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Conditional liquidity, IMF quotas and SDR distribution

  • J. A. H. de Beaufort Wijnholds
Part of the Publication of the Netherlands Institute of Bankers and Stock Brokers book series (PIBS, volume 31)

Abstract

In this chapter, attention is focussed on conditional international credit facilities and the distribution of new reserves (SDRs). In section i the relation between conditional and unconditional liquidity is discussed, followed in section ii by a-review of developments in IMF quotas and drawing rights since 1960. After a brief history of the use of IMF quotas as the basis for the allocation of SDRs (section iii), studies pertaining to the reserve needs of developing countries, especially in relation to those of the industrialized countries, are examined at some length (section iv).

Keywords

Adjustment Cost International Reserve International Liquidity International Monetary System Optimal Reserve 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. 1.
    Cf. J. Marcus Fleming, “International Liquidity: Ends and Means”, IMF Staff Papers, December 1961, p. 448.Google Scholar
  2. 1.
    Ibid., p. 448.Google Scholar
  3. 2.
    IMF, Annual Report, 1965, p. IS.Google Scholar
  4. 3.
    IMF, Annual Reporty 1966, p. 19.Google Scholar
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    Group of Ten, Communiqué of Ministers and Governors and Report of Deputies (Emminger Report), July 1966, par. 29.Google Scholar
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  7. 6.
    Cf. IMF (Margaret G. de Vries), The International Monetary Fund 1966–1971: The System Under Stress, Washington, 1977, chapter 6.Google Scholar
  8. 7.
    An attempt to carry the analysis of this question further is undertaken in chapter 12 below.Google Scholar
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    See p. 54 above.Google Scholar
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    IMF, Annual Report, 1969, p. 30.Google Scholar
  16. 2.
    The quota of the United Kingdom was to be increased by 15 per cent only.Google Scholar
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    Cf. Increases in Quotas of Members — Fifth General Review: Report of the Executive Directors to the Board of Governors, December 1969, reproduced in the IMF Annual Report 1970.Google Scholar
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    See p. 60 above.Google Scholar
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    For details on the quota negotiations under the sixth review, cf. Nederlandsche Bank, Report for the year 1975, p. 105.Google Scholar
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    This is underlined by the observation in the 1969 Annual Report of the IMF that selective quota increases would bring quotas more in to line with the relative economic importance of member countries (p. 30).Google Scholar
  23. 3.
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  24. 4.
    Cf. Roelf L. Haan, Special Drawing Rights and Development, Leiden, 1971, p. 73.Google Scholar
  25. 5.
    The facility regarding export fluctations, introduced in 1963, allows members to draw amounts up to 75 per cent of their quota without diminishing their “regular” drawing rights. A limit of 50 per cent applies to the buffer stock facility established in 1969.Google Scholar
  26. 1.
    A country’s access to the extended facility amounts to 140 per cent of its quota. Its total drawings under the “regular” and the extended facility can reach up to 190 per cent of its quota.Google Scholar
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    Cf. Haan, p. 75.Google Scholar
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  39. 1.
    An example of this notion is provided by the following quotation: “Underdeveloped countries seem to experience chronic shortages of foreign exchange, and therefore appear to suffer from a ‘liquidity’ problem. In fact, however, what these countries require is not ‘liquidity’ but additional foreign capital. The need for liquidity and these needs of underdeveloped countries are logically quite distinct problems”; cf. Introduction, in Herbert G. Grubel (ed.), World Monetary Reform, Stanford, 1963.Google Scholar
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    Benjamin J. Cohen, Adjustment Costs and the Distribution of New Reserves, Studies in International Finance No. 18, Princeton, 1966.Google Scholar
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    Haan, p. 65. Cohen does not explicitly mention the relation between adjustment costs and reserve needs.Google Scholar
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    Cf. section iii of chapter 6 above.Google Scholar
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    Cohen, p. 34. Italics inserted.Google Scholar
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  45. 4.
    Since this section focusses only on those aspects of the distribution of new reserves which have a distinct bearing on the need for reserves, Hawkins and Rangarajan’s other argument for not basing the distribution of SDRs on IMF quotas (the argument that IMF quotas do not reflect the role of reserves as a portion of international wealth) is not taken up here.Google Scholar
  46. 1.
    The factors chosen closely resemble those which Cohen has regarded as determining adjustment costs. As concerns the degree of openness of economies, the authors note that the direction of the relation between adjustment costs and openness is not entirely clear. They assume, however, that the more open the conomy, the larger the costs of adjustment.Google Scholar
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    Cf. pp. 134, 135 above.Google Scholar
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    It should be mentioned that no explicit reference is made to countries’ need for reserves by Hawkins and Rangarajan.Google Scholar
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    J.P. Agarwal, “Optimal Monetary Reserves for Developing Countries”, Weltwirtschaftliches Archiv, No. 1, 1971.Google Scholar
  50. 1.
    Unlike Heller (cf. p. 100 above), who defines optimal reserves as the reserve level at which the marginal oppportunity cost of reserves equals the marginal cost of adjustment, Agarwal expresses the condition for optimal reserves in terms of total costs. This is due to the fact that Agarwal could not use marginal concepts because of the lack of statistical data needed for his calculations of the optimal reserves in several Asian countries; cf. Agarwal, p. 79 note 2, and p. 84.Google Scholar
  51. 1.
    A World Bank study has shown that “in a sample of 20 developing countries, the allocation of scarce foreign exchange was ten times greater for the importation of private cars than for public buses”; cf. Address to the Board of Governors by Robert S. McNamara, President, World Bank Group, Washington, September 1972, p. 17 note a. Agarwal (p. 50) notes that “if exchange budgeting is not strict and there are imports of non-production goods which can be reduced for the purpose of an import adjustment they must be taken into account in determining the value of q2 “. In his empirical calculations, however, q1 and q2 relate only to production goods.Google Scholar
  52. 2.
    Cf. Agarwal, p. 87.Google Scholar
  53. 1.
    According to Agarwal the effect of the absorption of reserves in the developing countries is determined by the ratio of the marginal productivity of capital (in the model: the reciprocal of the incremental capital output ratio as a proxy) to the import content of investments. In the industrialized countries this effect is smaller since it is determined by the marginal productivity of capital for the economy as a whole (cf. Agarwal p. 89). The marginal opportunity cost of capital is sometimes taken to be equal to the marginal productivity of capital minus the interest earned on reserve holdings. The latter factor does not, however, figure in AgarwaTs model.Google Scholar
  54. 1.
    Cf. Javier Márquez, “Reserves, Liquidity, and the Developing Countries”, p. 106.Google Scholar
  55. 2.
    Cf. Agarwal, pp. 87, 88.Google Scholar

Copyright information

© Springer Science+Business Media New York 1977

Authors and Affiliations

  • J. A. H. de Beaufort Wijnholds

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