GLOSSARY / Glossaire (anglais)



An international monetary system cannot function properly without an anchor mechanism capable of acting as:
- a standard of value and measurement that is independent of time, place and circumstances,
- a reliable and stable medium for international trade,
- an effective instrument for the external and even internal regulation of national currencies.
From the earliest times until recently currencies were anchored by precious metal. From the end of the seventeenth century this was by the partial convertibility into gold of the paper currency that was issued by governments; convertibility was shared after the 1922 Genoa Monetary Conference with the American dollar (the Gold Exchange Standard - GES); since the ending by President Nixon on 15 August 1971 of the dollar\'s convertibility into gold, the monetary system\'s anchorage has been provided - purely unofficially - by the dollar that is issued by the American Government. By very reason of the fact that it is national, a national currency used in transactions on a national territory cannot have the qualities that are required for a valid anchor currency for all the other currencies of the world. The use of the dollar for this purpose is no more than a palliative, rendered indispensable first by the acknowledged unsuitability of gold for the task and then by the absence, until recently, of the technical means of operating a suitable substitute. These technical means are now available. They are the ones proposed for the New Bancor. A demonstration of these new technical means by the New Bancor would supply precious information for the creation of a new form of international anchorage for currencies that would perform the functions indicated above.


During the crisis that shook the countries of south-east Asia in the Nineties the need for an overhaul of the international monetary system became apparent for the first time since Bretton Woods. Rather than proposing another international conference, President Clinton, with the backing of specialists, asked instead for a "new international monetary architecture". This word "architecture" should be noted. It has the merit of going further than what is connoted by "International Monetary System" (see entry in glossary), since it includes things that are not strictly speaking part of a system, namely rules for States\' internal conduct designed to avoid crises and facilitate rescue operations by the International Monetary Fund.. It may be concluded that the need, which is now acknowledged, for a new form of international monetary organisation offers a chance that did not exist before of trying out a non-national constant payment curency.



The Bancor was a currency proposed by Keynes at the Bretton Woods conference in 1944. It was to be a non-national numeraire with constant value in real terms intended to be used exclusively by central banks and defined in terms of a weight of gold that was adjustable so as to keep its purchasing power constant. Keynes was the first to propose a non-national numeraire with constant purchasing power but for want of the appropriate technical means he was unable to convert it into a transaction and reserve numeraire for general use.


A term used to describe claims on banks that circulate as means of payment: demand deposits or the equivalent, in various forms, most usually taking the form of a cheque or a transfer order. A claim on a bank is not an indeterminate claim on the banks\' assets, but merely a right to legal tender(see entry in this glossary). In fact, at any time the bearer of a demand deposit may ask the bank to exchange it for bank-notes, which are legal tender, or credit at the central bank. This qualification is important because the equivalence as means of payment of money and bank money has resulted in statisticians grouping them together and including them in one and the same monetary aggregate (M1, M2, etc). In fact, though, a claim by A (the depositor) on B (his bank) and a claim by B on C (another bank) are different in nature and mistakes made in this connexion have seriously distorted monetary analysis (see the entry "Legal tender").


The attempt to achieve stable purchasing power, represented by a zero rate of inflation, comes down to choosing as one\'s standard of value for money the basket of goods and services defined by statisticians. A constant currency can only be expressed in terms of what is used to make payments, via the daily price index. Price indices are open to criticism because there is no single person whose consumption patterns correspond exactly to the composition of the basket. But the index should be looked at from another point of view: as the only way of achieving the established objective of an abstract monetary standard that will be "better than all the others".



Money is issued by the Central Bank on behalf of the government. Money is an entitlement; legal tender money is distinguished by the obligation which the government imposes on a seller or lender to accept that the borrower or purchaser may extinguish his debt using its money. This obligation is imposed, prices being equal, with all other currencies, whatever their origin.


