By Jacques Riboud
The writer doesn't think that the governments of the ecu group - even though that they could agree at the topic - will achieve enforcing the eu as a cost and reserve forex to be used within the EEC's exterior alternate. within the exterior marketplace the alternative of foreign money is unfastened and a new foreign money will basically be selected whether it is larger than the entire choices and if it's been effectively 'promoted'.
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Extra resources for A Stable External Currency for Europe
No account is taken of this because the teapot is not intended to be a medium of exchange. It has no transaction function. 30 A Stable External Currency for Europe Barter of this kind is the exception rather than the rule and has a negligible effect on the volume of transactions. A bond or a Treasury Bill may also be used to pay for a service, and their value should be included in the total volume of transactions, but cases of this kind are also exceptional. Comment on page 19. Let us suppose, for example, that the commercial bank discounts for its customer a bill worth 100 at a rate of 12 per cent.
The central office obtains a reserve of foreign currency, by borrowing (lOOd), and this will be used to satisfy requests by holders of E deposits for conversion into currency. It must be expected that, initially, a number of operators and borrowers will prefer national currencies as means of payment and will ask for their loan or deposit in E to be converted into a national currency. The member banks will carry out all the usual banking transactions in E, such as opening lines of credit, buying and selling national currencies, carrying out transfers from one bank to another on behalf of customers and refinancing non-member banks, and so on.
Demand deposits of this kind in US banks receive interest, at best, for the actual period they remain in the account (calculated on an overnight basis). Average interest paid during the year, bearing in mind the very high rate of turnover, is unlikely to exceed one-half of LIBOR (the international MM). 5 per cent). Seigniorage on Eurodollars is a source of considerable profit for American banks. There is now a clearly expressed desire to introduce a private ECU as a payment currency, and this offers a group of European banks the opportunity to recover a source of seigniorage 28 A Stable External Currency for Europe B G H , ' t I , ""~""'"+""'T"""""'-~- t I : ; • I I I , I I (1) (2).
A Stable External Currency for Europe by Jacques Riboud