Showing papers on "Currency published in 1968"

Functional Form in the Demand for Money

Abstract: A general functional form is considered for which the linear and logarithmic functional forms are special cases. The general functional form is a power transformation of each of the variables—each variable is raised to a λ power. This functional form is estimated for the demand for money using the maximum likelihood method. Real money demand is specified to be a function of real current income and a short-term interest rate. The empirical evidence suggests that the logarithmic functional form is appropriate for money stock defined as currency plus demand deposits. For money stock defined to also include time deposits, neither the linear nor logarithmic form seems appropriate. The estimates of λ are insensitive to expansion of the model explaining money demand, but functional form is important for discrimination among alternative hypotheses.

The Economics Of Inflation - A Study Of Currency Depreciation In Post War Germany

Abstract: 1. Foreign Exchanges and Internal Price Movements in Germany, 1914 to 19232. The National Finances, the Inflation and the Depreciation of the Mark3. The Divergences between the Internal Value and the External Value of the Mark4. Relations between the Total Value and the Quantity of Paper Money in Circulation5. The Influences of the Depreciation of the Mark on Economic Activity6. The Depreciation of the Mark and Germany's Foreign Trade7. The Course of Prices of Industrial Shares during the Paper Inflation8. Social Influences of the inflation9. The Monetary Reform of November 192310. The Stabilization Crisis11. Conclusion

Notes on optimal monetary growth

Abstract: The question of the optimal size and rate of growth of the money supply has at least as many meanings as there are definitions of "money." Three possible interpretations of the question are: (1) What are the optimal size and the optimal rate of growth of the central government's deadweight debt to its citizens? (2) What are the optimal size and the optimal rate of growth of the supplies of currency and other means of payment? (3) What is the optimal degree of financial intermediation in an economy, and what is its optimal rate of expansion? In some models one or two of these interpretations vanish, or merge. An important example is the simplest monetary extension of the standard aggregative neoclassical growth model. In this extension money as government debt and money as means of payment are identical. It is assumed, in other words, that all government debt takes the form of means of payment -either directly as currency or indirectly as demand deposits backed 100 per cent by currency or other government obligations-and that all means of payment are directly or indirectly obligations of the central government. Under these restrictive assumptions, interpretations (1) and (2) merge. At the same time these models ignore private financial markets and intermediaries, so that question (3) does not arise.

Uncertainty and Forward Exchange Speculation

Abstract: CONSIDERABLE attention has recently I ~~been given to the theory of foreign exchange operations and its implications for government policy. Central to this is the analysis of forward exchange speculation.' Although the essence of speculative behavior is the balancing of uncertainty and expected gain, the analysis of uncertainty in the current theory of forward exchange speculation has generally been less rigorous than other parts of that theory. The purpose of this paper is to present a more explicit theory of the role of uncertainty in forward exchange speculation in the framework of von Neumann-Morgenstern expected utility maximization and to explore its implications for speculator behavior and government policy. Section I is a brief review of the contemporary analysis of foreign exchange speculation. Section II presents the expected utility maximization theory and derives a mean-variance framework for analyzing speculator behavior. The effects of changes in the mean and variance of anticipated gain is discussed in section III, with speculation assumed to occur only in terms of one currency. The theory is extended to multiple currency speculation in section IV. Some policy implications are discussed in section V. Finally, section VI provides a brief summary.