The essence of the mechanism of bank clearing is the replacement by each member bank of the Clearing House of bilateral settlement of its debts towards or claims on the other member banks that have resulted from transfers of deposits (transfer orders or cheques) by multilateral clearing with the banks as a whole. One way of imagining this operation is to suppose that the debtor banks settle their debts by throwing the amount in cash into a basket and by taking out of this same basket the sums that the other banks owe to them. Let us suppose that a given Clearing House is made up of 50 members and that each of these members has debts towards and claims on the other 49. The number of operations required to calculate the balances bilaterally between each bank and the 49 others would come to 2400; the same calculation carried out multilaterally by each bank with the other banks as a whole would require only 49 operations, i.e. about 25 times fewer. Clearing carried out in two stages further reduces the number of operations and, therefore, also the amount of reserves that need to be kept available for final settlement. Clearing is only possible in practice within a "system" under the aegis of a central bank. For this reason clearing of interbank debts takes place mainly within States. Outside, for external currencies such as the xenodollar, clearing is only possible by limited groupings of large xenobanks which have close financial relations. The difference between the circulation of money within a State and circulation of money outside States, involving currencies in their role as xenocurrencies, is reflected in the diagrams that illustrate such types of circulation. See also the entries on internal currency/external currency.
Clearing with delayed settlement: The settlement of the virtual or actual balances resulting from the clearing is delayed. Postponement has the advantage of further reducing the amount of reserves needed and consequently makes the liquidity requirements that that implies less stringent. Such delays imply the establishment of debtor balances known as "debit caps" approved by the members of the Clearing House. As a corollary: the furnishing of a guarantee in the form of collateral against the risk of default by the debtor bank. This guarantee may take several forms. One of the most frequently used is the virtual delivery of assets, by recognised financial institutions, for a given period and amount. This relatively cheap facility adumbrates the development of a sytem of continuous real-time clearing, whilst at the same time "queuing", i.e. the the delay a bank has to accept for a transfer order implying the exceeding of the debtor balance ceiling, will be reduced. The advantage of such a form of clearing is not confined to improved use of reserves: it also provides the means by which the member banks can manage their cash resources better.


A composite currency is a monetary unit, the value of which at a given moment is equal to the sum of the values of the amounts of the currrencies that it is made up of. As the term "value" may be understood in various senses, it needs to be clarified: in this instance we may say that the value of a composite currency is defined by adding up several statistical baskets, each of which represents what, on average, may be purchased by each amount of component currency in its country of origin. Expressing the value of a composite currency in terms of a given currency A therefore implies introducing into the calculation the rates of exchange of the component currencies into currency A.


A grouping of several banks bound by specific agreements with a view to achieving a common objective (e.g. clearing).


A non-national currency defined as equal in value to one or more indexed national currencies, the purchasing power of which in their countries of origin is, as a result, constant. The index is itself calculated each day in the light of the last published index and the trend it is following. A constant currency may supply the anchorage unit that is needed for the international monetary system (see New Bancor).


The nominal ECU (see below) can be converted into a constant ECU by weighting each amount of component national currency by the consumer price index of the country of which it is the currency, extrapolated to give a daily figure. The constant ECU has the property of being able to purchase an "international basket" of goods and services which, in terms of composition and dimensions, does not vary.


A unit of money represents a debt, which implies, as a counterpart to it, the existence of an asset, most usually a claim. It is only by establishing the counterpart to a unit of money that the way a system operates can be correctly analysed.


A limitation on their freedom to expand their loan portfolios imposed on banks by the monetary authorities (known familiarly as "the corset"). Credit control is, along with the interest rate, a way of controlling the creation of money by the banks since new money is brought into circulation through bank credit. It has the merit of not relying on the law of the market, as the interest rate does, and therefore of obviating - in theory - the need for excessive rises in the interest rate. In fact, because of external contingencies, it only achieved this goal partially and has now been abandoned.


This term designates the undertaking that a central bank has entered into to maintain dollar reserves at least equal to the total amount of currency that it has issued (notes and bank reserves) at a specific rate of exchange. Theoretically, a bank is only responsible for the parity that it has chosen for its currency against the dollar in respect of the currency it has issued. In fact, though, the demand for dollars, in the event of a panic, will exceed by a considerable margin the volume of reserves. This is because there will also be bank money, which is a right to money and the volume of which is at least five or six times greater than that of the money issued by the central bank. Over and above that, account must also be taken of obligations in dollars taken on by borrowers who wish to cover themselves in order to cope with repayments. A currency board is thus more a moral agent than an effective instrument for coping with an exchange market panic. In addition, it constitutes a salutary constraint on the authorities in respect of the conduct of their economic and monetary policies.


DOLLAR (in its international role)

