II

Calendar No. 705

106TH CONGRESS

2D SESSION S. 2101

[Report No. 106–354]

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

JULY 24 (legislative day, JULY 21), 2000

Reported by Mr. GRAMM, with an amendment

[Strike out all after the enacting clause and insert the part printed in italic]

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’’.
2

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1 SEC. 2. FINDINGS; STATEMENT OF POLICY.

2 (a) FINDINGS.—Congress finds that—

3 (1) monetary stability is a prerequisite for

4 strong long-term economic growth and increasing

5 standards of living;

6 (2) many emerging market countries lack mone7 tary stability and have therefore suffered economic

8 and financial problems that suppress economic

9 growth and living standards, including financial fra10 gility, inflation expectations that are built into labor

11 markets, and high and volatile inflation rates and in12 terest rates;

13 (3) many emerging market countries have used

14 pegged exchange rate systems to try to foster mone15 tary stability and have experienced temporary peri16 ods of higher economic growth and lower inflation

17 followed by drastic balance of payments problems,

18 steep devaluations, and major losses in international

19 reserves;

20 (4) emerging market countries that have adopt21 ed currency board systems have enjoyed higher rates

22 of economic growth and lower interest rates, al23 though interest rates have remained higher for loans

24 denominated in the domestic currency than in the

25 anchor currency;
3

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1 (5) since the financial and economic crisis that

2 struck Asia in 1997, there has been growing inter3 national interest in official dollarization, whereby a

4 country would substantially or totally eliminate its

5 domestic currency and adopt the United States dol6 lar as legal tender;

7 (6) official dollarization would let a country im8 port monetary stability, thereby bringing inflation

9 and interest rates down toward the levels of the

10 United States;

11 (7) official dollarization would make it impos12 sible for governments to print domestic currency to

13 pay for government programs, thereby promoting

14 fiscal discipline;

15 (8) official dollarization would make it easier

16 for people to conduct financial transactions in the

17 currency they use for daily commerce, thereby pro18 moting deeper financial markets;

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

20 and interest-rate volatility, greater fiscal discipline,

21 and deeper financial markets would increase long22 term economic growth and raise living standards in

23 emerging market countries;

24 (10) by increasing trade and investment flows

25 and decreasing the need for foreign assistance,
4

•S 2101 RS

1 greater economic growth and higher living standards

2 abroad would serve the interests of the United

3 States;

4 (11) countries that become officially dollarized

5 would lose seigniorage (the profit from issuing a cur6 rency) and this is a significant barrier to official

7 dollarization;

8 (12) official dollarization would increase the sei9 gniorage earnings of the United States;

10 (13) it would be mutually beneficial for the

11 United States to encourage official dollarization by

12 offering to share with countries that become offi13 cially dollarized a portion of the extra seigniorage

14 earnings that the United States would earn; and

15 (14) encouraging official dollarization com16 plements ongoing efforts by the United States to

17 strengthen the international financial architecture.

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

19 United States that—

20 (1) the Federal Reserve System has no obliga21 tion to act as a lender of last resort to the financial

22 systems of dollarized countries;

23 (2) the Federal Reserve System has no obliga24 tion to consider the economic conditions of dollarized
5

•S 2101 RS

1 countries when formulating or implementing mone2 tary policy;

3 (3) the supervision of financial institutions in

4 dollarized countries remains the responsibility of

5 those countries; and

6 (4) in the absence of certification by the Sec7 retary of the Treasury under section 3, countries are

8 free to dollarize unilaterally.

9 SEC. 3. CERTIFICATION.

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

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

12 country as officially dollarized, after consideration of

13 whether the country has—

14 (1) ceased issuing a domestic paper currency;

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

16 dies) used to produce such currency;

17 (3) extinguished a substantial portion of the do18 mestic currency in circulation, with plans to extin19 guish as much of it as feasible;

20 (4) ended the legal tender status of the domes21 tic currency;

22 (5) granted legal tender status to the United

23 States dollar;

24 (6) ceased accepting domestic currency, except

25 in exchange for dollars;
6

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1 (7) ceased making government payments in the

2 domestic currency;

3 (8) substantially redenominated its prices, as4 sets, and liabilities in dollars;

5 (9) either opened its banking system to foreign

6 competition or met international banking standards

7 (such as those described in the Core Principles for

8 Effective Banking Supervision issued by the Basle

9 Committee on Banking Supervision of the Bank for

10 International Settlements);

11 (10) engaged in advance consultations with the

12 Secretary to determine whether the country is a

13 good candidate for official dollarization; and

14 (11) cooperated with the United States regard15 ing the prevention of money laundering and counter16 feiting.

