Showing papers on "Currency published in 1976"

Fluctuating exchange rates and the pricing of exports

Abstract: The purpose of this paper is to examine the invoicing decision of an exporter under a system of pegged exchange rates and a system of freely fluctuating rates. With pegged exchange rates, the exporter may equivalently invoice in its home currency or in the currency of its foreign clients, since the two prices are related by the pegged rate. With fluctuating rates, however, the choice of an invoicing strategy is important and will affect the level of trade. The optimal prices with each strategy are compared, and the exporter's responses to governmental policy instruments are characterized.

Choice in Currency: A Way to Stop Inflation

Abstract: The Institute was formed in 1957 as a research and educational trust that specializes in the study of markets and pricing systems as technical devices for registering preferences and apportioning resources. Microeconomic analysis forms the kernel of economics and is relevant and illuminating in both public and private sectors, in collectivist as well as in individualist societies. Where the macroeconomic method is used its results are verified and interpreted in the light of micro-economic significance.

Hot money and the politics of debt

Abstract: A ball of hot money rolls around the world. It seeks anonymity and political refuge. It dodges taxes and sidesteps currency controls. It rolls through offshore shell companies and secret bank accounts, phoney charities and fraudulent religious foundations. It is kept rolling by white-collar criminals, gun-runners, drug dealers, insurgent groups, scam artists, tax evaders, gold and gem smugglers, and, not least, secret service agents plotting coups and financing revolutions. R.T. Naylor explains the origins of this pool of hot and homeless money, its origins, its uses and abuses, how the world of high finance, corporate and governmental, became hostage to it, and the price the world is paying and will continue to pay until the hostages are released. This book was one of the first, and remains the most comprehensive, to dissect the world of offshore finance, capital flight, money laundering, and tax evasion. Once a subject of concern principally to tax authorities and finance ministries, since the September 11, 2001 hot and homeless money has now become a central preoccupation for police forces and intelligence services around the world.

Market tests of capital adequacy of large commercial banks

Abstract: FOR AS LONG as the public record has exposed bank supervisory policy, bank supervisors have wanted more capital for commercial banks. Sixty years ago, in the first-known explicit statement on capital policy, the Comptroller of the Currency, John Skelton Williams, stated a long well-known but now forgotten standard for bank capital: one dollar of capital to ten dollars of deposits.' The standards suggested by the supervisors have seldom been met in practice. Declines in bank capital adequacy ratios usually occurred during periods of more than average economic and banking growth [20]. Faced with an accomplished decline in capital, the supervisors then usually retreated from their former position and took up new ones, only to be left behind again in the next great period of banking growth. The bank structure has recently passed through such a period and the decline of bank capital has been lamented by Chairman Burns [4]. One explanation of the disparity between supervisory standards and the defacto levels of bank capital may have been that the supervisors were out of touch with the standards of safety required by the money and capital markets. Investors in the capital markets are constantly assessing the risk-return relationship of bank obligations which are subordinate to deposits issued by the larger banks. Bank managers, responding to these signals from the market, attempt to implement optimizing capital policies which will minimize the total cost of funds. The question to which this study is directed is the sensitivity of the capital market to differential bank capital standards established by managerial and regulatory policy. Does the capital market require differential risk premiums on unsecured obligations issued by large banks which have different capital positions? If there is no relationship between the risk premiums required by the market and the capital position of the issuing banks, capital must be adequate or perhaps abundant for the perceived risk in these investments. Yet, if the market demands significant risk premiums which are a function of the banks' capital position, these banks are approaching a level where the market is questioning the adequacy of their capital. Perhaps the market for unsecured obligations of large banks can provide an "early warning" system to alert bank investors and regulators about the capital adequacy levels of these banks. This study reports on three tests: one test on the capital notes sold in competitive capital markets by large banks and two tests on the equity shares of large banks

Multilateral and Bilateral Measures of Effective Exchange Rates in a World Model of Traded Goods

Abstract: When the exchange rates of most of the major trading nations of the world are floating, the two-country theory of the balance of payments with traded and nontraded goods needs to be modified to take account of the multiplicity of foreign price levels for tradable goods.' This note develops the relationship between the price of traded goods in a single country and changes in exchange rates in all other countries, using a simplified version of the IMF's Multilateral Exchange Rate Model (MERM) (see Artus and Rhomberg 1973). Some notable simplifications are obtained under small-country assumptions. The standard technique for dealing with a group of floating rates is the concept of effective exchange rate (see Economic Report of the President 1974, pp. 220-26). When there are n countries floating, the movement of the dollar exchange rate may give a very inaccurate idea of real changes in the international purchasing power of any given currency. The effective exchange rate for a country can be defined as a weighted average of the exchange rates of its trading partners, with all rates being measured relative to some base year. An index can then be computed by comparing the actual exchange rate of the country with the weighted average of the rates of its trading partners. The simplest type of weighting system is a bilateral system of weights, using either export shares or import shares or an average of both. For example, an export-weighted effective rate index can be defined as in equation (1), where

