II

106TH CONGRESS

2D SESSION S. 2101

To promote international monetary stability and to share seigniorage with

officially dollarized countries.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 24, 2000

Mr. MACK (for himself and Mr. BENNETT) 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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘International Monetary

5 Stability Act of 2000’’.

6 SEC. 2. FINDINGS; STATEMENT OF POLICY.

7 (a) FINDINGS.—Congress finds that—

8 (1) monetary stability is a prerequisite for

9 strong long-term economic growth and increasing

10 standards of living;
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1 (2) many emerging market countries lack mone2 tary stability and have therefore suffered economic

3 and financial problems that suppress economic

4 growth and living standards, including financial fra5 gility, inflation expectations that are built into labor

6 markets, and high and volatile inflation rates and in7 terest rates;

8 (3) many emerging market countries have used

9 pegged exchange rate systems to try to foster mone10 tary stability and have experienced temporary peri11 ods of higher economic growth and lower inflation

12 followed by drastic balance of payments problems,

13 steep devaluations, and major losses in international

14 reserves;

15 (4) emerging market countries that have adopt16 ed currency board systems have enjoyed higher rates

17 of economic growth and lower interest rates, al18 though interest rates have remained higher for loans

19 denominated in the domestic currency than in the

20 anchor currency;

21 (5) since the financial and economic crisis that

22 struck Asia in 1997, there has been growing inter23 national interest in official dollarization, whereby a

24 country would substantially or totally eliminate its
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1 domestic currency and adopt the United States dol2 lar as legal tender;

3 (6) official dollarization would let a country im4 port monetary stability, thereby bringing inflation

5 and interest rates down toward the levels of the

6 United States;

7 (7) official dollarization would make it impos8 sible for governments to print domestic currency to

9 pay for government programs, thereby promoting

10 fiscal discipline;

11 (8) official dollarization would make it easier

12 for people to conduct financial transactions in the

13 currency they use for daily commerce, thereby pro14 moting deeper financial markets;

15 (9) lower inflation, interest rates, and inflation

16 and interest-rate volatility, greater fiscal discipline,

17 and deeper financial markets would increase long18 term economic growth and raise living standards in

19 emerging market countries;

20 (10) by increasing trade and investment flows

21 and decreasing the need for foreign assistance,

22 greater economic growth and higher living standards

23 abroad would serve the interests of the United

24 States;
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1 (11) countries that become officially dollarized

2 would lose seigniorage (the profit from issuing a cur3 rency) and this is a significant barrier to official

4 dollarization;

5 (12) official dollarization would increase the sei6 gniorage earnings of the United States;

7 (13) it would be mutually beneficial for the

8 United States to encourage official dollarization by

9 offering to share with countries that become offi10 cially dollarized a portion of the extra seigniorage

11 earnings that the United States would earn; and

12 (14) encouraging official dollarization com13 plements ongoing efforts by the United States to

14 strengthen the international financial architecture.

15 (b) STATEMENT OF POLICY.—It is the policy of the

16 United States that—

17 (1) the Federal Reserve System has no obliga18 tion to act as a lender of last resort to the financial

19 systems of dollarized countries;

20 (2) the Federal Reserve System has no obliga21 tion to consider the economic conditions of dollarized

22 countries when formulating or implementing mone23 tary policy;
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1 (3) the supervision of financial institutions in

2 dollarized countries remains the responsibility of

3 those countries; and

4 (4) in the absence of certification by the Sec5 retary of the Treasury under section 3, countries are

6 free to dollarize unilaterally.

7 SEC. 3. CERTIFICATION.

8 (a) IN GENERAL.—The Secretary of the Treasury (in

9 this Act referred to as the ‘‘Secretary’’) may certify a

10 country as officially dollarized, after consideration of

11 whether the country has—

12 (1) ceased issuing a domestic paper currency;

13 (2) destroyed the materials (such as plates and

14 dies) used to produce such currency;

15 (3) extinguished a substantial portion of the do16 mestic currency in circulation, with plans to extin17 guish as much of it as feasible;

18 (4) ended the legal tender status of the domes19 tic currency;

20 (5) granted legal tender status to the United

21 States dollar;

22 (6) ceased accepting domestic currency, except

23 in exchange for dollars;

24 (7) ceased making government payments in the

25 domestic currency;
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1 (8) substantially redenominated its prices, as2 sets, and liabilities in dollars;

3 (9) either opened its banking system to foreign

4 competition or met international banking standards

5 (such as those described in the Core Principles for

6 Effective Banking Supervision issued by the Basle

7 Committee on Banking Supervision of the Bank for

8 International Settlements);

9 (10) engaged in advance consultations with the

10 Secretary to determine whether the country is a

11 good candidate for official dollarization; and

12 (11) cooperated with the United States regard13 ing the prevention of money laundering and counter14 feiting.

15 (b) OTHER CONSIDERATIONS.—In deciding whether

16 to certify a country as officially dollarized under this sec17 tion, the Secretary may consider any additional factors

18 that the Secretary deems relevant.

19 (c) DECISION BY SECRETARY.—The absence of any

20 1 or more of the considerations described in subsection

21 (a) or (b) does not preclude the Secretary from certifying

22 a country as officially dollarized.