17 (b) OTHER CONSIDERATIONS.—In deciding whether

18 to certify a country as officially dollarized under this sec19 tion, the Secretary may consider any additional factors

20 that the Secretary deems relevant.

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

22 1 or more of the considerations described in subsection

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

24 a country as officially dollarized.
7

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1 (d) STATEMENT BY SECRETARY.—The Secretary

2 shall issue a written statement upon certification of a

3 country under this section that explains why that country

4 has been certified. The Secretary may not certify United

5 States territories or commonwealths as officially

6 dollarized.

7 SEC. 4. PAYMENTS.

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

9 day of the fourth full calendar month following the date

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

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

12 under section 3 an amount equal to the following:

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

14 (b) DEFINITIONS.—In this Act the following defini15 tions shall apply:

16 (1) ‘‘C’’ = the lesser of—

17 (A) the dollar amount of Federal Reserve

18 Notes that the country receiving the payment

19 acquired from the Federal Reserve System for

20 purposes of official dollarization under this Act;

21 or

22 (B) the dollar value of the domestic cur23 rency in circulation in the country receiving the

24 payment prior to the certification of that coun25 try under section 3.
8

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

2 Treasury bills in the most recent full 3-month cal3 endar period occurring before the date of payment

4 under subsection (a), except that if 90-day Treasury

5 bills are discontinued, the Secretary may substitute

6 an appropriate alternative interest rate.

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

8 States City Average All Items Consumer Price Index

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

10 for the most recent month occurring before the date

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

12 available, except that if this price measure is discon13 tinued or, in the judgment of the Secretary, altered

14 in a manner that is materially adverse to the inter15 ests of the United States, the Secretary may, after

16 consultation with the Bureau of Labor Statistics,

17 substitute an appropriate alternative index.

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

19 States City Average All Items Consumer Price Index

20 for All Urban Consumers (CPI–U) for the month oc21 curring before the date of certification under section

22 3, except that if this price measure is discontinued

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

24 manner that is materially adverse to the interests of

25 the United States, the Secretary may, after con-
9

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1 sultation with the Bureau of Labor Statistics, sub2 stitute an appropriate alternative index.

3 (c) FAITH OF THE UNITED STATES GOVERNMENT.—

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

5 United States Government is pledged to pay, in legal ten6 der, any payments due under this Act.

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

8 payments under this Act out of revenue from deposits of

9 earnings by Federal Reserve Banks.

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

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

12 a certified country is such that payments under this Act

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

14 Government, the Secretary may reduce the payment, but

15 only after the Secretary has issued a written public state16 ment explaining the reasons for doing so.

17 SEC. 5. PREVIOUSLY DOLLARIZED COUNTRIES.

18 (a) IN GENERAL.—

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

20 Islands, the Federated States of Micronesia, the Re21 public of Palau, Panama, East Timor, the Turks

22 and Caicos Islands, and the British Virgin Islands

23 may not be certified as officially dollarized or issued

24 payments under this Act until 10 percent of the

25 combined quarterly payments made to countries
10

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1 other than those listed in this paragraph equals or

2 exceeds the total combined quarterly payments that

3 would be made to the countries listed in this para4 graph upon their being certified.

5 (2) PAYMENT CALCULATION.—Upon certifi6 cation under section 3, each of the countries listed

7 in paragraph (1) shall receive payments in accord8 ance with section 4, except that for purposes of the

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

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

11 for the country receiving the payment, as calculated

12 by the World Bank (or other recognized statistical

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

14 year 1997.

