Showing papers on "Currency published in 1977"

Exchange rate policies for developing countries

Abstract: Publisher Summary This chapter discusses the exchange rate policies for developing countries. Developing countries have generally favored adjustable par values as the basis for the world exchange rate system. This has been apparent both in their attitude in negotiations on reform of the international monetary system and in their reactions to the exchange rate developments of recent years. Most developing countries have, in the management of their own exchange rates, maintained a fixed peg against a single intervention currency, though a significant minority have moved to floating exchange rates or have pegged their rates to a basket of currencies. The case for flexible or floating exchange rates versus a system of adjustable par values has usually been made abstracting from the level of development of countries. The chapter discusses the differentiating characteristics of developing countries that may affect their preference for a particular exchange rate system. It discusses various possible policy reactions of developing countries to the current situation, where the industrial nations' currencies are floating.

Currency of Invoicing in Merchandise Trade

Abstract: Almost all trade among industrial countries is now invoiced in the currency of one of the trading partners, normally that of the exporter. Use of a 'third country currency' (normally the dollar) is important only in trade with developing countries. Except for the decline in sterling's use as an international currency, there is no evidence that exchange rate expectations are a strong influence on traders' choice of currency.

Exchange Risk: Whose View?

Abstract: This article treats exchange risk as a feature of the real cash flows of any firm engaged in international business. Irrespective of the accounting treatment of balance sheet items, a devaluation affects the cash flows and hence profits of a foreign subsidiary in fairly specific ways that depend on the nature of the firm and its markets. The net cash flows from a Spanish subsidiary, for example, will tend to be raised by a devaluation of the peseta if the subsidiary is exportoriented and reduced if it is import-dependent. The extent to which a devaluation helps or hurts a firm depends in large part upon the elasticity of demand in its product markets and the elasticity of supply in its input markets. These effects, which have been detailed by Dufey [4] and Shapiro [13], suggest that we should treat exchange risk like any other type of business risk. We define it as the additional riskiness, or variance, of a company's cash flows that may be attributed to currency fluctuations. This article argues that these risks

The Role of War in Modern Inflation

Abstract: Wars in early modern times, although frequent, generated little price inflation because of their limited demands on real resources. The invention of paper currency and the resort to deficit financing to pay for wars changed that situation. In recent centuries wars have been the principal causes of inflation, although since World War II programs of social welfare unmatched by offsetting taxation have also fueled inflationary flames.

Financial crises and the benefits of mildly repressed exchange rates

Abstract: The devaluation of the Mexican peso of 1995 along with the more recent financial crises in emerging economies are viewed as systematic outcomes of the operation of free currency markets. The hypothesis is that there exists a distortion in free currency markets that makes developing countries systematically misallocate resources. The distortion lies in "asymmetric reputation" that leads to substitution of the reserve currency for the country's soft currency in liquid asset holdings, thus making systemic devaluations inevitable. Moreover, the empirical analysis shows that currency-substitution-led endemic devaluations misallocate resources in competitive devaluation trade, as opposed to comparative advantage trade. In a case that is parallel to asymmetric information and incomplete credit markets, the appropriate policy intervention in asymmetric-reputation driven incomplete currency markets is maintaining mildly repressed exchange rates. The operational definition of "mild" is imposing restrictions on the home-grown variety of currency substitution.

On the Political Economy of Monetary Integration: A Public Economics Approach

Abstract: One of the fundamental problems of international monetary relations is how and to what extent national economies should be incorporated into monetary unions. A main concern of the countries belonging to the European Community is the process of their monetary integration. For the world as a whole, the basic question is whether a subset of countries—or all the nations —should unite into a single currency area with fixed exchange rates or each nation should remain as an independent currency area with floating exchange rates.1

