The International Monetary Fund soon will initiate a sweeping review of the proper role of special drawing rights in the international monetary system, at the request of the United States, Treasury Undersecretary Beryl Sprinkel revealed yesterday in an important policy statement before a House Banking subcommittee.
SDRs are a special paper asset, convertible to hard currencies, issued by the IMF to its 143 member nations, and eagerly sought after by Third World countries to bolster their reserves.
At the recent IMF-World Bank annual meeting in Washington, the United States agreed to leave open the possibility of an issue of 4 billion SDRs (about $4.6 billion) next year, the same annual allocation as the past three years. But Sprinkel indicated yesterday that the United States firmly opposes what he described as even a modest new issue because "it would weaken economic discipline."
In responding to questions from an international affairs subcommittee headed by Rep. Stephen L. Neal (D-N.C.), Sprinkel also predicted a temporary weakening of the U.S. dollar in foreign exchange markets because interest rates "may be coming down," but he argued that "fundamentally, the dollar is in very good shape."
Sprinkel conceded that "there will be some weakening of the U.S. trade balance" in the near future, but he scoffed at the assertion made to the committee Wednesday by former Treasury official C. Fred Bergsten and a panel of economists that the dollar is seriously overvalued. Sprinkel said sarcastically that "they must be very brilliant men," because it is difficult to discern what the proper "equilibrium rate" of the dollar should be at any given time.
He said said that the Reagan administration continues to support IMF surveillance over members' exchange rates and that the administration's exchange rate policy (which shuns intervention) is consistent with IMF policy. The Reagan administration refuses to intervene unless there are "wild swings" in "disorderly markets," he emphasized.
Sprinkel's announcement of the review by the IMF of the SDR's role was in the context of a broader examination "of international liquidity concepts and related issues." Liquidity is a reference to cash and instruments that can be used as cash. He acknowledged that the issue of injecting further SDRs into the system is "controversial" in the light of developments in the past decade.
IMF officials, downplaying Sprinkel's announcement, said the review was only an "ongoing" study which had emerged in the aftermath of the annual meeting's discussion of SDRs.
But Sprinkel indicated the review would have wide scope and would be undertaken by the IMF as part of its responsibility to "monitor the world liquidity situation." He added that othercountries, which he did not identify, had joined in urging the liquidity review.
Sprinkel noted that SDRs were established in 1969, when shortages of international reserves were anticipated. But the U.S. position is that there is plenty of liquidity in the world today. He suggested that the problem now is to make the SDR more simple and understandable, and to enhance its acceptability by giving it "market-oriented characteristics."
Sprinkel also made plain that the United States is "not attracted to the idea of a substitution account in the IMF." This idea, earlier backed by both the IMF and the Carter administration as a way to underpin the dollar when it was weak, would allow other countrues to trade an SDR-related credit for excess dollars. Sprinkel said that plan reflects a lack of confidence in American economic policy before the Reagan administration took over.
In dealing with current questions on the dollar, Sprinkel also rejected Bergsten's analysis that the U.S. recession can be attributed to the fall-off in the U.S. trade balance.