Special Drawing Rights: Renaming the Infant Asset

JOSEPH GOLD *

1. "The Prince of Wei," said Tzu Lu, "is awaiting you, Sir, to take control of his administration,—what will you undertake first, Sir?" 2. "The one thing needed," replied the Master, "is the cor- rection of terms." 3. "Are you as wide of the mark as that, Sir?" said Tzu Lu. "Why this correcting?" 4. "How uncultivated you are, Yu!" responded the Master. "A wise man, in regard to what he does not understand, maintains an attitude of reserve. 5. If terms be incorrect, then statements do not accord with facts; and when statements and facts do not accord, then business is not properly executed; 6. when business is not properly executed, order and harmony do not flourish; when order and harmony do not flourish, then justice becomes arbitrary; and when justice becomes arbitrary, the people do not know how to move hand or foot . . . ." —CONFUCIUS, The Analects, or The Conversations of Confucius with His Disciples and Certain Others, translated by William Edward Soothill (1937).

HE LATE PROFESSOR ARTHUR NUSSBAUM, one of the most eminent T experts on monetary law, devoted a section of his major study l to the "notion of world money." 2 He recalled that the first systematic inquiry into the subject was undertaken by Gasparo Scaruffi, an Italian banker, in his work entitled Alitinonfo ('True Light"), which was pub-

* Mr. Gold, the General Counsel and Director of the Legal Department of the Fund, is a graduate of the Universities of London and Harvard. He is the author of numerous books, pamphlets, and essays on the Fund and on international and national monetary law. 1 Arthur Nussbaum, Money in the Law, National and International: A Com- parative Study in the Borderline of Law and Economics, hereinafter referred to as Money in the Law (New York, 1950). 2 Ibid., Section 39, pp. 547-52. See also Arthur Nussbaum, "A Note on the Idea of World Money," Political Science Quarterly, Vol. 64 (September 1949), pp. 420-27. 295

©International Monetary Fund. Not for Redistribution 296 INTERNATIONAL MONETARY FUND STAFF PAPERS lished in 1582. Scaruffi's plan contemplated a world money, a moneta imaginaria, that would have a fixed weight of fine metal to which all the coins of the world would be related according to the fine metal con- tained in them, on the basis of a fixed gold-silver-copper ratio of 1:12:120. Scaruffi called his monetary unit the lira imperiale in order to convey the idea that it would have dominion within a universal empire. Nussbaum noted that Scaruffi "did not touch upon the aspects of international agreement and organization inherent in his scheme." 3 Indeed, "as was to be expected, the princes did not even consider, much less adopt, Scaruffi's project." J Nussbaum traces the history of the idea in the work of Bodin, Mar- quez, Cruce,5 and their successors, including Napoleon. In later centuries, world money "became even more than in the past, a favorite topic for political dreamers and inventors. In fact, an association . . . developed between world money and Esperanto, hoped-for world language. Evidently, the notion of world money somehow appeals to human fantasy all the more as it lends itself to ostensibly scientific elaboration." ° According to Nussbaum, the names proposed by the inventors of universal units are innumerable, and among them he recalls "grammer," "grammor," "lir," "unite," "deca," "iva" (from Interna- tional Valuta Association), and "spesmil" (Esperanto). The special drawing right (SDR) is an asset that can now be held by 120 members of the International Monetary Fund and by the Fund itself. One other organization has been accepted so far as an "other holder" of the asset. In addition, the SDR has become the unit of account employed in the operations and transactions of both the General Account and the Special Drawing Account of the Fund and in the activities of a growing number of public and private entities. The compromise that was responsible for the name of the new asset has been described in detail elsewhere 7 and is referred to briefly in Section II.

3 Nussbaum, Money in the Law, p. 549. 4 Ibid., p. 549. ". . . [Tjhere was nothing unusual in an Italian patrician of the sixteenth century vying for literary laurels. Apparently Scaruffi had even hired learned assistants for his work, a fact that seems to account for the pompous title and for some citations from the ancient classics. Scaruffi also had the book printed at his own cost. Later centuries have certainly shown that the expenses were not wasted from his point of view" (ibid.). 5". . . Cruce is a dilettante in monetary matters. Politically his project as a whole tends toward French leadership, a conception that was destined to assume greater significance later" (ibid., p. 550). e ibid., p. 552. 7 See Joseph Gold, Special Drawing Rights: The Role of Language, IMF Pamphlet Series, No. 15 (Washington, 1971), pp. 3-11 (hereinafter referred to as Gold, Role of Language).