The War in Vietnam and the United States Balance of Payments

Abstract: IT is generally recognized that the international monetary crises of late 1967 and early 1968 were precipitated by large, continuing deficits in the United States balance of payments. Underlying these deficits was a steady erosion of the United States surplus on current account, which fell from 8.5 billion dollars in 1964 to 4.8 billion dollars in 1967. Despite government programs restricting foreign investment by United States residents,1 therefore, the overall deficit on a liquidity basis reached a level of 3.6 billion dollars in 1967. The resulting outflow of dollars and gold greatly reduced the confidence of speculators and central banks in the ability of the United States to maintain the international value of its currency. It is of course no coincidence that this deterioration in the current account position of the United States accompanied a rapid expansion of its military commitments in Southeast Asia. But the amount of the deterioration which may be attributed to the War in Vietnam is a point at issue. The Administration has estimated the direct foreign exchange cost of the War to be about 1.5 billion dollars.2 Many have argued, however, that if secondary and indirect effects are taken into account, the total impact on the balance of payments has been much greater. In this paper, we shall attempt to reach a more satisfactory estimate -or range of estimates -of the total effect of the War on the balance of payments. In so doing, we shall try to answer the question: What would the United States balance on current account have been in 1967 if real expenditures had been lower by the amount channeled into the military effort in Southeast Asia? The wording of this question perhaps requires further explanation. We shall assume that the multiplier effects of this hypothetical difference in expenditures could have been completely and precisely offset by monetary and fiscal policy. Thus we suggest that in the absence of the military build-up, expenditures for consumption, investment and government purposes other than the War would have been identical with those that actually occurred. In addition, it must be recognized that part of the increase in military expenditures would have been spent even without the Vietnam War build-up. The men now serving in the armed forces would have eaten, for example, regardless of whether they were in military or civilian roles. For this reason, we exclude domestic expenditures on military pay, provisions and accommodation from our calculations, and consider only those expenditures which may clearly be assigned to the expanded campaign in Vietnam.3 One may note several possible effects which this military spending may have had on the United States current account balance: 1) Increased direct foreign purchases of food, services and finished goods to supply the military effort. 2) Greater purchases of foreign goods to be used as inputs in United States defense production. 3) Deterioration in the United States net exports, due to both war-stimulated inflation and to supply bottlenecks in those sectors of production most affected by the increased spending. In the following sections, we shall examine each of these effects in turn. By summing the three components we hope to provide a relatively accurate and comprehensive picture of the balance of payments impact of the War. * The authors are grateful to Robert Triffin and Richard Cooper for their helpful comments and suggestions. 1 Note that this practice of restricting capital cannot be continued indefinitely without worsening the balance on current account, because it will of course reduce United States earning assets abroad. 2 U.S. Treasury Department, Maintaining the Strength of the U.S. Dollar in a Strong Free World Economy (Washington, 1968), p. 103. 'As noted below, foreign military purchases of food, etc., by the United States will be included in the direct current account impact of the War.

Method to sort currency

Abstract: Method to sort old and worn out currency which should be removed from circulation from currency which is either new or still usable by detecting the stiffness of the bill to sort the old currency from new currency.

Toward a New International Monetary System

Abstract: HE CRISIS of the international monetary system today is truly a crisis of the system itself and not just of the U. S. dollar. It has its origins in the concept of using certain "key" currencies as a supplement to gold in international monetary reserves. This is the Achilles' heel of the system, since it ties the viability of the system to the acceptance by other participants of the political and economic policies of the key currency countries. In the postwar period, the United States dollar has gained pre-eminence as a key reserve currency forming an important part of the monetary reserves of many countries. This pre-eminence of the dollar is not always welcomed because countries with large holdings of dollars find their economic sovereignty to some extent circumscribed by the balance of payments deficits of the United States. This, in a nutshell, is the root of the problem. We have moved full circle from a position of dollar scarcity in the early postwar period to a position of dollar glut. But while the IMF agreement at Bretton Woods had a great deal to say about scarcity, it had nothing to say about glut. The whole question of the future adequacy of international monetary reserves and of their composition was ignored. The only mention of the nature of reserves was that they were to consist of "gold and convertible currencies". As a practical matter, monetary reserves are required under the pegged exchange rate system in operation today in order to provide flexibility. When deficits occur, they can be met out of these reserves while the deficit country takes fiscal and monetary action to bring its payments back into equilibrium. Reserves serve as a cushion which prevents any temporary deficit from becoming an immediate crisis. Naturally, as world trade expands a concomitant expansion in international monetary reserves, or liquidity, is desirable because the possibility of bigger deficits requires larger reserves. Yet in the postwar period since 1948 world trade has grown five times as fast as world monetary reserves. World trade (exports plus imports) rose from $1 12 billion in 1948 to $391 billion in 1967, an increase of 250%. In the same period world monetary reserves rose from $48 billion to $73 billion, an increase of somewhat more than 50%. This is why some students of the problem speak of a liquidity shortage. But it is not the dollar which is in short supply, it is gold-the traditional form in which monetary reserves have been held for centuries. This is dramatically brought out by the fact that, of the entire increase of some $25 billion in world monetary reserves since 1948, only one quarter was in the form of the yellow metal. In the last half dozen years there has been no net increase at all in official world reserves of gold, and in the last two years there was an outright decline. This is not because world gold production is falling. On the contrary, world output of gold has doubled in the last twenty years and is still rising. It is currently adding about $1 ?/2 billion annually to world supplies, exclusive of U.S.S.R. production, which is sizeable. But since 1962 all of it has gone into industry, the arts, and private hoarding. Most of the increase in world monetary reserves since 1948, and almost all of it since 1962, has been in the form of U. S. dollar holdings by foreign countries and has been financed by a long string of U. S. balance of payments deficits. These deficits have amounted to $371/? billion since 1948 and have been especially ERNEST W. LUTHER is Staff Economist for Investors Diversifled Services, Inc. in Minneapolis.