As regards their relations with each other, national currencies would function better if there existed a parallel non-national currency circulating between States which would act as a common standard of measurement and a medium of regulation for them. This is the anchoring numeraire.It is generally accepted that the official abandonment of gold in this role dates from 15 July 1971 when President Nixon abolished the convertibility into gold at the rate of 35 dollars an ounce of the dollars presented for conversion at the Federal Reserve Bank. In fact, though, the disappearance of a myth and a habit must be traced to a later date when central banks began to put their reserves of precious metal onto the market in order to convert them into dollars which they could then invest. In this way the role of the dollar in the world has increased and become almost exclusive. At a time when attempts are being made to head off the risks of an international monetary crisis and organise things in such a way as to cope with one, it is surprising that the risk posed by this excessive growth in the quantity of dollars in world assets is not discussed in more accurate terms. The truth is that the risk is not the holding of dollars, it is the holding of rights to dollars. The "dollar deposits" in banks in the United States are rights to dollars in central bank money, also known as legal dollars, issued by the Federal Reserve system. Eurodollars are claims held abroad to dollars in American banks. A foreign currency which has been "dollarised" by a currency board is a currency which gives a right guaranteed by the State to a dollar on deposit in a bank in the United States. Throughout the world, assets are being built up which are rights to rights on deposit in the United States, themselves rights to dollars at the Federal Reserve Bank. In addition to these demand rights, there are also term rights which are directly or indirectly included in securities such as Treasury Bills, bonds etc. All of this gives rise to an enormous mass of rights to legal Federal Reserve dollars which are not in any way the consequence of undertakings entered into by the Federal Reserve but simply the result of the role played by the dollar in the world as an anchor numeraire. In order to represent the risk that this disequilibrium between the mass of claims and the basis on which it rests represents, one may imagine a "catastrophe scenario" which transposes, by inverting it, the classic example of an exchange crisis. In this case it will no longer be a doubt as to the national currency, in this case the dollar, but, on the contrary, an irresistible attraction for central bank dollars whilst doubts spread as to the ability to honour their debts of all those who have distributed rights to dollars. In order to respond to rising demand, either the Federal Reserve prints dollars, creating a disastrous inflation, or it refuses to convert rights to dollars into dollars, many of such rights having been generated by sources which it had not acknowledged. In both cases, if ever the panic (see entry in this glossary)that any monetary institution is prey to spreads, the dollar will be at the heart of an unprecedented crisis. It is not reasonable to load a national currency, even the national currency of the most powerful State in the world, with a responsibility that no national currency can take on.


Dollarisation is the replacement of the national currency by the American dollar. This idea took shape in 1999, following the acknowledged success of currency boards, as a way of protecting national currencies against exchange rate and inflation disorders. At present the only studies of dollarisation are partial ones, i.e. studies of the effects that may be expected from an undoubtedly risky undertaking. In fact, dollarisation does not imply any obligation on the American government, but it does impose one on governments that choose to abandon their national currencies in this way. An analysis by the Centre Jouffroy of the project for the dollarisation of the peso presented by the Argentinian government showed that this could only be done by replacing the peso not by American dollars but by bank money giving the holder the right to dollars; this in turn presupposes first of all a parallel organisation for the circulation of "rights to US dollars" and, as a corollary, the risk, already mentioned in connection with currency boards, of demand for the conversion of these rights into actual American dollars (deposits at banks in the United States which, themselves, confer the right to a central bank dollar issued by the Federal Reserve), which would be without any doubt a fragile system to erect. As in the case of currency boards (see entry in glossary), the advantage may be a measure of obligation on governments to follow prudent policies; in addition, there would also be the removal, in the eyes of the public, of the tradition of disorder and inflation that is handicapping the national currencies of emerging countries.



Precious lessons may be learnt from the success of the EBA. The first thing is that it has been shown to be possible to create and put into circulation a purely private currency, with no central bank or central bank money, as a parallel currency for all the countries of the world. Secondly, the legal form and the launching of the enterprise are very simple (an “association” under the terms of the French Law of 1 July 1901). Comparable legal forms can be found in most countries. As a consequence of its composition, the private ECU has continued to depreciate in real terms faster than the Deutschemark, but it has still attracted depositors. This success provides proof of the attraction that a unit that spreads risks out over several currencies instead of concentrating them on a single one may have for the general public. Another lesson that could be drawn from this experience is the regrettable extent to which monetary science lags behind others. See also entry : “Private Currency” in this glossary.


The ordinary ECU may be converted into a constant ECU by weighting each amount of national currency in the ECU basket by the retail price index number for the country of which it is the national currency, extrapolated to give a daily progression. The constant ECU has the property of being able to purchase an "international basket" of goods and services which is invariable in terms of composition and proportions.

ECU, UNIT of ACCOUNT for the European Union

Defined by a "composite" formula by adding together fixed amounts of the national currencies of the Member States. The value of the ECU in currency X is calculated each day by adding up the sums of the national component currencies after multiplying each of them by its rate of exchange into currency X.