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS! RENAMING THE INFANT ASSET 297

When controversy abates as the result of compromise, there is a tendency to forget the reason for the compromise and to regret it as having been unnecessary.8 Objection to the name "special drawing right" developed soon after it was adopted, with the result that the name became a minor issue in the deliberations of both the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues (the Committee of Twenty) and the Deputies of the Committee. The issue was taken seriously because it was intro- duced by a deputy of towering influence. He was not alone, therefore, in his advocacy of a name that would be more understandable and more worthy of the prestige that was sought for the SDR. In June 1973, at the request of the editor of a volume that was being prepared in honor of a distinguished personage, a project that has since been abandoned, I contributed an essay under the title that now appears at the head of the present paper. The essay, which is reproduced with minor changes as Section II, circulated among some of the deputies when the topic of a new name was being discussed. In September 1973, the Chairman of the Deputies drew attention to the essay and sent all deputies a list of possible names that included almost all those mentioned in the essay together with a few more: "EWnit" (a unit to encourage understanding between East and West), "Fund Reserve Unit," "General Reserve Unit," "International Reserve Unit," "mana" (monetary authorities' negotiable asset), "Paper Gold," "Reserve Unit," "solidus," "ultra" (ultimate reserve asset), "UNit," "unitor." The Committee of Twenty refrained from recommending a new name but did not abjure the usefulness of finding one. Paragraph 27 of the Committee's Outline of Reform sets forth suggestions that had been made for relaxing constraints on the use of the special drawing right so that it could become the principal reserve asset, and concludes with this statement:

Consideration will be given to other aspects of the SDR, including its name, with a view to promoting public understanding.9

8 See Paul Heffernan, "From Alpbach: A New Name for SDKs?" The Money Manager, Vol. 2 (September 17, 1973), p. 48; "Think SDRs and Say Goodbye to Gold," The Economist, Vol. 255 (June 7, 1975), p. 50; "Destine das Moedas," Jornal do Brasil, February 14, 1975, p. 6. 9 International Monetary Fund, International Monetary Reform: Documents of the Committee of Twenty (Washington, 1974), p. 16. The sentence could be regarded as a respectful interment of the project. It was certainly intended to dis- pose with decorum of one "other aspect," the proposal that SDRs should have a "backing" of currencies. On the "myth" of backing, see Fritz Machlup, Remaking the International Monetary System: The Rio Agreement and Beyond (Baltimore, 1968), pp. 64-66.

©International Monetary Fund. Not for Redistribution 298 INTERNATIONAL MONETARY FUND STAFF PAPERS

The same sentence had appeared in the "First Outline of Reform," which had been prepared by the Chairman and Vice-Chairmen of the Deputies and had been transmitted by the Chairman of the Committee to the Board of Governors in September 1973.10 The "First Outline of Reform" stimulated world-wide interest in a second baptism. Governors recorded their suggestions during the Annual Meeting at Nairobi. One governor, combining classical learning and economics, nominated "ergor" as his candidate: Derived from the Greek word for "performance," it would be the binding link to the economy. The syllable "or," on the other hand, would indicate the organizing power of money.11 The financial press was present at the font.1'2 The Corriere della Sera of Milan revealed that the Bank of Italy favored "lira" because the word was derived from the libra that had been the keystone of Charle- magne's monetary system and had been an abstract currency of account until the middle of the fifteenth century.13 The lira imperiale of Scaruffi was overlooked. According to The Times of London, "Schweitzer" was the obvious solution.14 The Hamburger Abendblatt alleged that "the people at the IMF" had suggested "eskimo" in honor of the "intellectual fathers" of the SDR, explained that the E stood for Emminger and the S for Schweitzer, but gave no further information about paternity. Obviously unimpressed by eskimo, the newspaper urged the press to organize competitions in order to encourage the public to take part in the project.15 The challenge of organized competition was unnecessary. Letters

10 International Monetary Fund, Summary Proceedings of the Twenty-Eighth Annual Meeting of the Board of Governors (Washington, September 1973), p. 364. 11 Statement by the Governor of the Bank for Austria, ibid., p. 135. The word is too close to "ergot," but a more important disadvantage is that the syllable "or" might be taken to refer to gold. See also the statement by the Governor of the Fund and Bank for Canada, ibid., p. 112 (who supported the name, "international monetary unit"); "The Thoughts of Three Chairmen," The Economist, Vol. 256 (August 9, 1975), Survey 11-13, in which Lord Barber of Wentridge writes of the delicacy of Mr. Aichi in not pursuing his preference for "international reserve asset" (IRA). 12 See, for example, Hobart Rowen, "7 Problems That Surfaced During IMF Kenya Parley," The Washington Post (September 30, 1973), pp. Fl-2; "Une Interview au 'Monde' de M. Giscard d'Estaing," Le Monde (October 4, 1973), p. 44 (". . . // existe actuellement vingt appellations concurrentes . . ." according to M. Valery Giscard d'Estaing). 13 "La Soluzione Scaturita dalla Conferenza di Nairobi: Come si riuscira a salvare la convertibilita monetaria," Corriere della Sera (October 5, 1973), p. 7. <14"A Decade of Impressive Achievement," The Times (August 31, 1973), p. 17. But see Nicholas Davenport, "Money and the City: Money Talks at Nairobi," The Spectator (September 8, 1973), p. 322. 15 "Kritisch gesehen: Ein ESKIMO?" Hamburger Abendblatt (September 29/30, 1973), p. 10.

