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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.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
<DELETED>SECTION 1. SHORT TITLE.</DELETED>
<DELETED> This Act may be cited as the ``International Monetary
Stability Act of 2000''.</DELETED>
<DELETED>SEC. 2. FINDINGS; STATEMENT OF POLICY.</DELETED>
<DELETED> (a) Findings.--Congress finds that--</DELETED>
<DELETED> (1) monetary stability is a prerequisite for
strong long-term economic growth and increasing standards of
living;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (6) official dollarization would let a country
import monetary stability, thereby bringing inflation and
interest rates down toward the levels of the United
States;</DELETED>
<DELETED> (7) official dollarization would make it
impossible for governments to print domestic currency to pay
for government programs, thereby promoting fiscal
discipline;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (11) countries that become officially dollarized
would lose seigniorage (the profit from issuing a currency) and
this is a significant barrier to official
dollarization;</DELETED>
<DELETED> (12) official dollarization would increase the
seigniorage earnings of the United States;</DELETED>
<DELETED> (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</DELETED>
<DELETED> (14) encouraging official dollarization
complements ongoing efforts by the United States to strengthen
the international financial architecture.</DELETED>
<DELETED> (b) Statement of Policy.--It is the policy of the United
States that--</DELETED>
<DELETED> (1) the Federal Reserve System has no obligation
to act as a lender of last resort to the financial systems of
dollarized countries;</DELETED>
<DELETED> (2) the Federal Reserve System has no obligation
to consider the economic conditions of dollarized countries
when formulating or implementing monetary policy;</DELETED>
<DELETED> (3) the supervision of financial institutions in
dollarized countries remains the responsibility of those
countries; and</DELETED>
<DELETED> (4) in the absence of certification by the
Secretary of the Treasury under section 3, countries are free
to dollarize unilaterally.</DELETED>
<DELETED>SEC. 3. CERTIFICATION.</DELETED>
<DELETED> (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--
</DELETED>
<DELETED> (1) ceased issuing a domestic paper
currency;</DELETED>
<DELETED> (2) destroyed the materials (such as plates and
dies) used to produce such currency;</DELETED>
<DELETED> (3) extinguished a substantial portion of the
domestic currency in circulation, with plans to extinguish as
much of it as feasible;</DELETED>
<DELETED> (4) ended the legal tender status of the domestic
currency;</DELETED>
<DELETED> (5) granted legal tender status to the United
States dollar;</DELETED>
<DELETED> (6) ceased accepting domestic currency, except in
exchange for dollars;</DELETED>
<DELETED> (7) ceased making government payments in the
domestic currency;</DELETED>
<DELETED> (8) substantially redenominated its prices,
assets, and liabilities in dollars;</DELETED>
<DELETED> (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);</DELETED>
<DELETED> (10) engaged in advance consultations with the
Secretary to determine whether the country is a good candidate
for official dollarization; and</DELETED>
<DELETED> (11) cooperated with the United States regarding
the prevention of money laundering and
counterfeiting.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 4. PAYMENTS.</DELETED>
<DELETED> (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%).</DELETED>
<DELETED> (b) Definitions.--In this Act the following definitions
shall apply:</DELETED>
<DELETED> (1) ``C'' = the lesser of--</DELETED>
<DELETED> (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</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (d) Source of Funds.--The Secretary may make payments
under this Act out of revenue from deposits of earnings by Federal
Reserve Banks.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 5. PREVIOUSLY DOLLARIZED COUNTRIES.</DELETED>
<DELETED> (a) In General.--</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 6. PAYMENT CANCELLATION.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 7. REGULATIONS.</DELETED>
<DELETED> The Secretary and the Board of Governors of the Federal
Reserve System may issue regulations appropriate to carry out this
Act.</DELETED>
<DELETED>SEC. 8. EXPENSES.</DELETED>
<DELETED> Amounts to pay necessary expenses to make payments under
this Act are appropriated to the Secretary of the Treasury.</DELETED>
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
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