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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1879 Introduced in Senate (IS)]

106th CONGRESS
  1st Session
                                S. 1879

 To promote international monetary stability and to share seigniorage 
                 with officially dollarized countries.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                            November 8, 1999

   Mr. Mack introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL

 
 To promote international monetary stability and to share seigniorage 
                 with officially dollarized countries.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``International Monetary Stability Act 
of 1999''.

SEC. 2. FINDINGS; STATEMENT OF POLICY.

    (a) Findings.--Congress finds that--
            (1) monetary stability is a prerequisite for strong long-
        term economic growth and increasing standards of living;
            (2) many emerging market countries lack monetary stability 
        and have therefore suffered economic and financial problems 
        that suppress economic growth and living standards, including 
        financial fragility, inflation expectations that are built into 
        labor markets, and high and volatile inflation rates and 
        interest rates;
            (3) many emerging market countries have used pegged 
        exchange rate systems to try to foster monetary stability and 
        have experienced temporary periods of higher economic growth 
        and lower inflation followed by drastic balance of payments 
        problems, steep devaluations, and major losses in international 
        reserves;
            (4) emerging market countries that have adopted currency 
        board systems have enjoyed higher rates of economic growth and 
        lower interest rates, although interest rates have remained 
        higher for loans denominated in the local currency than in the 
        anchor currency;
            (5) since the financial and economic crisis that struck 
        Asia in 1997, there has been growing international interest in 
        official dollarization, whereby a country would substantially 
        or totally eliminate its domestic currency and adopt the United 
        States dollar as legal tender;
            (6) official dollarization would let a country import 
        monetary stability, thereby bringing inflation and interest 
        rates down toward the levels of the United States;
            (7) official dollarization would make it impossible for 
        governments to print domestic currency to pay for government 
        programs, thereby promoting fiscal discipline;
            (8) official dollarization would make it easier for people 
        to conduct financial transactions in the currency they use for 
        daily commerce, thereby promoting deeper financial markets;
            (9) lower inflation, interest rates, and inflation and 
        interest-rate volatility, greater fiscal discipline, and deeper 
        financial markets would increase long-term economic growth and 
        raise living standards in emerging market countries;
            (10) by increasing trade and investment flows and 
        decreasing the need for foreign assistance, greater economic 
        growth and higher living standards abroad would serve the 
        interests of the United States;
            (11) countries that become officially dollarized would lose 
        seigniorage (the profit from issuing a currency) and this is a 
        significant barrier to official dollarization;
            (12) official dollarization would increase the seigniorage 
        earnings of the United States;
            (13) it would be mutually beneficial for the United States 
        to encourage official dollarization by offering to share with 
        countries that become officially dollarized a portion of the 
        extra seigniorage earnings that the United States would earn; 
        and
            (14) encouraging official dollarization complements ongoing 
        efforts by the United States to strengthen the international 
        financial architecture.
    (b) Statement of Policy.--It is the policy of the United States 
that--
            (1) the Federal Reserve System has no obligation to act as 
        a lender of last resort to the financial systems of dollarized 
        countries;
            (2) the Federal Reserve System has no obligation to 
        consider the economic conditions of dollarized countries when 
        formulating or implementing monetary policy; and
            (3) the supervision of financial institutions in dollarized 
        countries remains the responsibility of those countries.

SEC. 3. CERTIFICATION.

    (a) In General.--The Secretary of the Treasury (in this Act 
referred to as the ``Secretary'') may certify a country as officially 
dollarized, after consideration of whether the country has--
            (1) ceased issuing a local paper currency;
            (2) destroyed the materials (such as plates and dies) used 
        to produce such currency;
            (3) extinguished a substantial portion of the local 
        currency in circulation, with plans to extinguish as much of it 
        as feasible;
            (4) ended the legal tender status of the local currency;
            (5) granted legal tender status to the United States 
        dollar;
            (6) ceased accepting local currency, except in exchange for 
        dollars;
            (7) ceased making government payments in the local 
        currency;
            (8) substantially redenominated its prices, assets, and 
        liabilities in dollars;
            (9) either opened its banking system to foreign competition 
        or met international banking standards (such as those described 
        in the Core Principles for Effective Banking Supervision issued 
        by the Basle Committee on Banking Supervision of the Bank for 
        International Settlements); and
            (10) engaged in advance consultations with the Secretary to 
        determine whether the country is a good candidate for official 
        dollarization.
    (b) Statement by Secretary.--The Secretary shall issue a written 
statement upon certification of a country under this section that 
explains why that country has been certified. The Secretary may not 
certify United States territories or commonwealths as officially 
dollarized.