Export Prices and Exchange Rates

Abstract: The present paper is intended to make a modest contribution to an under-standing of one small but important link in this complicated chain of interacting factors. It is a link that has often been ignored because strong simplifying assumptions have until very recently usually been made about it. We refer to the relation of exchange rate changes, export prices, and domestic prices. During the last few years a number of attempts have been made to examine the extent to which exchange rate changes were "passed through"; that is, the extent to which a given depreciation in the U.S. dollar, for example, resulted in a corresponding decline in the price of U.S. exports in foreign currencies. However, the possibility that a change in the exchange rate might also alter the relationship between the export price and the domestic price of a given product, expressed in the same currency, has been almost completely ignored. The assumption made, implicitly by most past writers in the theory of international trade and more recently explicitly by advocates of the monetary approach to the balance of payments, has been that the "law of one price" applies to shipments destined for home markets and for foreign markets.

Effects of Major Currency Realignment of Philippine Merchandise Trade

Abstract: THE quantitative analysis of some economic effects of changes in exchange rates of the world's key currencies has been the subject of a few recent empirical studies,1 inspired presumably by the greater flexibility in currency exchange rates among developed countries that was initiated in the early part of this decade. Relatively large-scale equation systems are employed that take into account the simultaneous interaction among prices, incomes and spending in the world economy usually divided into a number of developed countries and a Crest of the world" category, the latter subsuming the less developed countries (LDCs). In the context of a small LDC, however, the complexity of the problem is somewhat reduced by the exogeneity of export and import prices (expressed in foreign currency) and the market concentration of LDC foreign trade typically in only a few developed countries. The Philippines is a case in point, about three-fourths of its trade flows throughout most of the post-war period being accounted for by Japan and the United States; moreover, certain principal trade commodities are dependent to a significant degree on only one or two dominant markets. Currency realignments involving these two countries, as exemplified by the 1971 Smithsonian Agreement, represent, therefore, a new form of external economic disturbance which may have significant repercussions on the country's balance of payments, output growth, income distribution and other policy objective variables. In this paper we attempt an evaluation of the direct effects on Philippine merchandise trade of the 1971 realignment of major currencies and the Central Bank decision to keep the exchange rate of the domestic currency (peso) fixed with respect to the U.S. dollar. First, a simplified framework of analysis is presented that identifies the parameters to be estimated for a quantitative assessment of the trade effects. We then estimate export supply and import demand functions for various trade commodities using annual data in the postwar period. The price coefficient estimates, together with the geographic distribution of Philippine trade flows in 1970, provide the empirical basis for examining the quantitative effects on Philippine merchandise trade of the altered sets of peso export and import prices attributable to the 1971 exchange rate changes.

FASB No. 8: What Has It Done for Us?

Abstract: 4 More than a year has elapsed since the adoption of the highly controversial Financial Accounting Standards Board's Statement No. 8, "Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Financial Statements." The author examines its impact on the reported earnings for 1974 and 1975 of 70 U.S. multinational companies selected for their large foreign direct investments in Europe, Japan and Canada countries that have allowed their currencies to fluctuate, sometimes wildly, against the U.S. dollar. It turns out that, of the 70 companies studied, only 23 either announced that adoption of FASB No. 8 in 1976 would have material impact on their reported earnings or felt compelled to restate the previous year's earnings to conform with FASB No. 8. In 10 of the 23 companies reporting a material impact on earnings, the impact represented less than five per cent of that year's earnings. In these 10, more often than not, FASB No. 8 helped boost 1975 earnings. However, only three companies reported an increase in earnings of more than 10 per cent, while five reported a negative impact larger than 10 per cent; for one company, the negative impact was 38 per cent. The single most important cause of changes in reported earnings under the switch to FASB No. 8 is the abolition of foreign exchange valuation reserve accounts. The second most important cause appears to be a change in the valuation of inventory. The impact of exchange rates on inventories, however, will be passed into the income statement in the next period in the form of cost of goods sold. In only one case did the change from historical to current rates to translate foreign debt have a depressing impact on a company's earnings. In summary, the adoption of FASB No. 8 does not appear to have significantly changed the earnings reports of most U.S. multinationals. It has taken away the smoothing effect that use of a reserve account permitted, and it has made reported earnings more vulnerable to short-term fluctuations in exchange rates. But the difference is small for most cases in the author's sample. >