15 SEC. 6. PAYMENT CANCELLATION.

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

17 making payments to a country under this Act if the

18 United States declares war on the country, or if the Sec19 retary issues a written public statement that the country

20 is no longer officially dollarized in accordance with this

21 Act, which statement shall list the reasons for such a find22 ing.

23 (b) CONSIDERATIONS.—In making a determination

24 under this section, the Secretary shall consider those fac-
11

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1 tors listed in section 3(a) and any additional factors that

2 the Secretary deems relevant.

3 SEC. 7. REGULATIONS.

4 The Secretary and the Board of Governors of the

5 Federal Reserve System may issue regulations appropriate

6 to carry out this Act.

7 SEC. 8. EXPENSES.

8 Amounts to pay necessary expenses to make pay9 ments under this Act are appropriated to the Secretary

10 of the Treasury.

11 SECTION 1. SHORT TITLE.

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

13 Stability Act of 2000’’.

14 SEC. 2. FINDINGS; STATEMENT OF POLICY.

15 (a) FINDINGS.—Congress finds that—

16 (1) monetary stability is a prerequisite for

17 strong long-term economic growth and increasing

18 standards of living;

19 (2) many emerging market countries lack mone20 tary stability and have therefore suffered economic

21 and financial problems that suppress economic

22 growth and living standards, including financial fra23 gility, inflation expectations that are built into labor

24 markets, and high and volatile inflation rates and in25 terest rates;
12

•S 2101 RS

1 (3) many emerging market countries have used

2 pegged exchange rate systems to try to foster mone3 tary stability and have experienced temporary peri4 ods of higher economic growth and lower inflation fol5 lowed by drastic balance of payments problems, steep

6 devaluations, and major losses in international re7 serves;

8 (4) emerging market countries that have adopted

9 currency board systems have enjoyed higher rates of

10 economic growth and lower interest rates, although

11 interest rates have remained higher for loans denomi12 nated in the domestic currency than in the anchor

13 currency;

14 (5) since the financial and economic crisis that

15 struck Asia in 1997, there has been growing inter16 national interest in official dollarization, whereby a

17 country would substantially or totally eliminate its

18 domestic currency and adopt the United States dollar

19 as legal tender;

20 (6) official dollarization would let a country im21 port monetary stability, thereby bringing inflation

22 and interest rates down toward the levels of the

23 United States;

24 (7) official dollarization would make it impos25 sible for governments to print domestic currency to
13

•S 2101 RS

1 pay for government programs, thereby promoting fis2 cal discipline;

3 (8) official dollarization would make it easier for

4 people to conduct financial transactions in the cur5 rency they use for daily commerce, thereby promoting

6 deeper financial markets;

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

8 and interest-rate volatility, greater fiscal discipline,

9 and deeper financial markets would increase long10 term economic growth and raise living standards in

11 emerging market countries;

12 (10) by increasing trade and investment flows

13 and decreasing the need for foreign assistance, greater

14 economic growth and higher living standards abroad

15 would serve the interests of the United States;

16 (11) countries that become officially dollarized

17 would lose seigniorage (the profit from issuing a cur18 rency) and this is a significant barrier to official

19 dollarization;

20 (12) official dollarization would increase the sei21 gniorage earnings of the United States;

22 (13) it would be mutually beneficial for the

23 United States to encourage official dollarization by

24 offering to share with countries that become officially
14

•S 2101 RS

1 dollarized a portion of the extra seigniorage earnings

2 that the United States would earn; and

3 (14) encouraging official dollarization com4 plements ongoing efforts by the United States to

5 strengthen the international financial architecture.

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

7 United States that—

8 (1) the Federal Reserve System has no obligation

9 to act as a lender of last resort to the financial sys10 tems of dollarized countries;

11 (2) the Federal Reserve System has no obligation

12 to consider the economic conditions of dollarized

13 countries when formulating or implementing mone14 tary policy;

15 (3) the supervision of financial institutions in

16 dollarized countries remains the responsibility of

17 those countries; and

18 (4) in the absence of certification by the Sec19 retary of the Treasury under section 3, countries are

20 free to dollarize unilaterally.