The name given since 1 January 1999 to the former ECU, which was created in 1979. It is distinguished from the ECU first by its official status as the currency of the European Union, and then by the fixing of the parities of a majority of Union currencies, of which it is the emanation. The Euro, introduced as the currency of the European Union, was first circulated in parallel with the national currencies, which are supposed to represent it in their own names. Only since 1 January 2002, has the Euro become a single currency due to the abolition of these national currencies. The Euro is almost entirely political in origin, since from an economic standpoint the validity of a single currency and a single monetary policy managed by the European Central Bank for countries with economies that are bound to follow different paths of development is arguable. Conceptually, the Euro makes no really new contribution to a monetary system which has remained unchanged since the 1922 Genoa monetary conference. All it does is extend to the Euro zone the kind of monetary system in use in all the countries of the world. The Centre Jouffroy has pointed out the risks of an irrevocable fixing of the monetary system for the different Members being admitted inside the Euro zone – with no heading back ! This is not the view of the Europhiles who are at present in power in Brussels. In their view, Europe will cohere as a result of the obligation it will find itself in of solving the problems that will be posed by the operating of the new European monetary system. It is commonly accepted that this is a "gamble" since there is no previous experience from which relevant conclusions and lessons can be drawn.


A Eurocurrency is a unit of money represented by a deposit in a bank denominated in the national currency of a country foreign to the one in which the bank is domiciled. The counterpart of this deposit is a deposit owned by that bank at a bank in the foreign country in question.


A Eurodollar is a eurocurrency denominated in dollars and consisting of a deposit at a foreign bank in the United States, and its counterpart is a deposit by this bank at a bank domiciled in the United States and, for this reason, part of the Federal Reserve System (see: Outline).


The Euromarket is the area of the eurocurrencies. It may be seen as an immense area, virtual or real, located between the frontiers :real when it is the high seas of finance and virtual when it is located on the frontier separating two customs posts. This area has always existed but it only came to attention after World War II and accidentally: at the beginning of the Cold War (1950) the government of the then Soviet Union, fearing that its dollar assets might be frozen by the United States government, transferred them to British banks. These banks then found themselves in possession of enormous masses of dollars for which they attempted to find uses. In this way claims located outside the United States on dollar deposits in the United States began to circulate: the Eurodollar was born. It should be noted that the two biggest innovations in the international monetary system, namely the Eurodollar and generalised clearing, were spontaneous creations. They did not result from preliminary studies that attempted to make use of the new technical means available. It should also be noted that these two major developments for monetary progress - clearing and the Euromarket - were long ignored or misunderstood, signs of the general inadequacy of monetary science.


The Eurostable is an exclusively external numeraire defined as equal in value to a constant Euro. The origin and the justification of the Eurostable are to be found in a proposal expounded for the first time on 12 June 1974 by Jacques Riboud at a meeting of the Société d\'Economie Politique with Professor Marczewski in the chair. The proposal may be summarised as follows: an exclusively external transaction and reserve numeraire with intrinsically stable value in real terms (purchasing power on a given territory). The Centre Jouffroy has worked on the practical application of this concept since its foundation (1974). All currencies in use today are currencies with values which are those of national currencies used to make payments on a national territory. Such currencies, because they are used within States to make payments on national territories, cannot have stable value. The Eurostable, which is exclusively external, is not subject to this limitation. From the very beginning the Eurostable came up against two obstacles: the first is the novelty of the basic concept; the second is the fear, on the part of the authorities in France, of a competitor for the nominal Euro, on which the whole single currency policy is based. The Centre Jouffroy has responded to this fear by replacing the Eurostable by a numeraire based on the same principle but more general in scope. This new numeraire is called the New Bancor. Exclusively external currency: An exclusively external currency does not circulate as a means of payment used in transactions within the country to which it is external. This is the case with the xenocurrency (eurocurrency) that is denominated in currency X of country X and is represented by a deposit at a bank that is foreign to X and conferring a right to a unit of X. The counterpart of the deposit denominated in X (xenoX) at the xenobank is a deposit held by this bank in currency X at a bank domiciled in X. A unit of xenocurrency is created by a loan or a credit of an external unit of X. It circulates from external bank to external bank in parallel with its counterpart in the correspondent bank in country X. Should the external banks come together for clearing purposes, only the counterpart of the balance in X at a bank in X is transferred to another bank in X.



Even quite recently (1965), major names in the worlds of politics (de Gaulle, Reagan) and economic management (Rueff, Greenspan) have called for a return to the Gold Standard. In the eyes of the public, gold has remained until even more recently the very symbol of monetary discipline. In fact, though, errors of understanding and interpretation concerning the monetary role of gold have on several occasions had grave consequences. The most convincing example is probably the maintenance of a fixed rate of convertibility of currencies into gold during the 20s and 30s and then again during the 60s. Economic forces affect much more forcibly the money in circulation than what is supposed to guarantee it in the central bank\'s vaults. These forces are what decides the purchasing power of each unit of money, much more than a purely theoretical convertibility into a metal which no longer circulates. Governments\' commitments to maintain the gold parity of their currencies did not make it possible for them to combat deflation effectively during the 30s or inflation during the 60s. Better understanding of the role of gold would have eliminated errors whose consequences were very grave.