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS: RENAMING THE INFANT ASSET 299 arrived from around the world proposing new names and emphasizing their sonority, symbolism, or other attractions. The proposals have ranged from the pellucidity of "means" to the opacity of "ponnkas," w with much reliance on acronyms.17 It seems, however, that "special drawing right" and "SDR" are already sufficiently well understood, or sufficiently well known, to endure. Francis Bacon may have given the explanation in his essay, "Of Innovations": It is good also not to try experiments in states, except the necessity be urgent, or the utility evident; and well to beware that it be the reformation that draweth on the change, and not the desire of change that pretendeth the reformation.1*

"Thou canst not, Cardinal, devise a name So slight, unworthy, and ridiculous ..." King John

"O, be some other name!" Romeo and Juliet

On July 28, 1969 an amendment of the Articles of Agreement of the International Monetary Fund became effective under which the Fund was empowered to allocate "a supplement to existing reserve assets" through a Special Drawing Account, and the name given to the new monetary instrument was "special drawing right." 19 Decisions to allocate special drawing rights to, or to withdraw them from, the members of the Fund that participate in the Special Drawing Account must be guided by the long-term global need for reserves, promotion of the purposes of the Fund, and the avoidance of both deflation and inflation in the world.20 There is widespread conviction that special drawing rights will be the instrument with which fundamental changes will be made in the international monetary system, and that they will occupy a dominat- ing position in the system much sooner than governments and central

16 From the Tamil ponn (gold) plus kassu (money) or kakidam (paper). 17 For example, BARA (banking reserve asset), CUP (composite universal parity), SAW (settlement asset of the world). 18 The Essays of Francis Bacon, ed. by Clark Sunderland Northup (Boston, 1908), pp. 77. 19 See Joseph Gold, Special Drawing Rights: Character and Use, IMF Pamphlet Series, No. 13 (Washington, Second Edition, 1970), pp. 10-11 and 16-56. 20 Article XXIV, Section 1(0).

©International Monetary Fund. Not for Redistribution 300 INTERNATIONAL MONETARY FUND STAFF PAPERS banks could have expected in 1969.21 In order to equip special drawing rights for broader functions, it will undoubtedly be necessary to amend the provisions of the Articles that govern them. Some of the amendments will be dictated by the logic of the reforms that will be agreed as a result of current negotiations, while others will be based on the experience, brief though it has been, with the operation of special drawing rights. Amendments of either kind may result from new ideas or from the revival of proposals that were advanced before the amendment of 1969 but were casualties of the compromises that had to be made at that time. There are many ways in which special drawing rights could be improved by amendment of the Articles now or in the future. New functions might be established for special drawing rights. For example, they might serve as a substitute for existing holdings of other reserve assets and not merely as a supplement to them; they might be the main asset in which participants would be required to settle deficits and surpluses in their balances of payments; and they might be linked to the provision of assistance for development. The characteristics of special drawing rights might be improved. For example, the effective yield, represented by their value in terms of currencies and by the interest payable on holdings of them, might be enhanced;22 the powers of the Fund to dispense with the criterion of the need to use reserves, which participants are expected to observe when transferring special drawing rights, might be broadened;23 and the obligation of participants to reconstitute their holdings of special drawing rights after use, so as to maintain some average proportion of allocations, might be abrogated.24 The kinds of transaction or operation in which special drawing rights may be employed could be extended, and might include grants, loans, or pledges. In addition, there might be broader authority for participants to enter into transactions by agreement; and there might be greater scope for the use of special drawing rights in the transactions and operations that are conducted with the Fund itself through its General Account.25 The possible holders of special drawing rights might be increased. At the moment, the only entities, apart from participants and the General Account, that can be permitted to hold special drawing rights

21 International Monetary Fund, Reform of the International Monetary System: A Report by the Executive Directors to the Board of Governors (Washington, 1972), Ch. IV: 3 (hereinafter referred to as Report on Reform). 22 Article XXVI, Section 3. (Action has already been taken for this purpose. See Rules 1-10 and O-3.) 2s Article XXV, Section 3. 24 Article XXV, Section 6, and Schedule G. 25 Article XXV, Section 7.

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS: RENAMING THE INFANT ASSET 301 are nonmembers of the Fund, members that are nonparticipants in the Special Drawing Account, and institutions that perform functions of a central bank for more than one member.26 The subject of this essay is the modest proposal that a new name might be found for the asset. It has been protested within official circles, and even outside them, that the term "special drawing rights" is "unin- spiring," -1 and that a more impressive name should be found. The negotiators responsible for the term were not moved to adopt it because they considered it descriptive, melodious, or vigorous. It was chosen because the advocates of the competing theories of special drawing rights as reserve assets and as media of credit were willing after pro- longed bargaining to accept it as a compromise.28 Those who now regret the compromise are not influenced by aesthetic considerations alone. If special drawing rights are to succeed in performing expanded functions in a reformed monetary system, on which official opinion seems now to be united, they will have to inspire the confidence of both monetary authorities and the public. A better name might stimulate the growth of confidence, and even if the contribution should prove to be modest, it would nevertheless be useful to enjoy the benefit of it. Another, although related, reason for a new name is that "special drawing rights" was not a good compromise. The name was too reminiscent of the expression "drawing rights" that has become associated with the conditional and reversible transactions in which members purchase exchange from the Fund through what is now called the General Account, and it was indeed this connotation that was sought by the adversaries of the theory that a reserve asset was being invented. If it were decided to adopt some or all of the amendments that have been mentioned earlier, or any other improvements, the character of special drawing rights as reserve assets would become even more obvious, and there would be even more reason to abandon a term so biased in favor of credit. It has been said that there is a statute of limitations under which ancient abuses become respectable. It is fortunate therefore that the term "special drawing rights" is still in its infancy.29 Ideas that were not accepted in the negotiations that led to the creation of the Fund, particularly ideas to be found in Keynes' plan 26 Article XXIII, Section 3. 27 John Brooks, "A Reporter at Large (International Monetary Fund Meeting)," The New Yorker (October 23, 1971), p. 131. 28 See Gold, Role of Language, pp. 3-11. 29 But the term may become entrenched in domestic law, and that development might discourage change. For example, the Par Value Modification Act of the United States defines the par value of the dollar primarily in terms of special

