Abstract
The stock of Target balances is recorded in the national accounting systems in the same way as international fiscal credit. A country’s Target claim is part of its net foreign asset position, and the increase of this claim is recorded as a public capital export. Intra-Eurosystem interest on Target balances is booked in the country’s current account in the same way as ordinary international interest payments. Target balances resemble not only the ISA balances of the US Federal Reserve System but also the special drawing rights of the IMF, Keynes’ bancor currency, Soviet transfer rubles, stocks of foreign currency in fixed exchange rate systems and the sovereign wealth portfolio accumulated by the Central Bank of Switzerland.
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31 October 2021
Chapter 3: Current Account, Capital Movements and Target Balances
Notes
- 1.
The term “current account” is used in the literature with two completely different meanings. In the theory of finance it is a demand deposit that a commercial bank holds with its NCB. In economics and in particular international economics it is the surplus of exports over imports, interest payments to foreigners and a few other items in a country’s balance of payment. To avoid confusion this book uses the term exclusively in the latter sense.
- 2.
- 3.
European Central Bank (2016f, no. 3.10.4, p. 59; see. also no. 3.10.3, p. 58).
- 4.
- 5.
My work on the Target balances has occasionally been represented as if I had claimed such causalities, and I was told that even before the Lehman crisis there were current account deficits in the later crisis countries, as if I had said or implied otherwise. Of course, such deficits existed even before the Lehman crisis. My books contain numerous graphs that show this. See Sinn (2012a, chapter 8, 2014a, chapter 7, 2015b, chapter 7). The slopes of the curves shown there are the deficits themselves and do not change at the time of the Lehman crisis. The graphs also show which parts of the deficits were financed by the Target loans during the crisis. An interpretation of causality exists only in the sense that the deficits would inevitably have disappeared when the capital markets were no longer ready to finance them, had the Target loans not been available as a replacement. See Sinn in particular (2014a, p. 212 and p. 219, especially fn. 9, 2015b, pp. 281f. and p. 292 in connection with footnote 11, p. 344).
- 6.
Eur opean Economic Advisory Group (2012, pp. 64ff.).
- 7.
See Stiglitz and Weiss (1981).
- 8.
This proposal is based on a series of earlier papers and letters, starting in 1940 with overlapping and repetitive content written for alternative purposes and sent to a variety of economists and institutions, which are summarized by Moggridge (1980). For an early synthesis see also Schumacher (1943).
- 9.
- 10.
- 11.
See Sinn (2014a, p. 242).
- 12.
See Kenen (1991).
- 13.
- 14.
As early as 2012, the Swiss National Bank held around CHF 100 billion in German government securities and therefore financed between 7% and 8% of the German federal debt. See Schöchli (2012).
- 15.
Gold: 42 billion Swiss francs; foreign currency investments: 764 billion Swiss francs. See Swiss National Bank (2019, p. 164). The data reported in Swiss Francs were converted into euros at the exchange rate prevailing at the end of 2018.
- 16.
See Norges Bank (2019, pp. 6, 7, 14). The data reported in Norwegian crowns were converted into euros at the exchange rate prevailing at the end of 2018.
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Sinn, HW. (2020). Current Account, Capital Movements and Target Balances. In: The Economics of Target Balances. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-50170-9_3
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