The Changing Role of Foreign Money in the United States, 1782–1857

Abstract: Foreign money remained in widespread use in the United States until the middle of the nineteenth century. Several foreign coins were provided legal tender status in order to supplement the scanty American specie supply. A particular disadvantage was the perpetuation of non-decimal units of account, especially in New York. When the U.S. enacted a subsidiary silver standard in 1853, the expedient bases for the lawful status of foreign coin was removed. In 1857, the United States coinage was finally reformed to secure an exclusive national currency.

Japan and a new world economic order

Abstract: 1. Japan in the World Economy 2. Japan and the Multilateral Trade Negotiations 3. A Competitive Bipolar Key Currency 4. The Role of Foreign Direct Investment 5. A Macroeconomic Theory of Foreign Direct Investment 6. The Long-Term Path of the Japanese Economy 7. The Reorganisation of North-South Trade 8. Economic Integration in the Asian-Pacific Region

Diffusion of EFTS among National Banks: Note

Abstract: The purpose of this paper is to examine and seek to explain the use of electronic funds transfer system (EFTS) devices by a relatively small proportion of national banks. A focus upon the leaders in the use of these innovations is helpful in establishing the parameters that may affect more widespread use among banks. Data for the study are from a detailed survey of national banks carried out by the Comptroller of the Currency.

Micro Theory of International Financial Intermediation

Abstract: I. A Taxonomic Approach International financial intermediation can be defined to include three main types of transactions. 1) Financial transactions of a bank (a term used henceforward to include all intermediaries since banks are by far the major participants in these activities) with nonresidents denominated in the currency of the country in which the bank is resident. This item includes, for example, U.S. dollar deposits at American banks by nonresidents of the United States and U.S. dollar loans by American banks to nonresidents of the United States. 2) Financial transactions of a bank with nonresidents denominated in currencies other than the currency of the country in which the bank is resident. This category includes, for example, Eurocurrency deposits and Eurocurrency loans made by Eurobanks with nonresidents of the country in which the Eurobank is resident. 1 3) Financial transactions of a bank with residents denominated in foreign currencies. This category includes, for example, U.S. dollar deposits of Canadian residents at Canadian banks and U.S. dollar loans to Canadian residents by Canadian banks. Making use of these distinctions, one can construct a balance sheet of an individual bank or some aggregate of banks involved in international financial intermediation as follows.

Beyond Fixed Parities: The Analytics of International Monetary Agreements

Abstract: The breakdown of fixed exchange rates within the European Monetary Union — with the separate floats of Britain, Italy and France — has coincided over the 1971–4 period with the broader collapse of the Bretton Woods and Smithsonian agreements, which were designed to keep exchange rates within more or less narrowly defined bands. Fortunately, the floating of exchange rates has so far prevented inconvertibility among major currencies. Yet these floating rates have also been associated with high international inflation, continued large changes in relative currency values, and erosion in the confidence that individuals had in fiat money whatever its national origin.

Developing countries’ external debt and the private banks

Abstract: The paper discusses the permanence of the post-1973 developing country borrowing problem and assesses the adequacy of the steps taken by the international private banking system to protect itself against the risk of default on developing country debt. The particular problem is the rapid build-up of private banking system assets that are the short and medium-term foreign currency obligations of governments and private enterprise in the developing countries. The author provides evidence that suggests the developing country borrowing problem may be temporary, and that banks have acted to ensure themselves against the risk of default when that risk is high.

Currency accounttclearance equipment

Abstract: PURPOSE:Coins or tokens used by traffic networks or large stores are sorted, totalled and cleared.

Currency distinguishing method

Abstract: PURPOSE:By enabling to distinguish currencies without being effected by the dissimiliarity of each currency, to increase the reliability of the currency distinguishing function.