Elasticity, Absorption, Keynesian Multiplier, Keynesian Policy, and Monetary Approaches to Devaluation Theory: A Simple Geometric Exposition

Abstract: The history of balance-of-payments theory since the early 1930's has been one of successive "approaches" of increasing degrees of theoretical sophistication. Five stages of analysis (conceptually if not always chronologicallv) may be distinguished: the simple "elasticity" approach following the classic paper by Joan Robinson, the "absorption" approach, the Keynesian "multiplier" approach, the Keynesian "policy" approach pioneered by James Meade, and most recently the "monetary" approach stemming from the work of Robert Mundell. Differences between these approaches have occasionally been the focus of sharp controversy, most notably in the case of the elasticity and absorption approaches, and recentlv in the case of the monetary approach as contrasted with other approaches that have in common an emphasis on elasticities or the influence of exchange rate changes on trade flows via relative price changes and international elasticities. The purpose of the present note is to bring out the key differences between these alternative approaches, as exemplified by a simple case that can be illustrated by a simple diagram. The simple case is that of devaluation by a single country in a world economy so large that macro-economic repercussions of devaluation on real incomes, world money demand relative to supply, and the prices of imported goods can be ignored. A further simplification is the assumption that export supply is perfectly elastic in response to domestic currency price (cost of production is constant) short of "full employment," interpreted as a specific level of total output, after which point supply is perfectly inelastic. For simplicity, also, where the analysis involves full-emplovment conditions the initial equilibrium point is assumed to coincide with exact full employment. Finally, international security transactions are assumed absent, all capital movements taking the form of money flows; and all money is assumed to be international money, to avoid problems (important in reality) of substitution between international reserve assets and "domestic credit." The last assumption raises the problem that a devaluation alters the amount of domestic money valued in foreign currency, and vice versa; this problem is ignored until the end of the exposition. Figure 1 graphs income earned from export sales X plus domestic purchase of homeproduced goods cE against domestic expenditure E, both measured in domestic unit values of domestic product (at some point below it will be convenient to assume measurement in terms of foreign currency unit

Money and Money Substitutes: A Time Series Analysis of Household Portfolios

Abstract: An important open question persists in monetary theory: To what extent are interest-bearing liquid assets effective substitutes for money (currency outside banks and demand deposits adjusted) in the aggregate portfolio of the household sector? Clearly, such assets may not be substituted directly for money as a medium of exchange. Yet they may be poor or excellent portfolio substitutes, depending on the facility with which the household sector adjusts asset holdings to changes in interest rates. The question is of scientific interest for two distinct, but related, reasons. The first is the well-known assertion that if such adjustments are highly sensitive, procyclical changes in the income velocity of money may occur and may thus attenuate the intended effects of a specific monetary (stock) policy initiated by the central bank (Gurley [14, esp. pp. 9-25], Gurley and Shaw [15]). According to this view, the rapid growth of nonbank financial intermediaries and of bond markets throughout the past three decades may have weakened the effectiveness of monetary policy.1 A second reason has to do with the most appropriate deElnition of "money." Friedman and Meiselman [ 1 1 ] and Friedman and Schwartz [12], for example, reason that the U.S. money supply should preferably include not only publicly held currency and demand deposits, but also time deposits in commercial banks. Kane

Interpreting the Fed's Monetary Targets

Abstract: ... the Board of Governors shall consult with Congress at semi-annual hearings before the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Banking, Currency and Housing of the House of Representatives about the Board of Governors' and the Federal Open Market Committee's objectives and plans with respect to the ranges of growth or diminution of monetary and credit aggregates in the upcoming twelve months .. .1