The GES was introduced for the first time in 1922 and then revived in 1944. Its aim was to complete the gold standard system by adding to a central bank\'s gold reserves strong currencies which, like gold, would constitute the counterpart or backing of the currency issued. Its is a way of diluting a quantity of metal gold that is considered insufficient and illustrates once again the persistance - and the danger - of the traditional concept of money as being "representative of a commodity".


This is the assurance that a creditor looks for in order to be able to activate his claim. This concern has shaped not only monetary and banking rules but even the basic theories and concepts.



The State Treasuries in Great Britain, the United States and France are leading countries in the issuance of indexed securities. These securities, balancing deposits that are themselves indexed (in constant payment money), ensure that the banks always received positive real interest. In that way they are sure that they would not risk any loss when repaying in nominal currency deposits received in constant currency (see entry in this glossary) . The issuance of indexed securities by countries that had traditionally been hostile to indexation is a sign that inflation is not only under control but universally condemned. Indexed assets mean that banks operating in constant payment money are protected against any risk of loss through negative real interest.


The short-term interest rate established by central banks for their interventions(also see entry in this glossary)in the markets (pledging of securities, sale or purchase of securities etc) is the authorities\' principal instrument of monetary regulation. The main objective of monetary regulation, as laid down for central banks, is first to safeguard the stability of prices within a State. The requirements of regulation oblige them also to look for a measure of stability on the exchange markets. A third objective, implied rather than stated, is economic growth. These three objectives are rarely in harmony. What is beneficial for one is unfavourable to another. As an instrument of regulation, the interest rate has none of the requisite properties, namely reliability, fidelity, rapid response transmission, leverage effect and, lastly and above all, selectivity and absence of pernicious side effects. The story of banking during this century is that of the efforts that have been made to attempt to achieve all three of these objectives, which usually diverge, simultaneously. The examples are legion. One of the best known is that of the British Chancellor of the Exchequer, Nigel Lawson, during the second half of the 80s, when he decided to "shadow" the Deutsche Mark. The New Bancor, because it is exclusively external and lacks any parasitical effects on national currencies and cannot be issued rapidly in large quantities, would be the ideal instrument of regulation for central banks for the purpose of absorbing shocks, i.e. absorbing excess liquidity or supplying liquidity when there is a deficit.


A monetary unit is internal when it is involved in a payment between payer and a payee who are domiciled in the same country, of which it is the national currency. It is external when the payer or the payee, or both, are domiciled abroad.


The International Monetary Fund was founded in 1944 after the Bretton Woods monetary conference. It was set up to ensure that the renewed international monetary system functioned properly, defining national currencies in terms of their value in dollars and in gold, the dollar and gold being linked to form a bicephalous monetary standard. The IMF\'s resources come from its member states, and first and foremost from the United States. It acts mainly as "last resort" in order to support currencies that are under attack on the exchange markets. Its interventions take the form of large loans, which has led it to go beyond its simple role as a “bailer-out” of countries in trouble and start advising States that turn to it for help according to certain rules or principles of management.


An assemblage of obligations and rights linking the creation and circulation of currencies of different nationalities. The international monetary system in force at present is what is left of the Gold Exchange Standard (see entry in glossary), no longer officially, i.e. acknowledged by governments, but in an unofficial form consisting of the preeminence of the dollar as the international monetary anchor. In the opinion of most analysts, monetary relations between nations at present amount to a "non-system". This non-system has been the witness of a deplorable succession of international monetary crises..


In the context of monetary regulation, intervention is the means of action by which a central bank borrows in order to support a weak currency on the exchange market. Intervention precipitates a number of operations on the part of the central bank of the country receiving assistance and of the central bank of the country providing the assistance. One of the best examples of intervention on a massive scale was given by the Bundesbank in 1992 and 1993 in order to support several European Monetary System currencies, in particular the French franc in 1993. This intervention required the Bundesbank to issue more than 92,000 million Marks, with predictable effects on the money supply and inflation.A most complete study was carried out by the Association for the Monetary Union of Europe. The study, which was undertaken after consultation of distinguished economists of all nationalities, leads to conclusions which are in fact an admission of failure. it recommends abolishing the requirement for the borrower country to repay the strong currency it has borrowed and to give both currencies, the weak one and the strong one, legal tender power in both countries - which ultimately boils down to recommending the introduction of a single currency. The scale and the harmfulness of the side effects of intervention make the principal means of stabilising the exchanges available to the authorities inoperable, whence the advantage of a process not affected by these side effects. Such a process may be found in the use of a non-national numeraire. As it would only circulate between States and not on their territories, it would be spared the inflationary effect of issuing it in large quantities. This is one of the main merits which the Centre Jouffroy brings forward with the New Bancor.



