Reforming the international monetary system in the 1970s and 2000s: would an SDR substitution account have worked?
This paper analyses the discussion of a substitution account in the 1970s and how the account might have performed had it been agreed in 1980. The substitution account would have allowed central banks to diversify away from the dollar into the IMF’s Special Drawing Right (SDR), comprised of US dollar, Deutsche mark, French franc (later euro), Japanese yen and British pound, through transactions conducted off the market. The account’s dollar assets could fall short of the value of its SDR liabilities, and hedging would have defeated the purpose of preventing dollar sales. In the event, negotiators were unable to agree on how to distribute the open-ended cost of covering any shortfall if the dollar’s depreciation were to exceed the value of any cumulative interest rate premium on the dollar. As it turned out, the substitution account would have encountered solvency problems had the US dollar return been based on US Treasury bill yields, even if a substantial fraction of the IMF’s gold had been devoted to meet the shortfall at recent, high prices for gold. However, had the US dollar return been based on US Treasury bond yields, the substitution account would have been solvent even without any gold backing.
|Date of creation:||Mar 2014|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aliber, Robert Z, 1973. "The Interest Rate Parity Theorem: A Reinterpretation," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1451-59, Nov.-Dec..
- Clifford R Dammers & Robert N McCauley, 2006. "Basket weaving: the euromarket experience with basket currency bonds," BIS Quarterly Review, Bank for International Settlements, March.
- Robert N McCauley & Patrick McGuire, 2009. "Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging," BIS Quarterly Review, Bank for International Settlements, December.
- Menzie D. Chinn & Guy Meredith, 2004. "Monetary Policy and Long-Horizon Uncovered Interest Parity," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 409-430, November.
- Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
- Menzie Chinn & Jeffrey Frankel, 2008.
"Why the Euro Will Rival the Dollar,"
Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(3), pages 255-278, September.
- Robert N McCauley & Kazuo Ueda, 2009. "Government debt management at low interest rates," BIS Quarterly Review, Bank for International Settlements, June.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
- André Sapir & Jean Pisani-Ferry, 2011.
"Global Currencies for Tomorrow: A European Perspective,"
ULB Institutional Repository
2013/174278, ULB -- Universite Libre de Bruxelles.
- Ignazio Angeloni & AgnÃ¨s BÃ©nassy-QuÃ©rÃ© & Benjamin Carton & Christophe Destais & Zsolt Darvas & Jean Pisani-Ferry & AndrÃ© Sapir & Shahin VallÃ©e, . "Global currencies for tomorrow: a European perspective," Blueprints, Bruegel, number 592.
- Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Zsolt Darvas & Christophe Destais & Ludovic Gauvin & Jean Pisani-Ferry & André Sapir & Shahin Vallée, 2011. "Global currencies for tomorrow: A European perspective," European Economy - Economic Papers 444, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- repec:cup:cbooks:9780521876971 is not listed on IDEAS
- Hyun Song Shin, 2012. "Global Banking Glut and Loan Risk Premium," IMF Economic Review, Palgrave Macmillan, vol. 60(2), pages 155-192, July.
- Richard N. Cooper, 2009. "The Future of the Dollar," Policy Briefs PB09-21, Peterson Institute for International Economics.
- Robert N McCauley & Jean-François Rigaudy, 2011. "Managing foreign exchange reserves in the crisis and after," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 19-47 Bank for International Settlements.
When requesting a correction, please mention this item's handle: RePEc:bis:biswps:444. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If references are entirely missing, you can add them using this form.