SEC. 4. CONSOL.

    (a) Issuance.--
            (1) Face value.--Upon certification of a country under 
        section 3, the Secretary shall issue to the dollarized country 
        a consol. Except as provided in section 5, the face value of 
        the consol shall be equal to the amount of dollars exchanged 
        for United States Treasury securities by the Federal Reserve 
        System with the dollarized country for purposes of official 
        dollarization under this Act.
            (2) Limitation.--Face value may not exceed the dollar value 
        of the local currency in circulation in the dollarizing country 
        prior to the certification of that country as officially 
        dollarized under section 3.
    (b) Interest Payments.--
            (1) In general.--Starting with the first business day of 
        the fourth full calendar month following the date of 
        certification of a country under section 3, the owner of the 
        consol will receive interest payments every 3 calendar months 
        equal to (FV<INF>0</INF>)(i)(.25)[(C<INF>2</INF>-
        FV<INF>2</INF>)/(C<INF>1</INF>-FV<INF>1</INF>)](85%).
            (2) Definitions.--In this Act--
                    (A) FV<INF>0</INF> = face value of the consol 
                issued under this Act to the country receiving the 
                payment;
                    (B) FV<INF>1</INF> = face value of all consols 
                issued under this Act by the end of the most recent 
                full calendar year prior to the date of certification 
                under section 3 of the country receiving the payment;
                    (C) FV<INF>2</INF> = face value of all consols 
                issued under this Act by the end of the most recent 
                full calendar year prior to the payment;
                    (D) i = average yield to maturity on 90-day 
                Treasury bills in the most recent full 3-month calendar 
                period prior to the date of payment (using the average 
                of monthly interest rates, as calculated by the Board 
                of Governors of the Federal Reserve System);
                    (E) C<INF>2</INF> = total global dollar currency in 
                circulation at the end of the most recent full calendar 
                year prior to the payment (as provided by the Board of 
                Governors of the Federal Reserve System); and
                    (F) C<INF>1</INF> = total global dollar currency in 
                circulation at the end of the most recent full calendar 
                year prior to the date of certification of the country 
                receiving the payment (as provided by the Board of 
                Governors of the Federal Reserve System).

SEC. 5. PREVIOUSLY DOLLARIZED COUNTRIES.

    (a) In General.--
            (1) Limitation.--The Republic of the Marshall Islands, the 
        Federated States of Micronesia, the Republic of Palau, Panama, 
        the Turks and Caicos Islands and the British Virgin Islands may 
        not be certified as officially dollarized or issued consols 
        until 10 percent of the face value of consols issued to 
        countries other than those listed in this paragraph equals or 
        exceeds the total combined face value of consols that would be 
        issued to the countries listed in this paragraph upon their 
        being certified.
            (2) Consol calculation.--
                    (A) In general.--Upon certification under section 
                3, each of the countries listed in paragraph (1) shall 
                receive a consol with a face value equal to (4%)(Y).
                    (B) Definition.--For purpose of subparagraph (A), Y 
                = nominal dollar gross domestic product, as calculated 
                by the World Bank (or other recognized statistical 
                authority), as of September 30, 1999, for calendar year 
                1997.
            (3) Payments.--Interest payments on consols to countries 
        listed in paragraph (1) shall be made in accordance with 
        section 4.

SEC. 6. RIGHTS AND OBLIGATIONS.

    Owners of consols issued under this Act shall have the same rights 
and obligations as other owners of privately held obligations of the 
United States Treasury, except that a consol originally issued to a 
country is rendered null and void upon a United States declaration of 
war on the country or a publicly issued statement by the Secretary that 
the country is no longer officially dollarized in accordance with this 
Act, but only if such written statement lists the reasons for such a 
finding. In making a determination under this section, the Secretary 
shall consider those factors listed in section 3(a).

SEC. 7. REPURCHASE.

    The Secretary may repurchase a consol issued under this Act at 
market value, but not sooner than 10 years after the date of issuance. 
Purchases may only be made upon the joint agreement of the Secretary 
and the owner of a consol. Consols issued under this Act are not 
callable.

SEC. 8. EXCHANGE STABILIZATION FUND.

    Payments on consols issued under this Act to countries that are in 
default or arrears on loans from the Exchange Stabilization Fund shall 
be used to cover such debts.

SEC. 9. REGULATIONS.

    The Secretary and the Board of Governors of the Federal Reserve 
System may issue regulations appropriate to carry out this Act.
                                 <all>
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