Thailand: Stability and Escalation

Abstract: Throughout 1967 three major factors contributed to the continuation of political stability in Thailand. The ruling regime maintained a high level of unity and agreement within its own ranks in spite of considerable differences in personal background and outlook. The two top-ranking military leaders, Premier Thanom Kittikachorn and Deputy-Premier Prapart Charusathien, continued to work remarkably well together during the fourth year since the end of the highly centralized rule of the late Field Marshal Sarit Thanarat. In spite of rumors of personal rivalry and predictions of an inevitable split, Thanom and Prapart proceeded with an amicable and effective ruling style of their own. Their influence was balanced by civilian members in the Cabinet, most prominent of whom were the Minister of Foreign Affairs, Thanat Khoman, and the Minister of National Develop. ment, Pote Sarasin. The regime continued to enjoy the general support and legitimizing aura of the King. A second factor promoting political stability was the economic progress of the kingdom. The national currency remained sound. Employment opportunities expanded. Favorable balances of foreign trade pushed the total financial reserves in the treasury to almost $1,000,000,000. An industrial development program started in 1965 attracted more private foreign capital. By the end of 1967 approximately 400 Chinese, Japanese, American and other foreign corporations had invested more than $300,000,000 in the economy. A second five-year plan (1967-1971) was launched which aimed to raise the gross national product by 7% each year. The new plan envisioned a total investment of $2,700,000,000 with one-third of these funds coming from foreign sources. The prospects for further economic progress were enhanced by a gradual but growing acceptance of family planning. Thirdly, American aid did much to bolster the peace and progress of the country. The United States continued to provide the military equipment and weapons for the Thai armed forces, with the Bangkok government confining its financial obligations to military pay and allowances. Total American military spending went from $42,000,000 in 1966 to $80,000,000 in 1967. Construction projects at air bases in the Northeastern provinces raised per capita income in this depressed region to $80 per year, with some workers receiving the unprecedented income of $45 a month.With the military and economic aid programs having begun in 1950, total American assistance to Thailand passed the one billion dollar mark in 1967. Military aid has con-

The Effect of Prices on Savings

Abstract: Savings is a strategic variable in the theory of economic growth. One of the major goals of economic policy is to encourage savings. There are a number of factors, e.g., tax rates, interest rates, wage rates, prices, etc., that affect savings differently. In economies where the bulk of savings are generated in the personal sector, economic policy becomes quite complicated, insofar as it has to ensure that the total impact of various policies encourages and directs savings into desired channels. One of the important factors whose effects on savings a policy-maker needs to know is prices. This information is particularly necessary in the case of developing economies and for economies that experience inflation and fluctuations in the exchange value of their currency, these later phenomena being interrelated. However, the influence of prices on savings is unknown. Economic theory does not provide even a qualitative answer. To exemplify the point, let us consider a few illustrative arguments. For instance, higher prices lower the value of assets and thereby discourage consumption, which is another way of saying that savings are encouraged. Similarly, higher prices increase the demand for nominal cash balances needed for transaction

