[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2101 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 2101

 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

_______________________________________________________________________

                                 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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