CMC, Heller, Hunt, FIA, FRA, and FINE: The Neglected Aspect of Financial Reform

Abstract: My assigned topic in these discussion papers is a comparison of the FINE report and the proposed Financial Reform Act with earlier reform proposals. This is not difficult. From CMC, through the Heller report, through the Hunt Commission report, the Senate-passed Financial Institutions Act, the Financial Reform Act pressed by the House Banking and Currency Committee, and the FINE report, there has been virtual unanimity that the thrift institutions be granted broader asset powers, that the thrifts be permitted to engage in third-party payments services, that the prohibition of interest payments on transactions balances be eliminated, that Regulation Q be phased out, that branching laws be changed to enhance intraand inter-industry competition and that regulatory reform at the federal level was necessary. The several reform proposals concerning the regulatory agencies are not in such agreement. But the salient point is that the homeostatic characteristics of the existing agencies and divisions between and among members of the House and the Senate have not only made organizational reform impossible to achieve; the same characteristics and divisions have prevented action on substantive policy issues that are of much greater consequence than organizational reform itself. Unhappily, the characteristics and divisions have also caused what might be called "benign neglect" to a fundamental technological change that is certain to alter both the private sectors of financial institutions and their regulators in the coming decade. The neglect, of course, is the lack of attention to the impact of computers and the evolution of electronic funds transfers. It is possible to say that those who worked on the reports of the Commission on Money and Credit and the Heller report should be forgiven for this oversight. While some were fretting about the burden of paper funds transfers and planning for magnetically encoded checks at the time, EFT would have to be regarded as something

Evaluation of some money stock forecasting models

Abstract: THE ROLE OF MONEY in the economy has been receiving increased attention in recent years. For example, it is becoming common to include the money stock as an endogenous variable in the large econometric models.' Also, the number of econometric studies of the characteristics of the money stock itself has increased.2 But money stock models have not yet been systematically exposed to what many maintain is the ultimate test of an econometric model: predictive performance. This test of money stock models is the subject of this paper. The money stock in this paper is defined narrowly, currency held by the public plus demand deposits, and is seasonally adjusted unless stated otherwise. This paper is organized in the following fashion. In the first part, the forecasting performance of four different mechanistic models is examined. Then, in the second part, the predictive performance of a number of conventional single-equation econometric models which have the money stock as their endogenous variable is examined. In order to insure a common basis for comparison, all models are reestimated with 1947-1960 quarterly data. One quarter forecasts (and, when meaningful, up to six quarter forecasts) are generated for the 1961-1970 period with all exogenous variables known ex post.3

The currency of judgment

Abstract: Anglo-American courts have long been vexed by a procedural puzzle. It is received doctrine that a common law court cannot give judgment in a foreign currency.l Judges in England and the United States faced with claims founded on foreign currency obligations have consequently striven to do justice by translating the foreign currency amount into its domestic equivalent. The tendency of exchange rates to fluctuate however has frustrated satisfactory results. If the exchange rate changes between the date of accrual of the foreign currency obligation and the date of judgment, and judgment must be given in domestic currency, at least two amounts of domestic currency may seem tenable: the domestic equivalents at the rates of exchange on the accrual date and, alternatively, on the judgment date. AngloAmerican courts have found the alternatives perplexing2 and done badly in choosing between them. On 5 November 1975, the House of Lords repudiated the doctrine that an English court may not give judgment in a foreign currency. In a remarkable instance of their new willingness to depart from precedent, the Lords of Appeal in Ordinary abandoned an entrenched line of cases and affirmed a judgment in Swiss francs. The decision in Miliangos v. George Frank (Textiles) Ltd.3 is cause for reexamination of the subject here.