©International Monetary Fund. Not for Redistribution 302 INTERNATIONAL MONETARY FUND STAFF PAPERS for a clearing union, are being considered once again in connection with reform of the international monetary system. It may be rewarding to see whether there is life in the words as well as in the ideas of that earlier time. The two names that were given official backing are well known. "Bancor" was suggested by Lord Keynes in the final version of the "Proposals for an International Clearing Union" after an earlier and tentative support for "grammor." 30 In anearly version of Mr. Harry Dexter White's plan, a "Preliminary Draft Proposal for a United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations," White discussed a possible international currency unit in connection with his project for an international bank. He rejected the idea that a single currency unit for the world would increase trade or have other beneficial economic effects, but he conceded that a unit might have advantages in presenting the statistics that enter into international comparisons. An international unit with a name of its own would avoid the charge of "favoritism" that might be made if the name of an existing currency were employed. For the same reason, he preferred that the unit be defined in terms of gold and not currency. As random examples of names that might be con- ferred on the unit, he mentioned "Demos" and "Victor." The time was early 1942.31 By July 1943, when his plan for a stabilization fund was published, White had become more convinced of the usefulness of an international currency unit. Much thought must have gone into the choice of an appropriate name. White recommended "unitas." The abbreviation would be <3N- with the bar across the letters in order to distinguish it from the abbreviation that was likely to be used for the United Nations.32 Nevertheless, both the name and the abbreviation recalled the United Nations, and this was useful because White contemplated drawing rights. "This move is consistent with proposals the United States has made for international monetary reform—we have proposed diminishing the monetary role of gold, and we have favored use of the SDR as the common unit of account in which all currency values would be measured," Paul A. Volcker, Under Secretary for Monetary Affairs, Department of the Treasury, U.S. Congress, Senate, Committee on Banking, Housing and Urban Affairs, Amend the Par Value Modification Act, Hearing on S. 929 (93rd Congress, 1st Session, Washington, February 27, 1973), pp. 10-11. (Compare footnote 35.) 30 J. Keith Horsefield and others, The International Monetary Fund, 1945-1965: Twenty Years of International Monetary Cooperation (Washington, 1969), Vol. I, pp. 18-19 (hereinafter referred to as History). 31 Ibid., Vol. Ill, pp. 80-82. 32 Ibid., pp. 87-88. The term "United Nations" had been chosen already. The "Declaration by United Nations" was signed on behalf of four powers on

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS! RENAMING THE INFANT ASSET 303 that the allied and associated nations would subscribe to the plan in order to help to organize the postwar world. The preference for "bancor" or "unitas" was affected by the way in which words reverberate for individual auditors. On nomenclature, Professor Blum has written that: In the process of proposal and counterproposal, White at one point came up with a rival to the bancor—the "Unitas," a bookkeeping unit to consist, for convenience, of a number of grains of gold equal in value to $10. The large significance of the Unitas lay in its sound, derived from "United Nations" so as to contrast to "bancor" with its tones of Lombard and Wall Streets.33 White abandoned the idea of "unitas." One of his reasons was the criticism that a monetary unit of account disparaged the status of the dollar. Suspicion lingered on, however, even after the U. S. administration had withdrawn its support from "unitas." 34 In the hearings before the Committee on Banking and Currency of the House of Representa- tives of the U. S. Congress on the proposed American Bretton Woods legislation, Representative Frederick C. Smith of Ohio engaged in a long colloquy on "unitas" with White and other Treasury officials. It began with the question whether the Fund would be able to adopt "unitas" or "bancor" in its operations. White drew attention, with some satisfaction, to Article IV, Section 1, according to which the common denominator under the Articles was gold or the United States dollar of the weight and fineness in effect on July 1, 1944, and he noted the absence of any provision under which the Fund would be able to choose another unit. Smith remained unconvinced because the Articles did not prohibit the use of "unitas" or "bancor." Smith's skepticism led him to pose, with some enthusiasm, a number of pro- found legal questions, involving the implied powers of international organizations and the Fund's power to interpret its Articles. These

January 1, 1942, and on behalf of 22 more countries the next day, and the new name quickly established itself. See Ruth B. Russell assisted by Jeannette E. Muther, A History of the United Nations Charter: The Role of the United States 1940-1945 (The Brookings Institution, Washington, 1958), pp. 50-51. 33 John Morton Blum, From the Morgenthau Diaries: Years of War, 1941- 1945 (Boston, 1967), Vol. 3, p. 237. 34The U.S. Treasury had attempted to explain its abandonment of "unitas": "The Fund proposal as outlined by the Joint Statement makes no provision for transferable currency or deposits in terms of a new or special monetary unit," Questions and Answers on the International Monetary Fund (mimeographed, Washington, June 10, 1944), pp. 34-35. A new unit was not necessary for a Fund that would operate only with gold, subscribed currencies, and any resources the Fund was able to borrow. The reasons for denying the Fund the right "to create credit" beyond its operations with these resources are interesting in the light of history. (Reply to Question 15, History, Vol. Ill, pp. 153-54.)

