The United States yesterday abandoned its opposition to a new international money account that will in effect allow the International Monetary Fund to accept deposits of dollars from members who want to diversify their reserve holdings of paper currency.
In return, such countries would get a claim on the IMF, denominated in Special Drawing Rights (SDRs), sometimes called paper gold.
Former endorsement of this scheme, called a "Substitution Account" was made in a speech yesterday by Treasury Under Secretary Anthony Solomon before an economic symposium in Alpbach, Austria. A text was released at the Treasury here, where officials also briefed reporters on its contents.
Practical results of such a substitution account would be a lessening of the dollar's role as a reserve world currency -- and potentially, more stability for the dollar in world markets.
It would also enhance the role and importance of the IMF -- a trend that Solomon yesterday said is necessary "if we are to achieve genuine and lasting monetary stability on a global basis."
The world must be prepared to face the question, Solomon added, "whether it is prepared to contemplate openly a partial ceding of national authority over economic policy to an international body. I pose this question in full knowledge that such a step is not politically realistic today."
IMF officials had indicated previously their expectation that a substitution account would be endorsed in principle at this year's annual meeting in Belgrade early in October. The technical details are expected to be worked out at a session of the IMF's Interim Committee in Hamburg, West Germany, next spring.
As recently as the Interim Committee's meeting in Mexico in the spring of 1978, U.S. officials resisted the resurrection of the substitution account idea, put forward by those who argued it would help take surplus dollars off the private market.
Since then, of course, the dollar has come under severe selling pressure, and the United States began to withdraw its objections, provided that the new account would be seen as a step in the enhancement of the role of the SDR, and not as a dollar-propping device.
When IMF Managing Director Jacques de Larosiere suggested a few months ago at the Interim Committee in Washington that the account be considered as a "voluntary" scheme, it was made even more palatable for the United States.
Solomon made the U.S. endorsement explicit in his Austrian speech. A "properly designed" substitution account, he said, "would provide an internationally sanctioned, nondisruptive means to achieve a more diversified and stable reserve position without having to hold a number of national currencies."
But he warned that the account should not be seen as "a revolutionary change," or one that would prevent the strains on the international monetary system caused by oil price increases. Nor would the account relieve the United States of "our responsibility to restore balance in our external accounts and maintain a sound and stable dollar."
Solomon set out a number of conditions for the kind of substitution account the United States would consider acceptable. Among these are that it "represent a lasting move toward the SDR, not a move to be reserved if circumstances change." The United States also wants to be assured that the SDR-paper traded in for dollars have "parallel" characteristics with SDRs themselves. In practice, that means that the SDR-paper would carry an interest rate close to SDRs, although probably slightly less than equivalent Treasury obligations.
And finally, although the system is to be voluntary, Solomon said that "it needs to have broad and genuine support and widespread participation by the international community."
Solomon, who is staying in his post at least temporarily as a bridge between the W. Michael Blumenthal and G. William Miller Treasury administrations, also said that if the kind of substitution account he envisages is established, "there will remain a large agenda for future study and eventual negotiation."
He stressed two points as "a personal view." First, he said, a larger international role for the SDR implies a larger role for this man-made unit in private transactions. And second, he posed the question -- without a specific answer -- of the need for better "official management of the demand for and supply of international liquidity." This would imply closer regulation of Eurodollar markets and extension of the IMF's surveillance role over economic management in individual countries.