21 SEC. 3. CERTIFICATION.

22 (a) IN GENERAL.—The Secretary of the Treasury (re23 ferred to in this Act as the ‘‘Secretary’’) may certify a for24 eign country as officially dollarized, after consideration of

25 whether the country has—
15

•S 2101 RS

1 (1) ceased issuing a domestic paper currency;

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

3 dies) used to produce such currency;

4 (3) extinguished a substantial portion of the do5 mestic currency in circulation, with plans to extin6 guish as much of that currency as feasible;

7 (4) ended the legal tender status of the domestic

8 currency;

9 (5) granted legal tender status to the United

10 States dollar;

11 (6) ceased accepting domestic currency, except in

12 exchange for United States dollars;

13 (7) ceased making government payments in the

14 domestic currency;

15 (8) substantially redenominated its prices, assets,

16 and liabilities in United States dollars;

17 (9) either opened its banking system to foreign

18 competition or met international banking standards

19 (such as those described in the Core Principles for Ef20 fective Banking Supervision issued by the Basle Com21 mittee on Banking Supervision of the Bank for Inter22 national Settlements);

23 (10) engaged in advance consultations with the

24 Secretary to determine whether the country is a good

25 candidate for official dollarization; and
16

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1 (11) cooperated with the United States regarding

2 the prevention of money laundering and counter3 feiting.

4 (b) OTHER CONSIDERATIONS.—In deciding whether to

5 certify a country as officially dollarized under this section,

6 the Secretary may consider any additional factors that the

7 Secretary deems relevant.

8 (c) DECISION BY SECRETARY.—The absence of any 1

9 or more of the considerations described in subsection (a)

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

11 country as officially dollarized.

12 (d) STATEMENT BY SECRETARY.—The Secretary shall

13 issue a written statement upon certification of a country

14 under this section that explains why that country has been

15 certified. The Secretary may not certify United States terri16 tories or commonwealths as officially dollarized.

17 SEC. 4. PAYMENTS.

18 (a) IN GENERAL.—

19 (1) ELIGIBILITY.—A country shall not be eligible

20 for payments under this section until the first busi21 ness day of the 121st full calendar month following

22 the date of certification of the country under section

23 3.

24 (2) QUARTERLY PAYMENTS.—Starting with the

25 first business day of the 124th full calendar month
17

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1 following the date of certification of a country under

2 section 3, the Secretary shall, every 3 calendar

3 months, pay a country certified under section 3 an

4 amount equal to the following: (C)(i1)(25%)(P2/

5 P1)(85%).

6 (3) LUMP SUM PAYMENT.—On the first business

7 day of the 121st full calendar month following the

8 date of certification of a country under section 3, the

9 Secretary shall pay a country that has been continu10 ously certified for 120 months under section 3 an

11 amount equal to the following: (C)(i2)(850%)(P3/

P1)(1+i3)4.875 12 .

13 (b) DEFINITIONS.—In this Act:

14 (1) ‘‘C’’ = the lesser of—

15 (A) the dollar amount of Federal Reserve

16 Notes that the country receiving the payment ac17 quired from the Federal Reserve System for pur18 poses of official dollarization under this Act; 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) ‘‘i1’’ = 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
18

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1 under subsection (a)(2), except that if 90-day Treas2 ury bills are discontinued, the Secretary may sub3 stitute an appropriate alternative interest rate.

4 (3) ‘‘i2’’ = average yield to maturity on 90-day

5 Treasury bills in the most recent full 120-month cal6 endar period occurring before the date of payment

7 under subsection (a)(3), except that if 90-day Treas8 ury bills are discontinued, the Secretary may sub9 stitute an appropriate alternative interest rate.

10 (4) ‘‘i3’’ = average yield to maturity on 10-year

11 Treasury bonds in the 120-month calendar period oc12 curring before the date of payment under subsection

13 (a)(3), except that if 10-year Treasury bonds are dis14 continued, the Secretary may substitute an appro15 priate alternative interest rate.