©International Monetary Fund. Not for Redistribution 304 INTERNATIONAL MONETARY FUND STAFF PAPERS questions could not be answered within the limits of the hearings, and Smith remained dubious to the end, even after White had assured him that "unitas" was "a dead duck." 35 Keynes was not pleased with either "bancor" or "unitas." In his maiden speech in the House of Lords on May 18, 1943, he said: What shall we call the new money? Bancor? Unitas? Both of them in my opinion are rotten bad names but we racked our brains without success to find a better. A lover of compromise would suggest unitor, I suppose. Some of your Lordships are masters of language. I hope some noble Lord will have a better inspiration. What would your Lordships say to dolphin? A dolphin swims, like trade, from shore to shore. But the handsome beast, I am afraid, also goes up and down, fluctuates, and that is not at all what we require. Or bezant? The name, as the Financial Secretary to the Treasury recently recalled in another place, of the last international coin we had—the gold unit of Byzantium. In the same line of thought Professor Brogan has recently suggested talent, named after a place which perhaps we shall soon be in a position to regard as at our service.36 So far every bright idea in turn has been turned down.37 The Lord Chancellor, Viscount Simon, accepted the invitation offered by Keynes: My noble friend asks for a new word. I rather agree with him in that. I do not much care for the two words hitherto put forward. I am in doubt as to what would be the plural of unitas. The other term is one of those

35 U. S. Congress, House, Committee on Banking and Currency, Bretton Woods Agreements Act, Hearings on H.R.2211 (79th Congress, 1st Session, Washington, March 7-9, 12-16, and 19-23, 1945), pp. 151-54. The discussion ended with the following exchange (p. 154): MR. WHITE. I might add that the hesitation and the doubts and confusion which you might observe in our answers do not indicate that the question in our judgment is a significant one. Our doubts as to the proper answer spring largely from the fact that the question, to us, does not have any importance, and that is why we wonder why you ask it, because most of your questions are good ones. MR. SMITH. Mr. White, the reason I ask it is because you had adopted "unitas." MR. WHITE. I see; and you wondered whether that term could be brought back in through the back door. MR. SMITH. That is right. MR. WHITE. No; there is no such intention. "Unitas" is a dead duck, if that is what you are asking. MR. SMITH. That might be a dead duck, but there might be other ducks still alive. Are you prepared to say to the committee that, in your judgment, the fund will not MR. WHITE. That is my judgment. MR. SMITH. Adopt a unit of account and give it MR. WHITE. Other names than are indicated? MR. SMITH. Another name than that of dollars? MR. WHITE. That would be my judgment, Dr. Smith. 361 have not been able to trace this reference. Obviously, the place was not the town of Talent in Jackson County, southwest Oregon. 37 U. K. Parliamentary Debates (Hansard), House of Lords, Vol. 127, April 6- June 10, 1943, cols. 529-30.

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS: RENAMING THE INFANT ASSET 305

horrible make-believe words that are made by putting two things together. Very humbly and rashly I suggest for consideration another word. The mint in ancient Rome was conducted in a temple which was a temple of Juno and it was the temple of Juno Moneta. There is something to be said for "moneta" if only people would pronounce it rightly. It does mean universal money; it is the actual word from which the word money is derived; and it is of most respectable antiquity.38 In a debate in the House of Commons on May 12, 1943, Mr. Wood- burn, M.P., had already made the following proposal: The name "unitas," which is not original, because it is used by the Co- operative Society in this country extensively, and the word "bancor," which suggests among miners a popular game,39 are not, I think, happy choices. I think that we could get a much simpler type of name, such as "doros," on the lines of pesos, but I like neither of the names proposed.40 On May 23, 1944, after the publication, in April, of the Joint Statement by Experts on the Establishment of an International Mone- tary Fund and before the Bretton Woods Conference of July 1, 1944, Lord Keynes again addressed the House of Lords, and began his speech as follows: My Lords, it is almost exactly a year since the proposals for a Clearing Union were discussed in your Lordships' House. I hope to persuade your Lordships that the year has not been ill-spent. There were, it is true, certain features of elegance, clarity and logic in the Clearing Union plan which have disappeared. And this, by me at least, is to be much regretted. As a result, however, there is no longer any need for a new-fangled international