A Competitive Bipolar Key Currency System

Abstract: The ideal is that trade barriers should be confined to tariffs and that the adjustment of international balance of payments be left with overall adjustment measures. However, the reality is that overall adjustment measures per se do not work promptly and effectively with the result that some countries have an unfavourable trade balance while others have a favourable balance for prolonged periods. Hence the difficulties in removing non-tariff barriers and the fears that they might, instead, be increased. Thus, more than anything else, the streamlining of the international monetary system and foreign exchange rates so that overall adjustment measures can function promptly and effectively is necessary. Though it is not clear what sort of cooperative relation exists between the GATT and the IMF, it is difficult to see how trade liberalisation can be negotiated with GATT as its focus and how it can be prompted by means of tariff cuts or the reduction and removal of nontariff barriers without regard to the international monetary situation. If the latter is in a state of confusion, Iiberalisation of trade can only regress. The Tokyo GATT ministerial meeting declared, after a long discussion between the U.S.A. and France, that "The policy of liberalising world trade cannot be carried out successfully in the absence of parallel efforts to set up a monetary system which shields the world economy from the shocks and imbalances which have previously occurred. The ministers will not lose sight of the fact that the efforts which are to be made in the trade field imply continuing efforts to maintain orderly conditions and to establish a durable and equitable monetary system. The ministers recognise equally that the new phase in the liberalisation of trade which it is their intention to undertake should facilitate the orderly function of the monetary system."I In the near future, it is almost certain that effective new rules and procedures to assure sufficiently prompt adjustment of payments imbalances by both surplus and deficit countries will be set up in the IMF. The new rules would be exchange parities subject to frequent and relatively small adjustment according to some objective indicators, with provision for wider margins and options for temporary floats under appropriate circumstances. More fundamental reform in the international monetary system may not be easy and will take a longer time, for the United States supports the present fioating exchange rate system as a means of continuing her "benign neglect" policy. My view is that a bipolar key currency system between the dollar and the "Europa"

Currency Denominations and the Price Level

Abstract: The need for issuing bigger denomination notes arises every 5 or 10 years in an economy like Taiwan where nominal income has been growing tremendously rapidly and where the public's currency holdings loom large in its total stock of money.' The authorities, however, have been reluctant to meet the needs of trade on the ground that the issuance of big-denomination notes is likely to be interpreted by the public as a sign of the overissue of currencies, and the mere expectation of inflation may drive the price level up even though the total stock of money is held constant. On the other hand, there was recently a shortage of 1-yuan coins in Taiwan. The authorities, in this case, responded very promptly and effectively in meeting the difficulty of coin shortages by issuing 1-yuan notes first and then by managing to provide an adequate amount of new coins. 2 Introduction of bigger denomination notes to relieve the public from the inconvenience of a higher price and unchanged maximum denomination implies a shift to a better denomination mix of money (currency). By the same token, mitigating the difficulty of coin shortages and providing an adequate amount of small-denomination currencies also imply an improvement in the currency size mixture. The purpose of this note is to analyze the macroeconomic effects of shifts in currency size mixture.

Competing Monies: Comment

Abstract: In a recent article in this journal [13] Gordon Tullock argues that there is competition between alternative monies and hence money suppliers face opportunities for profit by maintaining a stable and predictable currency. His assertions are founded on theoretically confused arguments that fail to make important distinctions between the average level of the inflation rate and its predictability, between noninterest-bearing or high-powered money and interest-bearing money, and between the store of value and medium of exchange roles of money. Nonetheless, my principal objection concerns Tullock's empirical methodology, which essentially consists of noting personal experiences and making many "reasonable" but undocumented assertions about the true state of the world. Actually, most of the crucial empirical work has yet to be done on the questions Tullock addresses It is clear, however, that his conclusions are inconsistent with what relevant data is available. He seriously overestimates the degree of competition that has existed in most domestic markets. In his opening sentence Tullock states that, "situations in which there is more than one money in existence at the same time are by no means uncommon." [13, p. 491] A careful examination of events in modern history yields little evidence that corroborates this statement. The examples that Tullock cites from his own personal experiences (China from 1948 to 1950 and Korea from 1952 to 1953) will certainly not do, because they were brief, atypical wartime arrangements. Undoubtedly multicurrency arrangements have existed temporarily in some countries during brief periods of domestic stress (the circulation of both gold and greenbacks in the U.S. during the Civil War is another example); however, historical examples of distinct multiple monies circulating side-by-side domestically at flexible exchange rates for any significant length of time are extremely rare. I know of only one important case: the flexible bimetallic (silver and copper) exchange standard that existed in China from about 1650 to 1850.1

Lessons from the U.K. Experience

Abstract: For over a century London has functioned as an international financial and banking centre. This status accrued to The City as a result of the far-flung colonial empire that required varied financial and banking services, the substantial accumulation of overseas investments by U.K. residents, the outstanding financial markets in the U.K., and from the role of sterling as the reserve and settlement currency of a globe-girdling political system. British investment in the regions of dependency accumulated, and added to the banking and financial ties that linked the various units of this system together. Unfortunately, the two global wars in the first half of this century seriously limited the role played by London as an international financial centre.

