S. If neither were the case, it would presumably be easy for the outside world to stop these capital imports.

The first part of the argument confuses actually existing with ex ante desired liquidity ratios and erroneously identifies the benefits for private entrepreneurs of the availability of international liquidities with the national benefits of increasing monetary reserves in case these private entrepreneurs are exchanging their international liquidities against national currency. The confusion is clearly due to aftereffects of the since long refuted „banking principle”.

The second part of the argument underestimates the difficulties of combating the inflationary impact of an increase in internal purchasing power due to a surplus in the balance of payments. Since no Central Bank can refuse to make available national currency against foreign currencies, this being one of the essential elements of a monetary system based on international convertibility at stable exchange rates, such a Bank can only try to counteract possible secondary multiplier effects. If the Bank would go further and try to neutralize the primary effect, it would need to lay an undue burden on those enterprises which have no access to foreign capital markets and are producing for the local market. Only in very specific circumstances as prevailed in the first period after the war can such a policy be envisaged without upsetting the internal economic structure.

If, on the other hand, in the deficit country a net capital export coincides with internal unemployment and the existence of surplus capacity (as has been the case in the U.S. during the last eight years) fiscal as well as social measures can be taken to direct the existing surplus of savings to the local market without putting an extra strain on the balance on current account. A possible accompanying or ensuing increase in the internal rate of interest need not check national production, since it would be complementary to an increased demand.

In judging the desirability of action by either the surplus or the deficit country, the relative size of national incomes should also be considered.

Problems of mutual adjustment cannot be solved by administering the overall growth of reserves, but if the overall growth is increasingly dependent on the balance of payments developments between the reserve currency country and the rest of the world, the dependency on the policy of the reserve currency country becomes so lop-sided that sooner or later the system will break down. This may take the form of a collapse due to a growing reluctancy to enlarge the dollar component of monetary reserves (even if guaranteed as to its value in gold). It may also be the gradual outcome of a mutually agreed policy aiming at the creation of a U.S. balance of payments equilibrium that puts a check on the generally wanted growth of monetary reserves. If this policy would be successful, it would increasingly induce restrictive measures on international trade and payments and thereby invalidate the very sense of fixed rates of exchange.

A common creation of international monetary reserves and a framework for mutually granting conditional and temporary credits to meet difficulties which are not solved automatically are Siamese twins which can only be kept alive if the difference of their characters is fully acknowledged. Measures to create reserves and to meet imbalances should be carefully kept apart.