AEI - Monetary disorder

Opinion, Brussels 1978

The European Communities' Economic and Social Committee,
chaired by Mr Basil de FERRANTI,
approved this opinion at its 160th Plenary Session, which was held on 20 and 21 June 1978.
The preliminary work was done by the Section for Economic and Financial Questions and the Rapporteur was Mr Yvan

CHARPENTIE.


"..Main features of world currency relationships
The situation in which the Jamaica Agreement is being applied is very different from that at the end of the Second World War in which the Bretton Woods Agreement came about.
Main features of world currency relationships
The situation in which the Jamaica Agreement is being applied is very different from that at the end of the Second World War in which the Bretton Woods Agreement came about.
- the USA then held 80% of world gold stocks, whereas it now has only about 25%;
- the dollar is no longer convertible into gold at a fixed rate and can no longer play the role of a monetary standard;
- the United States• permanent deficit on its balance of payments gives grounds for a growing lack of confidence in the dollar. Since 1971, the dollar has considerably depreciated in relation to the German mark, the yen and the Swiss franc, which are considered to be strong currencies.
On the other hand, the dollar is still widely used as a reserve currency by the central banks and as a money of account or settlement for the bulk of international commercial transactions. International claims are frequently denominated in dollars. For the United States this has the great advantage of enabling it to pay for its imports - and, in particular, its oil imports - in its own currency without having to worry about keeping its balance of payments in equilibrium..."
...
- 56 -
The seigniorage attaching to the dollar can be threatened only by exporters to the United States, who could refuse to accept payment for their exports in dollars. But although such action is being contemplated (particularly by OPEC countries) this is not a very realistic possibility at the present time. But an agreement might perhaps be reached with the United States on a solution to this situation. A return to equilibrium in ~he United States trade balance seems, however, rather uncertain in the medium term, when one considers the difficulties President CARTER is having in getting his energy conservation plan accepted..."


Source: http://aei.pitt.edu/6072/1/6072.pdf