[Congressional Record Volume 146, Number 87 (Monday, July 10, 2000)]
[Extensions of Remarks]
[Page E1190]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              INTERNATIONAL MONETARY STABILITY ACT OF 2000

                                 ______
                                 

                             HON. PAUL RYAN

                              of wisconsin

                    in the house of representatives

                         Monday, July 10, 2000

  Mr. RYAN of Wisconsin. Mr. Speaker, today I am introducing the 
International Monetary Stability Act of 2000. This bill would give 
countries who have been seriously considering using the U.S. dollar as 
their national currency the incentive to do so. When a foreign country 
grants the U.S. dollar legal tender in place of its own currency, that 
country dollarizes. This bill would serve to encourage such 
dollarization.
  Dollarization is an extremely important issue for developing 
countries seeking monetary stability and economic growth in the Western 
Hemisphere. Of course, dollarization is no panacea. However, sound 
money combined with a sound fiscal policy--or I would even posit as a 
precursor to a sound fiscal policy--and property rights, and a viable 
rule of law, helps to ensure that dollarization can boost development 
in growing economies.
  Today, countries can dollarize without consulting the Federal Reserve 
or the U.S. Treasury. There is no need for the Fed to be the world's 
lender of last resort by opening up its discount window to dollarized 
countries. Like Panama, countries can maintain liquidity through the 
private banking system.
  The Fed will never be responsible for supervising foreign banks. Not 
only would sovereign governments disapprove of the United States 
regulating their private banking system, I would imagine that the Fed 
has no desire to grant foreign banks the same privileges that U.S. 
banks receive without making foreign banks pay for such protection.
  The Fed already takes the international circumstances into account 
when formulating policy. If you remember back to the end of 1998, the 
Fed lowered interest rates three times to stem contagion, not because 
of any domestic considerations. Regardless, with a consistent law 
outlining dollarization agreements with the United States, countries 
understand from the beginning that the Fed will not act as their 
central bank.
  There are significant benefits to the United States should more 
countries choose to dollarize. There would be a decrease in cases of 
dumping since foreign countries would lose the ability to devalue 
against the dollar to gain trade advantage, and U.S. businesses would 
find it easier to invest in these countries since currency risk and 
inflation risk are greatly diminished.
  Likewise, dollarization lowers monetary instability within dollarized 
countries and increases the living standards of their citizens. During 
Senate hearings on dollarization, Judy Shelton, of Empower America, 
eloquently described the entrepreneurial spirit within Mexico but 
contrasted this optimism with a scenario of high interest rates and 
scarce bank loans for businesses. Indeed, sporadic devaluations and 
politically derived inflation negate expectations that a domestic 
currency can be a meaningful store of future value.
  Inflation is directly linked to interest rates. Inflation 
expectations act as an interest rate premium. When inflation is 
expected to go up, interest rates are high. As we have seen lately in 
the United States in our own debate over rising interest rates, low 
rates reduce the cost of borrowing and increase prosperity, while 
higher rates raise the cost of capital and slow economic growth. For 
most Latin American countries, dollarization should lower their 
interest rates to within 4 percent of U.S. rates, depending on 
political and fiscal factors.
  Further, because dollarization eliminates the ability of foreign 
central banks to manipulate money supply, which I would argue is a 
benefit of dollarization and not a cost as some analysts do, inflation 
is tied to U.S. inflation.
  My bill, the International Monetary Stability Act of 2000, would give 
countries who have been seriously considering using the U.S. dollar as 
their national currency the incentive to do so. A couple of changes 
have been made since I first introduced the original bill last fall in 
order to take into account concerns raised by the Treasury Department 
during Senate hearings. One important change includes the ability of 
the Treasury to consider money laundering as a factor for deciding 
whether to certify a country for seigniorage sharing.
  In general, enacting this legislation would set up a structure in 
which the U.S. Treasury would have the discretion to promote official 
dollarization in emerging market countries by offering to rebate 85% of 
the resulting increase in U.S. seigniorage earnings. Part of the 
remaining 15% would be distributed to countries like Panama that have 
already dollarized, but the majority of the 15% would be deposited at 
the Treasury Department as government revenue. Additionally, this bill 
would make it explicitly clear that the United States has no obligation 
to serve as a lender of last resort to dollarized countries, consider 
their economic conditions in setting monetary policy or supervise their 
banks.
  I would like to conclude by repeating an old quote from Treasury 
Secretary Larry Summers. Back in 1992, when he was at the World Bank, 
Secretary Summers said ``finding ways of bribing people to dollarize, 
or at least give back the extra seigniorage that is earned when 
dollarization takes place, ought to be an international priority. For 
the world as a whole, the advantages of dollarization seem clear to 
me.''
  Congressional leadership in exchange rate policies such as 
dollarization protects our own economy. Every foreign devaluation 
affects our economy through international trade and through the equity 
markets. American companies need reliable currencies to make investment 
decisions abroad; and American workers need to know countries cannot 
competitively devalue in an effort to lower foreign worker wages. The 
ramifications of an Asian-style economic collapse in Latin America, our 
own back yard, call for legislation that will help these countries 
embrace consistent economic growth.
  I strongly believe that strengthening global economies, especially 
those in the Western Hemisphere, by encouraging dollarization is in 
America's best interest.

                          ____________________