23 (d) STATEMENT BY SECRETARY.—The Secretary

24 shall issue a written statement upon certification of a

25 country under this section that explains why that country
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1 has been certified. The Secretary may not certify United

2 States territories or commonwealths as officially

3 dollarized.

4 SEC. 4. PAYMENTS.

5 (a) IN GENERAL.—Starting with the first business

6 day of the fourth full calendar month following the date

7 of certification of a country under section 3, the Secretary

8 shall, every 3 calendar months, pay a country certified

9 under section 3 an amount equal to the following:

10 (C)(i)(25%)(P2/P1)(85%).

11 (b) DEFINITIONS.—In this Act the following defini12 tions shall apply:

13 (1) ‘‘C’’ = the lesser of—

14 (A) the dollar amount of Federal Reserve

15 Notes that the country receiving the payment

16 acquired from the Federal Reserve System for

17 purposes of official dollarization under this Act;

18 or

19 (B) the dollar value of the domestic cur20 rency in circulation in the country receiving the

21 payment prior to the certification of that coun22 try under section 3.

23 (2) ‘‘i’’ = average yield to maturity on 90-day

24 Treasury bills in the most recent full 3-month cal25 endar period occurring before the date of payment
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1 under subsection (a), except that if 90-day Treasury

2 bills are discontinued, the Secretary may substitute

3 an appropriate alternative interest rate.

4 (3) ‘‘P2’’ = the nonseasonally adjusted United

5 States City Average All Items Consumer Price Index

6 for All Urban Consumers (referred to as ‘‘CPI–U’’)

7 for the most recent month occurring before the date

8 of payment under subsection (a) for which data are

9 available, except that if this price measure is discon10 tinued or, in the judgment of the Secretary, altered

11 in a manner that is materially adverse to the inter12 ests of the United States, the Secretary may, after

13 consultation with the Bureau of Labor Statistics,

14 substitute an appropriate alternative index.

15 (4) ‘‘P1’’ = the nonseasonally adjusted United

16 States City Average All Items Consumer Price Index

17 for All Urban Consumers (CPI–U) for the month oc18 curring before the date of certification under section

19 3, except that if this price measure is discontinued

20 or, in the judgment of the Secretary, altered in a

21 manner that is materially adverse to the interests of

22 the United States, the Secretary may, after con23 sultation with the Bureau of Labor Statistics, sub24 stitute an appropriate alternative index.
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1 (c) FAITH OF THE UNITED STATES GOVERNMENT.—

2 Except as otherwise provided in this Act, the faith of the

3 United States Government is pledged to pay, in legal ten4 der, any payments due under this Act.

5 (d) SOURCE OF FUNDS.—The Secretary may make

6 payments under this Act out of revenue from deposits of

7 earnings by Federal Reserve Banks.

8 (e) REDUCTIONS IN PAYMENTS.—If, in the judgment

9 of the Secretary, the amount of dollars in circulation in

10 a certified country is such that payments under this Act

11 would impose a net loss of revenue on the United States

12 Government, the Secretary may reduce the payment, but

13 only after the Secretary has issued a written public state14 ment explaining the reasons for doing so.

15 SEC. 5. PREVIOUSLY DOLLARIZED COUNTRIES.

16 (a) IN GENERAL.—

17 (1) LIMITATION.—The Republic of the Marshall

18 Islands, the Federated States of Micronesia, the Re19 public of Palau, Panama, East Timor, the Turks

20 and Caicos Islands, and the British Virgin Islands

21 may not be certified as officially dollarized or issued

22 payments under this Act until 10 percent of the

23 combined quarterly payments made to countries

24 other than those listed in this paragraph equals or

25 exceeds the total combined quarterly payments that
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1 would be made to the countries listed in this para2 graph upon their being certified.

3 (2) PAYMENT CALCULATION.—Upon certifi4 cation under section 3, each of the countries listed

5 in paragraph (1) shall receive payments in accord6 ance with section 4, except that for purposes of the

7 countries listed in paragraph (1), ‘‘C’’ = (4%)(Y),

8 where ‘‘Y’’ = nominal dollar gross domestic product

9 for the country receiving the payment, as calculated

10 by the World Bank (or other recognized statistical

11 authority), as of September 30, 1999, for calendar

12 year 1997.

13 SEC. 6. PAYMENT CANCELLATION.

14 (a) IN GENERAL.—The United States shall cease

15 making payments to a country under this Act if the

16 United States declares war on the country, or if the Sec17 retary issues a written public statement that the country

18 is no longer officially dollarized in accordance with this

19 Act, which statement shall list the reasons for such a find20 ing.

21 (b) CONSIDERATIONS.—In making a determination

22 under this section, the Secretary shall consider those fac23 tors listed in section 3(a) and any additional factors that

24 the Secretary deems relevant.
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1 SEC. 7. REGULATIONS.

2 The Secretary and the Board of Governors of the

3 Federal Reserve System may issue regulations appropriate

4 to carry out this Act.

5 SEC. 8. EXPENSES.

6 Amounts to pay necessary expenses to make pay7 ments under this Act are appropriated to the Secretary

8 of the Treasury.

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