38 Ibid., col. 560. 39 Is the reference to the card game called "banco," in which the participants, as in baccarat, play against an appointed banker? (Alan Wykes, Complete Illus- trated Guide to Gambling (New York, 1964), pp. 178-79.) As for the history, or part of the history, of the word "banco," see Professor Benjamin Haggott Beck- hart of Columbia University: "BANCO, bang'ko, is a Late Latin word from which bank and bankruptcy are derived. Originally meaning 'shelf or 'bench,' the term became specialized in medieval Italy to designate the benches or tables on which money changers heaped coins to attract customers. In time the word was used to describe the business itself—Italian banca, French banque, and English bank. If customers became dissatisfied with a money changer, they might overturn his table. The term 'bankruptcy' derives from this practice. " 'Banco' later designated a unit of account in which banks in Venice, Genoa, Amsterdam, and Hamburg gave credit for deposits and kept their accounts. One of these, the Bank of Hamburg (1619-1873), received deposits of coins and bars of varying weights and fineness and gave credit in the 'Mark banco,' which was itself not coined but represented 8% grams of fine silver. The Mark banco ex- pedited commerce, for otherwise settlements would have required a multitude of coins of uncertain value," Encyclopedia Americana (New York, International Edition, 1972), Vol. 3, p. 147. 40 U. K. Parliamentary Debates (Hansard), House of Commons, Vol. 389, May 4-27, 1943, col. 679. Mr. Woodburn, who was a Scottish Member of Parlia- ment, was probably referring to the use of the word "unitas" in Scotland as a trademark for soap and oatmeal porridge marketed by the Scottish Co-operative Wholesale Society.

©International Monetary Fund. Not for Redistribution 306 INTERNATIONAL MONETARY FUND STAFF PAPERS

monetary unit. Your Lordships will remember how little any of us liked the names proposed—bancor, unitas, dolphin, bezant, daric and heaven knows what. Some of your Lordships were good enough to join in the search for something better. I recall a story of a country parish in the last century where they were accustomed to give their children Biblical names— Amos, Ezekiel, Obadiah and so forth. Needing a name for a dog, after a long and vain search of the Scriptures they called the dog "Moreover." We hit on no such happy solution, with the result that it has been the dog that died. The loss of the dog we need not too much regret, though I still think it was a more thoroughbred animal than what has now come out from a mixed marriage of ideas. Yet, perhaps, as sometimes occurs, this dog of mixed origin is a sturdier and more serviceable animal and will prove not less loyal and faithful to the purposes for which it has been bred.41 Much more than an international currency unit, bearing some novel name, had been abandoned by the time of the Joint Statement, and it was the greater loss that Keynes was lamenting in this opening passage of his speech. Should "bancor" or "unitas" be candidates in a new baptism of special drawing rights? Lord Keynes and the Lord Chancellor were a little severe in their criticism of these terms, although obviously names are matters of taste on which it is said that dispute is ill-advised. Do we all agree with Professor Saintsbury that "cellardoor" is the most mel- lifluous word in the English language? "Bancor" and "unitas" are not ugly words, although they can be so pronounced as to seem truncated phrases. "Bancor" might suggest that an alternative was imment, and "unitas" a comparison. The Lord Chancellor's charge that "bancor" was a neologism is not a grave objection, if it is an objection at all to coin a new name for a new international asset. Mr. Woodburn, it has been seen, disliked the word for another reason. It was too close for comfort to an existing word. As for "unitas," on the basis of Mr. Woodburn's testimony, the word could be charged at most with being an old neologism. Moreover, "unitas" achieved a peculiar advantage over "bancor" of which Mr. White could not have been aware. After his time, "unitas" became prominent as the surname of a distinguished athlete 42 in what is said to be the most popular sport within the territory of the largest member of the Fund. It is a further happy circumstance that most enthusiasts of

41 U.K. Parliamentary Debates (Hansard), House of Lords, Vol. 131, March 14—May 26, 1944, col. 838. 42 The reference is to Mr. John Unitas, a distinguished football player, who bears a surname of Lithuanian origin. The entry in Elsdon C. Smith, New Dictionary of American Family Names (New York, 1973), p. 524, is as follows: " 'Unitas' (Lith)—the son of Jonas, Lithuanian form of John (gracious gift of Jehovah)."

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS: RENAMING THE INFANT ASSET 307 the sport pronounce the surname as if it were equivalent to "unite us." Another argument can be made for the superiority of "unitas." The second syllable of "bancor" paid homage to gold as the most venerable of reserve assets, and the same comment can be made on Mr. Wood- burn's "doros." The future of gold as a reserve asset has been ques- tioned, and the reform of the international monetary system may weaken its prestige. The unit of special drawing rights may cease to be defined in terms of gold, as it is at present,43 and the unit may become "abstract." "Unitas," it is true, is associated, in its second syllable, with ancient metallic money, but the "as" was no more than a bronze coin in Rome. It would be unfortunate, however, if the Lord Chancellor's doubt about the plural of "unitas" were resolved by adopting the Latin plural of the singular "as." "Bancor" was not the only proposal based upon an association with gold. Keynes mentioned the exotic words "daric" and "bezant." They were not words created for the occasion, but "grammor" or "gramor" and "goldoz' were.44 The daric was a gold coin of ancient Persia and the bezant of Byzantium. "Monad" was another, and more ingenious, suggestion. Although "monad" has no meaning related to money, it can suggest money in the first syllable and the modernity of the Chris- tian era in the last two letters. "Monad" means a unit, and has been employed in biology and philosophy as the ultimate unit of existence. In Greek, "monas" means "unit" and "monos" means "alone," so that "monad" would be particularly appropriate if it were the name of the monetary instrument that ultimately became, to use current terminology, the only "primary" 45 reserve asset.46 In the international discussions that led to agreement on special