Currency converter for use with pre-established and known conversion data

Abstract: A currency converter formed of a fixed frame having a hollowed-out central area and two flat parallel surfaces wherein one surface defines two large generally parallel windows having a section of one reference line of indicia extending lengthwise across the top and bottom of each window wherein each section designates a range of currency of a reference country in the form of a logarithmic scale of currency values, a first and second small window positioned between the two large windows for displaying in one of the small windows an exchange rate comprising the currency value of the reference country for each unit of currency of a selected country and in the other small window an exchange rate comprising the units of currency of a selected country for each unit of currency of the reference country and with the other surface designing a plurality of apertures formed into at least two columns of spaced aligned apertures extending in a direction substantially perpendicular to the large windows, and a removeable slider positioned within and moveable through the central area having exchange currency indicia designating a range of currency units positioned to be viewed through the two large windows, a second line of indicia designating currency units of the reference country for each unit of currency of the selected country positioned to be viewed through one of the two small windows and on the opposite side thereof in a predetermined position the names of selected countries having units of currency in the range of exchange currency indicia and a listing of the unit of currency of a selected country and a method for using the converter is shown.

Contemporaneous Versus Lagged Reserve Accounting: Comment

Abstract: Increased short-run fluctuations in the growth of money have encouraged numerous investigations of the money creation mechanism. Many of these studies suggest that such fluctuations can be eliminated if the proper reserve measure is used as the operating target of monetary policy. Free reserves have been suggested as the appropriate operating variable by Modigliani, Rasche, and Cooper [7]; the monetary base by Burger, Kalish, and Babb [2]; and reserves against private deposits by Morris [8] . Rather than discuss the merits of each reserve measure, the purpose of this note is to analyze theoretically the dynamics of the lagged required reserve accounting procedure under which the measures must operate (also see [3, 9, 10, 11] ). First, a comparison is made between contemporaneous and lagged required reserve accounting; and, second, the policy implications of their differences are discussed. Consider a simple model of banking behavior which excludes the existence of non-member banks in the banking system, the role of vault cash in reserve management, differences between time and demand deposits, the currency component of the money supply, and alternatives to reserve-bank borrowing such as Eurodollars and commercial paper, to analyze the two methods of accounting required reserves. Also, suppose that banks maximize profits by adjusting their reserve positions so that the demand for nonborrowed reserves, which is defined as the sum of the demand for required reserves RR and the demand for net free reserves FRd, equals the supply of nonborrowed reserves NRo. The banking system's equilibrium condition

A Proposal for Reforming Bank Reserve Requirements in the United States

Abstract: In recent years the Federal Reserve has repeatedly replied to those who criticize fluctuations in money growth by claiming that it is impossible to control money growth in the short run.l Yet the Fed has done nothing to improve its control mechanism. The purpose of this paper is to describe a proposal that would provide virtually complete money stock control on a weekly average basis. The costs of accurate control may not be worth the benefits, but the proposal presented below makes clear that the costs and benefits should be analyzed directly rather than the issue ducked by claims that accurate monetary control is technically impossible. Textbook writers have traditionally analyzed the steady-state properties of fractional reserve requirements and the eventual impacts of such disturbances as openmarket operations, currency drains, and changes in excess reserves. It has been recognized for years that fractional requirements promote instability whereas 100 percent requirements would provide essentially perfect control over the money stock. However, the 100 percent system has been assumed to be politically infeasible, and it may be economically infeasible as well. In the absence of payment of interest on reserves, there is a powerful incentive to fractional reserve banking; and regardless of the legal forms and regulatory constraints, banks or banklike firms would likely be successful in inventing depositlike liabilities that would effectively destroy a 100 percent required reserves system. Even the payment of a competitive

FASB Statement 8 Resolved Foreign Currency Accounting—Or Did It?

