Working Papers
1995
March 1, 1995
Measurement of Co-Circulation of Currencies
Description: “Co-circulation” involves the regular use of two or more currencies within an economy. This paper examines methodologies to measure the extent to which foreign currencies are circulated within an economy. Ample anecdotal evidence exists that the U.S. dollar, DM, and other currencies are widely used outside their home countries, as general mediums of exchange, as speculative instruments, or as means of saving. Co-circulation is rarely estimated, which can result in serious errors in statistical estimates of international capital flows and monetary aggregates. We examine a variety of measurement techniques that might be used in various situations. However, estimation remains difficult or impossible in some settings. Limited evidence available suggests that co-circulation is widespread and large scale in some countries. In the final section, we discuss some policy implications of co-circulation regarding seigniorage, inflation control, and the partial integration of monetary systems that accompanies co-circulation. An appendix by Roman Zytek discusses possible sampling biases in measuring co-circulation due to segmentation in markets.
March 1, 1995
Nonlinearity and Endogeneity in Macro-Asset Pricing
Description: We find nonlinear feedback between the stock market and certain macroeconomic factors. This evidence calls into question the adequacy of these factors as a basis for a linear pricing model. It also means that the interaction between the economy and the stock market is more complicated than given by the simple relationship in Chen, Roll and Ross (1986). It also suggests that the univariate evidence for nonlinear dynamics in the stock market may be due to the complicated relationship between the macroeconomy and the stock market.
March 1, 1995
Poverty Alleviation in a Financial Programming Framework: An Integrated Approach
Description: Poverty alleviation is typically addressed in financial programming through additive programs that target vulnerable groups but without modifying the underlying stabilization and adjustment targets. Instead, this paper integrates the poverty alleviation objective into the financial programming framework using a well-known poverty index. In consequence, the assessment of trade-offs between competing objectives is facilitated. A simulation demonstrates how the integrated approach can reduce adverse effects on poverty and improve the balance of payments, although at the cost, temporarily, of a higher fiscal deficit and inflation.
March 1, 1995
The Design and Printing of Bank Notes: Considerations When Introducing a New Currency
Description: Many newly independent or systemically transforming countries feel a pressing need to--or must--introduce their own national currency. Other countries simply wish to enhance the attractiveness, usefulness, durability, and/or security of their currencies. However, it is difficult to find consistent published information on the various aspects of this process. This paper attempts to ameliorate this problem by discussing the main issues in designing, producing, and printing a new currency, in order to help those charged with these tasks to proceed in an orderly and informed manner. Attention is also given to examining the options that may be available when this exercise must be undertaken on an emergency basis, with little or no warning.
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1995
February 1, 1995
Current Account Surpluses and the Interest Rate Island in Switzerland
Description: This paper describes some long-run aspects of the Swiss balance of payments, highlighting two macroeconomic phenomena that make Switzerland stand out among other countries: first, it has had a persistent current account surplus and the largest ratio of net foreign assets to GDP in the world; second, its real interest rates have been significantly lower than those of most other industrialized countries, earning it the label “interest rate island”. These two distinctive features may be related, and ultimately both may result from an excess of national savings over investment for many years. The real interest differential may largely be attributed to a foreign exchange rate risk premium, which compensates Swiss residents for holding net assets in foreign currency and foreign residents for bearing net liabilities in Swiss francs.
February 1, 1995
Setting Up a Treasury in Economies in Transition
Description: The primary mandate of a national Treasury is to promote an optimal financial management of government resources, by ensuring that spending agencies are provided, in a timely manner, the resources needed for a smooth provision of public services, while minimizing the cost of government financing. However, international experience shows that agencies that go by the same name (the Treasury) assume a variety of responsibilities within the gamut of functions encompassed by government financial management. This paper argues that, in countries facing substantial economic and financial adjustment problems and/or rapid institutional change, it is desirable to give the Treasury a broader (rather than narrower) range of responsibilities in government financial management. This is typically the case in economies in transition, in which under central planning Treasury functions were dispersed among different agencies, including the Central Bank. The paper presents an overview of the main issues governments are likely to face in setting up a national Treasury, in particular in economies in transition. It begins with an analysis of the main Treasury functions. It then discusses the Treasury’s basic organization and structure, information system, and relationships with other public entities.