43 Article XXI, Section 2: "The unit of value of special drawing rights shall be equivalent to 0.888 671 gram of fine gold." 44 U. S. Congress, Senate, Committee on Banking and Currency, Bretton Woods Agreements Act, Hearings on H.R. 3314 (79th Congress, 1st Session, Washington, June 12-16, 18-22, 25, and 28, 1945), pp. 501-502. 45 In the past, gold was sometimes called the "ultimate" reserve asset. One reason for this usage was that other reserve assets are defined in terms of gold as the common denominator (see Article IV, Section 1). Another reason was the structure of the international monetary system in which the convertible currencies of members of the Fund are convertible into U. S. dollars and the United States had declared that it maintained the value of the U. S. dollar by means of gold transactions with the monetary authorities of other members (see Article IV, Section 4(6)). The adjective "primary" seems to be intended to convey an idea of desirability or superiority because it is attached to the assets in which the settlement of surpluses and deficits in balances of payments may have to be made in the future. 4f Special drawing rights, gold, and "reserve positions in the Fund" (see Article XXXII (c)) are regard as "primary" reserve assets.

drawing rights, few suggestions were made for naming the new asset. At the beginning of the 1960s, Professor Triffin proposed to revive the word "bancor" in connection with his plan for a new monetary order. "Bancor" would have been the reserve asset issued by the Fund when members deposited their holdings of reserve currencies in the Fund or when the Fund decided to create further reserves by lending to members or by investing in their securities.47 In the middle of the decade, the staff of the Fund, with the natural sobriety of international officials, drafted plans for the creation of "international reserve units" or simply "units." The journalists were less inhibited recently when, after the appointment of the Chairman of the Deputies of the Com- mittee of the Board of Governors on the Reform of the International Monetary System and Related Issues, they suggested that special drawing rights should be renamed "morsels." Before the compromise was reached on the name "special drawing right," officials of the United States urged that the two theories of asset and credit should be merged in the name "drawing unit reserve asset." It is improbable that they would have suggested so pedestrian a name had a compromise been unnecessary, but even though handicapped by this necessity their inventiveness produced the excellent acronym "dura." The connotation of that word would have been not the absolute distinc- tion between "hard" and "soft" currencies but the permanence or strength of the new asset.48 A candidate that disappeared from competition before 1969 is the word "cru," an acronym for "composite reserve unit" or "collective reserve unit." In the version of the "cru" proposed by one leading expert in mid-1965, the unit was to be equal to one U. S. dollar of its then weight and fineness in gold and to consist of the 11 currencies, in specified proportions, of the members of the Group of Ten and Swit- zerland. Each issuer of these currencies would deposit its own currency with the Fund in the specified proportion and would be credited with

47 Robert Triffin, Gold and the Dollar Crisis: The Future of Convertibility (New Haven, 1961), pp. 102 ff. (Compare Chapter IV of the Report on Reform referred to in footnote 21.) Economists have been devoted to the word "bancor" and have recommended its use in connection with proposals of their own (see, for example, Albert G. Hart, Nicholas Kaldor, and Jan Tinbergen, "The Case for an International Commodity Reserve Currency," UNCTAD E/CONF. 46/P/7 (Contributed Paper 7), 17 February 1964, p. 15) as a tribute to Keynes (see John Parke Young, "The Dollar Standard Versus an International Currency," Euro- money, Vol. 3 (October 1971), p. 38). 48 The word "dura" ("durus," "durum") in Latin has other meanings, not all of which would be as felicitous: "hard; lasting; rough (to the senses)', tough, hardy, hale; rough, rude, uncouth; shameless, brazen; harsh, cruel, callous, insen- sible; severe, oppressive; parsimonious, miserly," New College Latin & English Dictionary (1966), p. 94.

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS: RENAMING THE INFANT ASSET 309 an equivalent amount of units.49 In a later plan developed by the same expert, the ucru" was to be issued in return for the deposit of a par- ticipant's monetary reserves (gold, foreign exchange, and special drawing rights) in a reserve settlement account. The "cru" was to be defined in the same way as under the earlier plan but would be composed, in appropriate ratios, of the various reserve assets deposited in the account.50 Both adjectives "composite" and "collective" that were responsible for the first letter in the acronym were intended to recognize the mix- ture of assets that backed the "cru." Sometimes, however, the word "collective" was meant to refer to the participants in the scheme under which the assets would be created. The word was given this latter connotation in the discussion of a scheme of limited participation by the authors of the Ossola Report of May 31, 1965.51 Special drawing rights are a compound of legal rights and obligations but there is no obligation to deposit assets in any form as backing, and if only for this reason it became inappropriate to call them composite reserve units. Nevertheless, when agreement was reached on special drawing rights, the Minister of Finance of France, speaking at the Annual Meeting of the Board of Governors, detected an affinity between the special drawing right and the "cru":