The concept of legal tender is fundamental. Its legal tender money is what a national monetary system is based on. Unfortunately, the notion of legal tender has been obscured by an unjustified failure to distinguish between legal tender money issued by the central bank and bank money, a right to money, created by the banking system. In order to grasp the role of legal tender in a monetary system it should be realised that payments are always made ultimately in legal tender money issued by the central bank. A payment by cheque or bank transfer order is not validated until the final settlement between the banks in central bank money has been verified. A transfer order from A to B or a cheque drawn on B and deposited at A sets off a movement of an equal amount of money from A to B. To the extent that, between two clearings, these movements cancel out, they are not seen. The only thing that is recorded is is the balance, which is actually paid over in central bank money . Legal tender money is what is left of the "sovereign privilege" described as the "king\'s power to mint money" (Also see “seigniorage” entry in this glossary).The State is the only legal source of means of payment which may not be refused. Claim money, known as paper or fiat money, only has meaning through the monopoly which the State accords to itself in this field. This can only be the privilege of a government because the government has the means to impose its authority.


Relations between the member banks of a monetary system imply for them the prompt availability of money to transfer in order to settle clearing balances. Such a system is more or less liquid according to the facilities that it offers for converting a fixed asset into liquidity. From this point of view, the fact that the New Bancor is defined in terms of Euros and Dollars gives the best prospects of liquidity.



Subjected to ratification by referendum in France in September 1992, the main aim of this Treaty was the creation of a single European currency for the 15 Member States of the Union. The Treaty was fiercely opposed and was only approved by a tiny majority. Since then the idea has gradually taken root and has won over the majority, in the absence of any progress in the quality of the arguments advanced, both for and against. The argument of the Centre Jouffroy is that a non-national parallel currency for the States of the European Union would be of great benefit, but that the disappearance of the national currencies, which is necessary if the single currency is to become really single, involves a serious risk of blockage without bringing with it any additional advantage. Not only is economic science incapable of reading the future, still less of organising it, but the extremely rapid pace of technological change is against any commitment in respect of a subject which is in any case uncertain and is without any possibility of adaptation. Also see “After Maastricht - another view of a single currency” by Jacques Riboud, Ed. JRSC, 1992.


Assemblage of parts and components put together with a view to the running of a whole. The examples of mechanisms are innumerable, just as are the examples of their going wrong. One of the weaknesses of economic science has been and still is to neglect study of monetary mechanisms and not to concern itself enough with how to improve them. The mistakes made concerning the role of gold in the 30s could have been avoided by means of a serious analysis of monetary mechanisms. For example, the view of money that prevailed until recently saw it as "representative of a commodity, defined by what guarantees it". In terms of mechanics, a money that is representative of something is meaningless. The situation is different with money seen as a "token" received in exchange for a supply for the purpose of obtaining subsequently, at an indeterminate place and time, an equivalent commodity, in terms of power to satisfy, to the one that was sold. The achievements of economics, estimable as they are, would have been more fruitful if they had been based on better knowledge of the mechanics of money. Economic analysis of transport by lorry, for example, must not ignore the lorries\' mechanisms. Mistaken interpretations of how bank money is multiplied would have been avoided if a prior enquiry had been carried out into the clearing mechanism (see netting). Also see « The Mechanics of Money »,by Jacques Riboud, Foreword by Fritz Machlup, Macmillan Press Ltd., 319 pages.”)


Like all theories or emotions which have exceeded the bounds of the need that they arose to satisfy, monetarism has become a religion. In fact, it was a response to a demand: the need to control the power of creation of money by the banking system, which had become limitless. In addition to that, there were also research findings which showed the direct relation between the the quantity of money and the level of prices, as well as the stability of certain factors (the velocity of money), which made it possible to limit measures to control the money supply to its quantitative aspect. In fact, the control of means of payment has always been, implicitly or explicity, the responsibility of the authorities and has been carried out through various systems (such as the gold standard, capping central bank issue etc).