On the Measurement of Foreign Income

Abstract: This essay explores some aspects of the measurement of nondollar revenues and expenses of U.S. corporations and their branches and subsidiaries.' The proposed measurement framework permits a more precise evaluation of managerial performance than is currently available. The objective is to segregate carefully the operating results of foreign divisions from their financing results which typically reflect fluctuations in foreign exchange rates. Creating an excess of revenues over expense is one aspect of managerial performance; protecting corporate assets from deteriorating currency values is a related, but separate, aspect. Both management and investors require separation of the two aspects for evaluation and decision making. Current accounting practice may report as exchange loss what is more appropriately called operating deficit. This results from a balance sheet approach to foreign exchange accounting which has changed little from that outlined by Finney in 1923 and subsequently codified by the A1CPA.2 The traditional rules, briefly stated, suggest that fixed assets, permanent investments, long-term receivables, debt, and common stock be translated

The Currency Act of 1764: A Quantitative Reappraisal

Abstract: In reviewing the period it does not seem fair to blame British mercantilism for prescribing regulations which were demanded by the circumstances of the time. The British currency and land policies seem to fall under this category. The restrictions upon paper money undoubtedly distressed those who lacked funds, but they merely afiirmed a truth which Americans had to learn from sad experience?that in the eighteenth century at least, no political alchemy could transmute paper into gold.

The Currency Act Repeal Movement: A Study of Imperial Politics and Revolutionary Crisis, 1764-1767

Abstract: N April I764 Parliament passed a currency act for the regulation of I paper money and the protection of British investments in the colonies outside New England. Ambiguous in its wording, the new law, as administered, forbade the issue of additional legal-tender paper and the reissue of old notes as they came due. Existing supplies of currency remained intact. Nevertheless, within a year a rapid contraction of wartime emissions and a growing shortage of specie led New York, Pennsylvania, and South Carolina to instruct their colonial agents to lobby for repeal of the law. Backing the agents were many of the same London merchants who, in their anxiety to secure their sterling debts in Virginia and North Carolina, had been instrumental in obtaining the Currency Act in the first place. By 1766 these merchants were working for an expansion of lawful currency to boost flagging American sales and remittances. During the same years the alliance of merchants and agents proved its political effectiveness in helping to repeal the Stamp Act and amend the Revenue Act of 1764. But the alliance failed either to repeal or revise the Currency Act for reasons having more to do with the growth of antagonism between Britain and the colonies than with the problems of paper money. Most important, the attack on the Currency Act became enmeshed in the crisis over parliamentary taxation and the continuing search by a succession of postwar ministries for an American revenue. As a result, the Currency Act repeal movement became one of the more tangled strands in the fabric of imperial politics during the opening years of revolutionary crisis.

Financial Policy in Postwar Thailand: External Equilibrium and Domestic Development