... I wish to inform you of the reasons for which France has taken the decision to participate in the activation of the SDR system. First, as the Managing Director of the Fund has so aptly reminded us, the system is now in existence: we have ourselves always considered that alongside conditional liquidities there was room in the modern world for a new reserve asset of an unconditional type, designed to supplement gold and foreign exchange in the holdings of the central banks. This was the purport of the proposal that we made for the creation of a collective reserve unit, or CRU.52 This affinity may be even closer if a change is made in the mode of valuing special drawing rights in terms of currencies for the purpose of transactions. Under regulations adopted by the Fund in September

49 "The Bernstein 'C. R. U.' Proposal," in Compendium of Plans For Interna- tional Monetary Reform, ed. by Robert G. Hawkins (New York University, C. J. Devine Institute of Finance, The Bulletin, No. 37-38, December 1965), pp. 83-95. 50 Edward M. Bernstein, "International Monetary Reserves and the Composite Gold Standard," in Next Steps in International Monetary Reform, Hearing Before the Subcommittee on International Exchange and Payments, Joint Economic Committee (90th Congress, 2nd Session, Washington, September 9, 1968), pp. 3-13. 51 Report of the Study Group on the Creation of Reserve Assets: Report to the Deputies of the Group of Ten (Washington, May 31, 1965), para. 28, p. 26. 52 International Monetary Fund, Summary Proceedings of the Twenty-Fourth Annual Meeting of the Board of Governors (Washington, September 29- October 3, 1969), p. 58.

1969, special drawing rights were exchanged for U. S. dollars at the par value for the dollar, and for another currency at the market rate for that currency in relation to the dollar at its par value. If special drawing rights were valued in relation to a number of selected currencies, including the U. S. dollar, combined in determined proportions, the special drawing right could then be regarded with more reason as equivalent to a combination of currencies instead of some multiple of a single currency. With this change [which has now taken place], it would be easier to think of the special drawing right as a composite reserve asset, although its composite character would rest on its valua- tion in terms of currencies and not on any backing of deposited assets.53 A purpose of the change would be to keep the value of the special drawing right more stable in terms of currencies in a system of greater flexibility for exchange rates. With the objective of greater stability for the value of the special drawing right, it would continue to be inapt to resort to Lord Keynes' "dolphin" even in a world of greater fluctuation in the values of currencies. There remains for consideration one other candidate from the past. It is the word "talent," which, as Keynes noted, was suggested by Pro- fessor D. W. Brogan.54 The word is not contrived, and so would give no offense to the critics of artifice. "Talent" has both Greek and Latin ancestors, and was recommended by Professor Brogan because it was "old, respectable, [and] well known." In Greek, "talent" is descended from talanton, a cognate of tolas. The former means "balance" and the latter "enduring," and while both would provide a worthy lineage, "enduring" would be an especially thoughtful tribute to the American pioneers who did so much to get agreement on special drawing rights and wanted to call them "dura." Among the other virtues of "talent" is its modern primary meaning of special aptitude and its historical connection with money. The "talent" was in widespread use as a money

53 It would not be a neologism in French. It has a number of meanings in that language, among which some would be more congenerous than others with "cru" as the name of the reserve asset: "cru (1) [kry], n.m. Growth; production (esp. of wine); vine-estate, vineyard; soil; (fig.) invention, making, fabrication. Boire du vin de son cru, to drink wine of one's own growth; cela n'est pas de son cru, that is not his own idea; des fruits d'un bon cru, fruit of a good soil; les grands crus de Bourgogne, famous Bur- gundy wines; vin du cru, wine of the country. "cru (2) [kry], a. (fern, crue (1)) Raw, uncooked, indigestible; unwrought; (fig.) crude, coarse, rough, harsh, indecent, smutty, obscene; (C) sharp (weather)- A cru, on the bare skin, next to the skin; couleur crue, harsh colour; cuir cru, undressed leather; eau crue, hard water; monter a cheval a cru, to ride a horse bareback; tout cru, quite raw; une lumiere crue, a hard light," The New Cassell's French Dictionary: French-English, English-French (New York, 1962), p. 214. 54 In a letter to The Times (May 17, 1943), p. 5.

©International Monetary Fund. Not for Redistribution SPECIAL DRAWING RIGHTS! RENAMING THE INFANT ASSET 311 of account among the ancients, including the Romans, Greeks, and Assyrians, although with diverse values. It is a further advantage that the word has no current monetary affiliation, and if it were represented by the abbreviation "T." there would be no predecessor among the abbreviations for existing currencies. Finally, the word recalls the parable in the Gospel according to Saint Matthew, from which its modern meaning is said to derive.55 The solemnity of the Biblical association strengthens the argument for "talent," but it would be unhelpful to speculate on the implications of the parable for the reform of the international monetary system. Three servants received an allocation of talents from their master. Two of them were rewarded by being made rulers of many things and by being permitted into the joy of their master because they were responsible for a surplus. The one whose holdings remained in equilibrium was treated as an unprofitable servant. He was subjected to the sanction that "from him that hath not shall be taken away even that which he hath." His allocation of talents was canceled.

55 St. Matthew XXV: 14-30.