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106th CONGRESS
2d Session
H. R. 4818
To promote international monetary stability and to share seigniorage
with officially dollarized countries.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 10, 2000
Mr. Ryan of Wisconsin introduced the following bill; which was referred
to the Committee on Banking and Financial Services
_______________________________________________________________________
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 2000''.
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 domestic 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;
(3) the supervision of financial institutions in dollarized
countries remains the responsibility of those countries; and
(4) in the absence of certification by the Secretary of the
Treasury under section 3, countries are free to dollarize
unilaterally.
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 domestic paper currency;
(2) destroyed the materials (such as plates and dies) used
to produce such currency;
(3) extinguished a substantial portion of the domestic
currency in circulation, with plans to extinguish as much of it
as feasible;
(4) ended the legal tender status of the domestic currency;
(5) granted legal tender status to the United States
dollar;
(6) ceased accepting domestic currency, except in exchange
for dollars;
(7) ceased making government payments in the domestic
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);
(10) engaged in advance consultations with the Secretary to
determine whether the country is a good candidate for official
dollarization; and
(11) cooperated with the United States regarding the
prevention of money laundering and counterfeiting.
(b) Other Considerations.--In deciding whether to certify a country
as officially dollarized under this section, the Secretary may consider
any additional factors that the Secretary deems relevant.
(c) Decision by Secretary.--The absence of any 1 or more of the
considerations described in subsection (a) or (b) does not preclude the
Secretary from certifying a country as officially dollarized.
(d) 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. PAYMENTS.
(a) 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 Secretary shall, every 3 calendar months, pay a
country certified under section 3 an amount equal to the following:
(C)(i)(25%)(P2/P1)(85%).
(b) Definitions.--In this Act the following definitions shall
apply:
(1) ``C'' = the lesser of--
(A) the dollar amount of Federal Reserve Notes that
the country receiving the payment acquired from the
Federal Reserve System for purposes of official
dollarization under this Act; or
(B) the dollar value of the domestic currency in
circulation in the country receiving the payment prior
to the certification of that country under section 3.
(2) ``i'' = average yield to maturity on 90-day Treasury
bills in the most recent full 3-month calendar period occurring
before the date of payment under subsection (a), except that if
90-day Treasury bills are discontinued, the Secretary may
substitute an appropriate alternative interest rate.
(3) ``P2'' = the nonseasonally adjusted United States City
Average All Items Consumer Price Index for All Urban Consumers
(referred to as ``CPI-U'') for the most recent month occurring
before the date of payment under subsection (a) for which data
are available, except that if this price measure is
discontinued or, in the judgment of the Secretary, altered in a
manner that is materially adverse to the interests of the
United States, the Secretary may, after consultation with the
Bureau of Labor Statistics, substitute an appropriate
alternative index.
(4) ``P1'' = the nonseasonally adjusted United States City
Average All Items Consumer Price Index for All Urban Consumers
(CPI-U) for the month occurring before the date of
certification under section 3, except that if this price
measure is discontinued or, in the judgment of the Secretary,
altered in a manner that is materially adverse to the interests
of the United States, the Secretary may, after consultation
with the Bureau of Labor Statistics, substitute an appropriate
alternative index.
(c) Faith of the United States Government.--Except as otherwise
provided in this Act, the faith of the United States Government is
pledged to pay, in legal tender, any payments due under this Act.
(d) Source of Funds.--The Secretary may make payments under this
Act out of revenue from deposits of earnings by Federal Reserve Banks.
(e) Reductions in Payments.--If, in the judgment of the Secretary,
the amount of dollars in circulation in a certified country is such
that payments under this Act would impose a net loss of revenue on the
United States Government, the Secretary may reduce the payment, but
only after the Secretary has issued a written public statement
explaining the reasons for doing so.
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,
East Timor, the Turks and Caicos Islands, and the British
Virgin Islands may not be certified as officially dollarized or
issued payments under this Act until 10 percent of the combined
quarterly payments made to countries other than those listed in
this paragraph equals or exceeds the total combined quarterly
payments that would be made to the countries listed in this
paragraph upon their being certified.
(2) Payment calculation.--Upon certification under section
3, each of the countries listed in paragraph (1) shall receive
payments in accordance with section 4, except that for purposes
of the countries listed in paragraph (1), ``C'' = (4%)(Y),
where ``Y'' = nominal dollar gross domestic product for the
country receiving the payment, as calculated by the World Bank
(or other recognized statistical authority), as of September
30, 1999, for calendar year 1997.
SEC. 6. PAYMENT CANCELLATION.
(a) In General.--The United States shall cease making payments to a
country under this Act if the United States declares war on the
country, or if the Secretary issues a written public statement that the
country is no longer officially dollarized in accordance with this Act,
which statement shall list the reasons for such a finding.
(b) Considerations.--In making a determination under this section,
the Secretary shall consider those factors listed in section 3(a) and
any additional factors that the Secretary deems relevant.
SEC. 7. REGULATIONS.
The Secretary and the Board of Governors of the Federal Reserve
System may issue regulations appropriate to carry out this Act.
SEC. 8. EXPENSES.
Amounts to pay necessary expenses to make payments under this Act
are appropriated to the Secretary of the Treasury.
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