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






                                                       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 
        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 (referred to in this 
Act as the ``Secretary'') may certify a foreign 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 
        that currency 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 United States dollars;
            (7) ceased making government payments in the domestic 
        currency;
            (8) substantially redenominated its prices, assets, and 
        liabilities in United States 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.--
            (1) Eligibility.--A country shall not be eligible for 
        payments under this section until the first business day of the 
        121st full calendar month following the date of certification 
        of the country under section 3.
            (2) Quarterly payments.--Starting with the first business 
        day of the 124th 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)(i1)(25%)(P2/
        P1)(85%).
            (3) Lump sum payment.--On the first business day of the 
        121st full calendar month following the date of certification 
        of a country under section 3, the Secretary shall pay a country 
        that has been continuously certified for 120 months under 
        section 3 an amount equal to the following: (C)(i2)(850%)(P3/
        P1)(1+i3)<SUP>4.875</SUP>.
    (b) Definitions.--In this Act:
            (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) ``i1'' = 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)(2), except that 
        if 90-day Treasury bills are discontinued, the Secretary may 
        substitute an appropriate alternative interest rate.
            (3) ``i2'' = average yield to maturity on 90-day Treasury 
        bills in the most recent full 120-month calendar period 
        occurring before the date of payment under subsection (a)(3), 
        except that if 90-day Treasury bills are discontinued, the 
        Secretary may substitute an appropriate alternative interest 
        rate.
            (4) ``i3'' = average yield to maturity on 10-year Treasury 
        bonds in the 120-month calendar period occurring before the 
        date of payment under subsection (a)(3), except that if 10-year 
        Treasury bonds are discontinued, the Secretary may substitute 
        an appropriate alternative interest rate.
            (5) ``P1'' = the nonseasonally adjusted United States City 
        Average All Items Consumer Price Index for All Urban Consumers 
        (referred to as ``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.
            (6) ``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)(2) 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.
            (7) ``P3'' = the average nonseasonally adjusted United 
        States City Average All Items Consumer Price Index for All 
        Urban Consumers (referred to as ``CPI-U'') for the most recent 
        full 120 calendar months occurring before the date of payment 
        under subsection (a)(3) 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.
    (c) Source of Funds.--The Secretary may make payments under this 
Act out of revenue from any funds paid to the Treasury by Federal 
Reserve Banks.
    (d) Reductions in Payments.--If, in the judgment of the Secretary, 
the amount of United States 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) Limitation.--The Republic of the Marshall Islands, the 
Federated States of Micronesia, the Republic of Palau, Panama, East 
Timor, the Turks and Caicos Islands, the Republic of Ecuador, and the 
British Virgin Islands may not be issued payments under this Act until 
10 percent of the payments made to countries other than those listed in 
this subsection equals or exceeds the total payments that would be made 
to the countries listed in this subsection.
    (b) Payment Calculation.--Upon certification under section 3, each 
of the countries listed in subsection (a) shall receive payments in 
accordance with section 4, except that for purposes of the countries 
listed in subsection (a) of this section, ``C'' equals (4%)(Y), where 
``Y'' equals 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. DECERTIFICATION AND PAYMENT CANCELLATION.

    (a) In General.--The Secretary shall decertify and cease making 
payments to a country under this Act if the United States declares war 
on the country, or if the Secretary determines that the country is no 
longer officially dollarized in accordance with this Act and issues a 
written public statement to that effect that lists the reasons for such 
determination.
    (b) Considerations.--In making a determination under this section, 
the Secretary shall consider the factors listed in section 3(a) and any 
additional factors that the Secretary determines to be 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.

    There are authorized to be appropriated to the Secretary such 
amounts as may be necessary for expenses and payments under this Act.
                                                       Calendar No. 705

106th CONGRESS

  2d Session

                                S. 2101

                          [Report No. 106-354]

_______________________________________________________________________

                                 A BILL

 To promote international monetary stability and to share seigniorage 
                 with officially dollarized countries.

_______________________________________________________________________

                July 24 (legislative day, July 21), 2000

                       Reported with an amendment