Riforme monetarie e Mercato Comune Europeo

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

The Dilemmas of Soviet Oil Policy

Abstract: The Soviet Union has not had to spend hard currency on oil imports as other industrialized countries have since the 1973 oil embargo. It is well endowed with petroleum and, since 1973, has become the largest producer of petroleum and the third largest exporter. Soviet officials realize that their enormous supply is finite, so decisions must be made on whether to continue producing at the massive rate or curtail production; saving some for future generations. Also, choices must be made on how much to export and how much to consume at home; how much should be set aside for Eastern Europe, which pays in soft currency; or how much should be diverted to its hard-currency customers. The Soviet resolution of these issues will have important policy implications for the U.S. and her hard-currency allies, OPEC, and Eastern Europe. (MCW)

A Warning Note on Empirical Research Using Foreign Exchange Rates

Abstract: Since we now have a data base approaching five years of more or less fluc? tuating exchange rates, there undoubtedly are numerous empirical studies under way comparing the movements of exchange rates with each other and with all sorts of other economic variables. A rather subtle problem with such activities is that the analysis is sensitive to which currency of an exchange rate one chooses to make the numeraire. Specifically, a time series of, say, dollars per pound sterling is not the same thing mathematically as a pounds per dollar although the information content is the sar

The automotive industry in colombia

Abstract: THE AUTHOR STUDIES THE CURRENT STATE OF THE AUTOMOTIVE INDUSTRY IN COLOMBIA. ITS LEVEL OF PRODUCTION WHICH PROVES TO BE LOWER THAN THE MINIMUM ECONOMIC LEVEL, REQUIRES AN INTERVENTION BY THE GOVERNMENT FOR CUSTOMERS PROTECTION AND A LIMIT IMPOSED ON THE NUMBER OF FACTORIES AND MODELS. THE EFFECT OF INSTITUTIONAL, CUSTOMS, EXCHANGE AND CURRENCY ALLOCATION MEASURES ON THE INCREASE IN THE PRODUCTION OF MOTOR VEHICLES IS ANALYZED.

Forecasting the Real Exchange Rate

Abstract: This brief examines the historical relationship between exchange rates and relative inflation rates for a group of major industrial countries. It establishes the concept of the ‘real exchange rate’ and the ‘productivity-adjusted real exchange rate’ (PARE) as essential in understanding these relationships and projecting them into the future. It puts the discussion into the context of company decision making, as one important factor in the rate of return likely to accrue from different methods of supplying an overseas market. Differences in productivity between countries explain the divergences in prices of ‘non-traded goods’. To give a simple example, a haircut costs much more in New York than in Madrid since high US wages reflect high productivity which does not apply in many parts of the service sector. These differences rule out the acceptance of the over simple ‘purchasing power parity’ approach which assumes that exchange rates will settle at a point where all prices (in terms of a common currency) are the same everywhere, or move together. Even after account has been taken of differences in productivity growth, productivity-adjusted real exchange rates (PARE) - though reasonably stable - can still show some deviations, or ‘blips’. The ‘blip’ may occur because of rapid changes in the actual exchange rate or in domestic prices, in which case it is likely to prove temporary and the PARE rate will tend to adjust back to its normal level. But it may come from major structural changes, in which case PARE will be altered permanently within definable limits. A way of recognising the different categories of ‘blip’ is suggested in the brief. The PARE framework is then used to provide a guide to UK businesses who are concerned to calculate the future sterling value of foreign currency sales or, more generally, to estimate their competitiveness in supplying specific export markets. (The method used would apply equally well to other countries.) This is done by showing step-by-step the forecasting procedure to compute sterling's effective exchange rate to 1981 on assumptions concerning respective rates of inflation, monetary policy and the impact of North Sea oil. The computation shows that a sustained period of exchange rate stability is possible for the UK, even if UK inflation rates remain significantly above the world level for the next two years.

The Problem of Internal Trade

Abstract: FEW political economists before Daniel Defoe, writing at the close of our period, acknowledged the macroeconomic significance of internal trade in England. Contemporary economic literature tended to be concerned with matters of international trade or with the currency issues related to it. Politicians and commentators were often prepared to indict the middleman or the level of domestic consumption for the felony of trade depression, but few seem to have accepted that the domestic trades performed valuable and even vital economic functions. Little wonder, therefore, that Defoe felt the need to write of the home trades in somewhat evangelical fashion [6].