Abstract: 4 Last October the Financial Accounting Standards Board released Statement No. 8, which deals with translation of financial statements of foreign subsidiaries. The new rules will obsolete accounting methods used by two-thirds of American-based multinationals and alter the translation gains and losses in many 1975 annual reports. Whether a given set of translation rules results in a gain or loss is a matter of which accounts the rules cite for translation at the current exchange rate. Under the rules in Statement No. 8, except for inventory consumed in cost of goods sold and depreciation, the subsidiary's income-statement items are translated into dollars at the exchange rate prevailing at the time transactions occur. Balancesheet items are translated at the exchange rate that prevailed when the item was acquired, with owners' equity taken to be whatever number will balance the assets and liabilities. Under Statement No. 8, the accounting exposure of a foreign subsidiary wi 11 often differ from the economic exposure: Many people believe, for example, that when the country in which a subsidiary is located devalues, the result in general is an economic loss to the parent. Yet the definition of gains and losses in Statement No. 8 is such that, if the subsidiary is levered, a devaluation of the local currency will result in translation gains. >

Automatic depositing system

Abstract: PURPOSE: To prevent the depositing transactions without any reception of currency by prohibiting the continuation of the depositing transactions and the registration of the deposited amount when the repaying operation of the currency is accomplished. COPYRIGHT: (C)1978,JPO&Japio

Who Runs World Shipping

Abstract: HE general supposition of international politics is that the situations or issues that are important and deserve study and analysis are those which bring states into sharper conflict, or into closer association, with each other-situations or issues, in short, which affect inter-state relations. Whereas the supposition of political economy, including international political economy, is that the issues and situations that areimportant and deserve study and analysis are those that seem likely to affect not just the distributive or who-gets-what character of the system but also its general stability, its perceived equity, its efficiency in producing wealth and the balance of power and influence over its future destiny. There seem to me, as I have argued in the preceding article, good reasons for directing attention to the politics and technology, as well as to the economics, of specific sectors of international political economy. The present article is an attempt to show how this might be done with a particular international sector or market, using shipping primarily as a demonstration model. At the same time, there are special additional reasons why shipping deserves more attention from analysts of the international system than it has so far received. In every political economy of any size, analysis must start with the two basic matters of security and money. How a political economy is organised to limit or prevent its own disruption by conflict, whether external or internal, and how it is organised to provide the monetary media for economic transactions-these are the key questions that affect all other activity and argument within it. In the eighteenth century, when political economy was first elaboirated, these two questions were called the 'safety of the realm' and 'the value of the currency'. Now we talk about the security system and the monetary system. But next to them, and also part of what we might call the social, political and economic infrastructure of a political economy, is surely its system of transport and communication. The truth of this has certainly been recognised by every imperial power as far back as the ancient world. A first and last concern has been to use road, rail or shipping routes to knit together outlying parts with the centre. Federal states have shown a similar concern with transport and com-

Monetary arrangements in the European Common Market

Abstract: The Jamaica Agreement essentially grants every country the freedom to determine its own exchange rate system, thus confirming a situation characterised by a wide variety of national arrangements This situation has given rise to considerable uncertainty as regards trade and capital movements The present work argues that greater stability in financial arrangements among the EEC countries would reduce uncertainty and contribute to harmonious economic development in the European area Specifically, the author makes proposals for the adoption of a three-pronged approach to lessening uncertainty in trade and payments and to strengthening the European integration process The proposals include establishing rules for exchange rate adjustments, harmonising national economic policies and creating a parallel currency, the Europa JEL: E42, F36, F33

A Debate in T'Ang China On the State Monopoly On Casting Coin

Abstract: In A.D. 734, the chief minister Chang Chiu-ling f gLO suggested to the Emperor Hsiian-tsung g that private persons should be allowed to manufacture coin. His proposal was a direct challenge to the T'ang state monopoly on casting coin and provoked vigorous arguments from a number of other leading officials, who defended the monopoly. The debate of 734 provides valuable evidence of the views on currency and trade in particular and economic problems in general held by Chinese statesmen of the mid T'ang period 1). It also broadens the picture of an inadequate official coinage, supplemented by unofficial coins, given by other sources of T'ang economic history. This article examines first the problems which formed the subject of the debate and then the arguments put forward by the protagonists. A full translation of the extant texts connected with the debate is given in the appendix. From the beginning of the T'ang Dynasty, government policy, defended by the majority of officials, demanded that the manufacture of coin be a state monopoly. In 62I, three years after the establishment of the dynasty, the K'ai-yiian t'ung-pao r f, weighing one tenth of a liang (P1 approximately 4.3 grams) and composed of a high proportion of copper, with some addition of lead and tin, was introduced. Apart from brief experiments with coins of a higher denomination, the K'ai-yiian t'ung-pao remained the only standard coin throughout the dynasty 2).

Currency Translation and the Analyst

Abstract: (1976). Currency Translation and the Analyst. Financial Analysts Journal: Vol. 32, No. 4, pp. 46-54.

Monitor for paper currency during taking-out

Abstract: PURPOSE: To prevent the hands of a customer from being bitten by door by detecting the existence of paper currency to operate a timer so as to open and close the door. COPYRIGHT: (C)1978,JPO&Japio