The explanation given by economics for the multiplication of bank money is one of the foundations of "monetary science". This explanation is challenged by the Centre Jouffroy.The traditional explanation may be summarised as follows: Bank A has a deposit of 100 balanced by assets of 100 in reserve (central money). A divides its reserves into two parts, one of 20 which is frozen as a precautionary measure and in order to supply cash withdrawals, and a second, which is available, of 80. A therefore grants a loan for the same amount to a customer, who transfers his deposit of 80 to another bank. The same operation by bank B "produces" a frozen reserve of, say, 15 and 65 available for use, which is used to make a loan for the same amount, which the customer transfers to bank C. This thus produces, apparently, an increase in the amount deposited (in bank money) from 100 initially to 245 (100 at A, 80 at B and 65 at C), and may continue in the same way to increase further (thanks to banks D, E etc). In fact, the quantity of bank money (deposits) has not only not increased, it has actually contracted, from the initial 100 to 65. The reason is that balancing the 100 at bank A and the 80 at bank B there is no longer a reserve of transferable central money, but merely a frozen reserve and a claim on a borrower, which is not transferable either. However, any payment by interbank transfer requires a parallel movement of the same amount in central bank money. Only thanks to the clearing (see entry in this glossary)of movements in central money can bank money multiply. Neglecting the clearing leads to a false presentation of the respective roles of central money and bank money and the construction of a model for the way money works which does not correspond to reality. Also see « central money”and “bank money” entries in this glossary

MONEY(circulation of)

Before making any attempt to improve the way money functions, it is indispensable to have a clear idea of the present system, especially as, as is the case with most monetary mechanisms, this one is the result of empirical explorations, often very ingenious ones, rather than of a thought-out synthesis created by specialised institutions. The circulation of a national monetary unit within a national territory presupposes the existence of a numeraire (also see entry in this glossary)which is received by a payee and is "valid" throughout the territory, i.e. one that cannot be refused in settlement of a debt. A deposit, which is a credit to a current account, in its role as bank money, does not satisfy this requirement. It is only worth what the credit of the bank is worth, and depends on the bank\'s ability to convert the demand deposit into legal tender money, a conversion which, as a result of the level of its reserves, it could only do at any one time in respect of a small fraction of its deposits. A transaction which takes the form of a transfer from a creditor current account at one bank to another current account at another bank results in a debtor position in money for the bank of the payer and, as a counterpart, a creditor position for the payee\'s bank. The clearing of these positions definitively validates the transaction. This is known as settlement. If the clearing of such positions were actually carried out each time in central bank money the amount of reserves each bank would need would be enormous, whence the importance of the clearing mechanism (also see “Settlement” and “Clearing” entries in this glossary)


The Mont Pelerin Society was founded in 1948 at the initiative of Professors Fritz Hayek and Milton Friedman, with the aim of defending laissez faire economics, This included the defence of the instrument of the free market, namely money, which totalitarianism was trying to subject to its control. It was during a Mont Pelerin meeting, in Brussels in September 1974, that Jacques Riboud made an unofficial presentation, for the first time outside France, of the concept of the inherent stability of an extranational currencyand showed how it could be applied to a numeraire called the Eurostable. (also see “Exclusively External currency” entry)



National currencies circulate on national territories. They have the advantage of legal tender (see entry in this glossary)power which is imposed throughout the territory of each State by the monetary authorities. The vicissitudes of national currencies throughout the twentieth century and the economic consequences of the monetary disorders within States and through the foreign exchange markets have prompted Professor James Tobin to ask "Have national currencies a future ?" The alternative is a single currency, if not for all the States of the world, at least for groups of States. That would then leave only three or four large currencies. Standing in the way of this, however, is the extreme diversity of economies, policies, ethnic groupings and national psychologies. The Centre Jouffroy\'s position is that it would be better to aim to create a number of major non-national currencies(see entry in this glossary).Each one would circulate in parallel with the national currencies of a group of States. They would be linked on the one hand to these national currencies by fixed parities that could be adjusted under specific conditions and, on the other hand, to each other by exchange agreements that would be more or less flexible according to the case.


This term refers to the grouping by a bank of its debts and claims in money resulting from transfers of deposits received or executed following the drawing of a cheque or the giving of a transfer order. An initial netting makes it possible to clear the reciprocal credits and debits payable to the accounts of depositors at the same bank. Subsequent clearing operations then proceed by tiers until the final one, which concludes with an actual transfer of central bank money to clear the creditor and debtor balances. The practice of netting and the procedure by tiers have the effect of considerably speeding up the velocity of money and consequently also increasing the volume of transactions. Although this mechanism is of fundamental importance for the interpretation of money, it is often obscured by the tendency of monetary theory to put bank money (claims on banks which give a right to central bank money) and central bank money on a par (whereas the latter, apart from bank-notes, circulates exclusively betwenn the banks\' treasury departments by means of debit or credit entries in accounts in the books of the central bank).