Abstract: Thailand, perhaps more than any other country, has been able to achieve rapid and substantial growth without inflation since World War II. Blessed with huge rice crops in a world hungry for rice, Thailand's astute money managers were able to restore order quickly-and with less inflation, as measured by wholesale prices, than the United States had for the two decades following the war. Of course, the strong preferences of the Thai people for their own consumer products, and later on the receipt of foreign aid, were also helpful in maintaining convertibility and a stable price level. Taking as a frame of reference the relationship between equilibrium in the balance of payments and domestic economic growth, this article will examine the role of financial policy in Thailand since World War II. Certain of the financial problems which Thailand has faced during the last twenty years are those which perplex many other underdeveloped countries today. They may be considered in terms of three highly interrelated areas: government expenditures and revenues, the monetary system, and the balance of payments. One such problem is that of obtaining the revenues with which to finance the governmental expenditures determined by the political leadership. The major sources are taxes, public bonds, foreign, loans and grants, and domestic credit creation-the naive version of which is printing paper currency, the sophisticated variant being government borrowing directly or indirectly from the central bank. It is hard to make extensive use of the credit-creation mechanism without generating domestic inflation. The establishment of an effective monetary system has both narrow and broad dimensions. In the narrow sense there are two problems: (1) developing a unified, efficient, and elastic money supply; and (2) controlling the money supply as an instrument of monetary policy. Both are prime functions of the central bank. Many underdeveloped countries today have solved at least the first problem reasonably well. For Thailand in the postwar years, however, a major objective of economic policy was to put the currency system in order once more. The broad dimension of an effective monetary system is the development

Foreign Influence on the Economic Change in Korea: A Survey

Abstract: T *HE purpose of this paper is to explore some salient characteristics of the Korean economy in historical context and to appraise the role of foreign influences in changing the economic structure of Korea since the beginning of Western influence. First, the historical background will be briefly surveyed in terms of evidence of the changes in factor supply, categorized as capital (especially social overhead capital), labor, land, and entrepreneurial factors. The causes of change will be identified with emphasis on causes external to the economic system. Second, the pattern of structural change and the nature of "disequilibrium" will be described and explained. The following items will be relevant for our consideration: dual structure, changes in output composition and occupational distribution, external disequilibrium (i.e., deficits in the balance of international payments, foreign aid), financial disequilibrium (i.e., deficit financing of the government, inflation, overvalued currency), and structural disequilibrium (i.e., unemployment, excess capacity in some sector of the economy).' The conclusion summarizes our discussion briefly and speculates on Korea's economic future. Literature on the Korean economy is scanty, especially in foreign languages. Furthermore, it is not an overstatement to say that analysis of the economic structure along the lines of the current theory of growth for poor countries is almost nonexistent. This study seeks to fill this gap in a modest way. A subsidiary purpose, is to suggest some research possibilities on various aspects of the Korean economy. The peculiar historical circumstances of Korea seem to provide an unusual opportunity to test some hypotheses advanced in development literature. As the review of the quantitative information in this study indicates, there exists a considerable amount of material waiting to be dug out, examined, and explained, although statistics may not be as accurate as desired.2 According to indicators of economic growth, present day South Korea is an underdeveloped country. Per capita gross national product in South Korea is $I30 approximately in U.S. currency for I966 and $I45 for i967, according to the estimate of the Bank of Korea. One could easily find various, seemingly conflicting estimates. Another reported figure is $I58 even in i96iY This figure is

EEC in need of a currency Union

Abstract: [ ] drawing rights may only be acquired and held by governments , central banks, and internat ional institutions having functions similar to those of central banks. In this way, e v e r y kind of il lusion about an al leged multi-purpose character of these credits has been scotched, especial ly the hopes cherished by certain members of the US Congress that SDR might, among other things, be utilised as instruments of deve lopment aid;

A Note on the Liquidity and Stabilization Effects of Savings Deposits

Abstract: Money, conventionally defined as demand deposits and currency held by the nonbank public, has two principal functions. It serves as a medium of exchange and as an asset conferring perfect liquidity on the holder. Savings deposits in commercial banks, savings and loan associations, mutual savings banks, credit unions, and the postal savings system are almost like money. For all practical purposes, they are perfectly liquid assets, or at least considered as such by depositors, and therefore substitutable for asset money. Because interest is paid on savings deposits, and not on demand deposits (except for an implicit return received through checking services provided below cost), it can be reasonably argued that the long-term asset demand for money (money that people expect to hold over six months) is considerably less than it would be in the absence of savings deposits. This does not mean, however, that the sum of currency, demand deposits, and savings deposits measures what the demand for money would be if savings deposits did not exist. Some savings deposits are certainly held in lieu of nonmonetary assets.