By Jacques Riboud
The writer doesn't think that the governments of the eu group - even though that they could agree at the subject - will reach enforcing the european as a money and reserve foreign money to be used within the EEC's exterior exchange. within the exterior industry the alternative of foreign money is loose and a new foreign money will in simple terms be selected whether it is higher than the entire choices and if it's been effectively 'promoted'.
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Extra resources for A Stable External Currency for Europe
It passes from one bank to another as one transaction succeeds another. What therefore happens is that the banking system as a whole takes the place in this respect of the central bank. In order to demonstrate this breakdown into credit distribution margin and seigniorage in the case of bank money, we must take the operation from the beginning, at the moment the bank, Bank A, makes a loan of 100 to its customer at an interest rate of, say, 11 per cent. The profit margin for the bank, as it is usually described by bankers, is the difference between this rate of 11 per cent and the 'cost of money', as calculated at the MM rate.
The 'value' of the dollar depends solely on the way it is managed domestically. The Federal Reserve Bank takes no account of Eurodollars when selecting its monetary targets. The Consortium and Seigniorage 29 which can no longer justifiably continue to be transferred to American banks. The Euromarket grew up as a result of private initiative. Central banks and governments had no part in its creation. But the use of the dollar, or any national currency, as the currency of those markets deprives those banks of a proportion of the profit to which their initiative rightly entitles them.
44 A Stable External Currency for Europe (The positions of the banks on this graph correspond to the accounting situations at the start of business on day n indicated on p. 46) ~ Foreign currency: assets and loans ~ Central Es: assets and liabilities Loans Non-interest bearing deposits Time deposits Rates: Interest/day Foreign currency (UBOR) ......................... Id Interbank rate .............. Id Time deposits ............... It Loans ............................ 1 Progression of three member banks of the consortium From the beginning, on day n Situation at the beginning of n Interest/day on day n - 1 The Central Bank Office: A Simulation Central Office o 100 B A 45 ·c - 0 -- 200 200 125 Ip 300 - 400 --- + 60 (lp - It) - 15 Ii ------------------------------------ 300 400 This diagram shows how the consortium would progress and how a stock of money (demand deposits) could be created at minimum cost to the banks.
A Stable External Currency for Europe by Jacques Riboud