16 (5) ‘‘P1’’ = the nonseasonally adjusted United

17 States City Average All Items Consumer Price Index

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

19 for the month occurring before the date of certification

20 under section 3, except that if this price measure is

21 discontinued or, in the judgment of the Secretary, al22 tered in a manner that is materially adverse to the

23 interests of the United States, the Secretary may,

24 after consultation with the Bureau of Labor Statis25 tics, substitute an appropriate alternative index.
19

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1 (6) ‘‘P2’’ = the nonseasonally adjusted United

2 States City Average All Items Consumer Price Index

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

4 for the most recent month occurring before the date of

5 payment under subsection (a)(2) for which data are

6 available, except that if this price measure is discon7 tinued or, in the judgment of the Secretary, altered in

8 a manner that is materially adverse to the interests

9 of the United States, the Secretary may, after con10 sultation with the Bureau of Labor Statistics, sub11 stitute an appropriate alternative index.

12 (7) ‘‘P3’’ = the average nonseasonally adjusted

13 United States City Average All Items Consumer Price

14 Index for All Urban Consumers (referred to as ‘‘CPI–

15 U’’) for the most recent full 120 calendar months oc16 curring before the date of payment under subsection

17 (a)(3) for which data are available, except that if this

18 price measure is discontinued or, in the judgment of

19 the Secretary, altered in a manner that is materially

20 adverse to the interests of the United States, the Sec21 retary may, after consultation with the Bureau of

22 Labor Statistics, substitute an appropriate alter23 native index.
20

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1 (c) SOURCE OF FUNDS.—The Secretary may make

2 payments under this Act out of revenue from any funds

3 paid to the Treasury by Federal Reserve Banks.

4 (d) REDUCTIONS IN PAYMENTS.—If, in the judgment

5 of the Secretary, the amount of United States dollars in

6 circulation in a certified country is such that payments

7 under this Act would impose a net loss of revenue on the

8 United States Government, the Secretary may reduce the

9 payment, but only after the Secretary has issued a written

10 public statement explaining the reasons for doing so.

11 SEC. 5. PREVIOUSLY DOLLARIZED COUNTRIES.

12 (a) LIMITATION.—The Republic of the Marshall Is13 lands, the Federated States of Micronesia, the Republic of

14 Palau, Panama, East Timor, the Turks and Caicos Islands,

15 the Republic of Ecuador, and the British Virgin Islands

16 may not be issued payments under this Act until 10 percent

17 of the payments made to countries other than those listed

18 in this subsection equals or exceeds the total payments that

19 would be made to the countries listed in this subsection.

20 (b) PAYMENT CALCULATION.—Upon certification

21 under section 3, each of the countries listed in subsection

22 (a) shall receive payments in accordance with section 4, ex23 cept that for purposes of the countries listed in subsection

24 (a) of this section, ‘‘C’’ equals (4%)(Y), where ‘‘Y’’ equals

25 nominal dollar gross domestic product for the country re-
21

•S 2101 RS

1 ceiving the payment, as calculated by the World Bank (or

2 other recognized statistical authority), as of September 30,

3 1999, for calendar year 1997.

4 SEC. 6. DECERTIFICATION AND PAYMENT CANCELLATION.

5 (a) IN GENERAL.—The Secretary shall decertify and

6 cease making payments to a country under this Act if the

7 United States declares war on the country, or if the Sec8 retary determines that the country is no longer officially

9 dollarized in accordance with this Act and issues a written

10 public statement to that effect that lists the reasons for such

11 determination.

12 (b) CONSIDERATIONS.—In making a determination

13 under this section, the Secretary shall consider the factors

14 listed in section 3(a) and any additional factors that the

15 Secretary determines to be relevant.

16 SEC. 7. REGULATIONS.

17 The Secretary and the Board of Governors of the Fed18 eral Reserve System may issue regulations appropriate to

19 carry out this Act.

20 SEC. 8. EXPENSES.

21 There are authorized to be appropriated to the Sec22 retary such amounts as may be necessary for expenses and

23 payments under this Act.
Calendar No. 705

106TH CONGRESS

2D SESSION S. 2101

[Report No. 106–354]

A BILL

To promote international monetary stability and to

share seigniorage with officially dollarized countries.

JULY 24 (legislative day, JULY 21), 2000

Reported with an amendment