The New Bancor is a non-national numeraire defined as equal in value to the sum of the values of one half of a constant Euro and one half of a constant Dollar. The New Bancor is not the national currency of any State and is included in the accounts under the non-resident heading. It is proposed for use as a reply to the request formulated by all governments for a new "international monetary architecture". It has the benefit of the property discovered by the Centre Jouffroy of inherent stability in real terms which no national currency can claim to have. It satisfies better than any national currency the conditions required of a currency in its three uses: standard of reference for measuring value and comparing currencies, reserve medium and transaction instrument for financial and commercial dealings betwen States and intervention instrument for the regulation of national currencies between themselves and by extension, for their stability of value. The extreme novelty of the New Bancor counsels against expecting it to be brought into service soon. However, it seems inevitable that present trends in all sectors should in the end dispel any doubt about the archaic nature of present-day monetary mechanisms, which have remained largely unchanged in conceptual terms for more than three quarters of a century. The old concepts which people believed - and still believe - to be solid will disappear. Others will take their place and in the end the beneficial changes that the extraordinary progress of modern technology can make to the monetary order will be accepted. Also see by Jacques Riboud : « The New Bancor (NB); Reserve and Payment Currency; Composite Extranational Indexed for the International Monetary Mechanism », RPP Coll., J.R.S.C. Ed., 49 pages

New Bancor (clearing)

The process of delayed settlement is particularly suitable for the mechanism proposed for the New Bancor of two clearings operating in parallel, one in the Euro zone and the other in the dollar zone. In the Euro zone all the big banks domiciled in the European monetary area would participate under the aegis of the ECB; in the dollar zone all the member banks domiciled in the United States would participate under the aegis of the Federal Reserve. Banks outside these zones would operate in New Bancors exactly as xenobanks operating in dollars do with regard to banks domiciled in the United States, or xenobanks operating in Euros with regard to banks domiciled in the Euro zone.

New Bancor (Investment)

The problem of investment which arises in connection with a new numeraire (see entry in this glossary) such as the New Bancor concerns the use that is made by the banker of the funds he receives in exchange for the debt that he takes on when he credits his customer\'s account with New Bancor. In fact, the banker must look to the profit from his investments to find the necessary resources to pay interest on the sums deposited with him, including compensating for inflation. What matters is the range of investments open to the banker. None can be broader than what the New Bancor offers, since it is made up of Euros and dollars, i.e. the two biggest world currencies, and that is what the banker receives from a depositor who is credited with New Bancor.


An English term to describe a non-monetary intermediary. An entire school of thought questions the distinction between a bank and a non-bank (monetary and non-monetary intermediaries). In so doing, it obscures even further analyses and classifications and risks condemning monetary regulation to impotence .


A non-national currency is not the currency of any country. It is nevertheless defined in terms of its value in one or more national currencies because it is only on a national territory that the "value" of a monetary unit (its purchasing power) is expressed and validated (legal tender power) and measured (statistics) by the authorities. Examples of non-national currencies are the ECU (a composite currency ) and the Eurostable (the indexed form of the Euro). Non-national currencies (NN) are foreign currencies in all countries ; they are tolerated in (parallel)circulation within a country only exceptionally (the case of the ECU before 1999). A unit of non-national currency can only be created and circulate within a system, consisting of an association of banks, without any counterpart or parallel movement of a national unit of a particular country(the case with an exclusively external currency). A non-national (NN)currency system therefore transposes outside its frontiers, the forms of a national system: a bank belonging to the system creates a unit of NN by exchanging it for national currency. The NN circulates from one member bank of the system to another by a series of credits and debits in the context of a clearing mechanism arranged in such a way that payment orders are only executed providing that the resulting balance (in real time) does not exceed an agreed ceiling. The NN balances may be cleared after conversion into a defining national currency, which requires the grouping of the banks belonging to the NN system that are domiciled in the State of the national currency in which the NN is defined. The NN disappears after a repayment or exchange into foreign national currency (see entry “the New Bancor” in this glossary). A non-national currency may therefore be considered to be the predestined currency of the real or abstract territory which lies between States and which is called the Euromarket (see Eurocurrency).


A numeraire is a number with a particular significance. It is useful as a means of distinguishing a currency that lacks the attributes that would associate it with a State or a territory from the rest.



This term deserves to be included among the key terms of any study of money. Monetary stability depends on the speed with which holders of money choose to spend it. The lapse of time is represented by the duration of the holding period (income velocity), which is the total time taken by a unit of money to execute an operation of "final consumption". The stability of the monetary system thus depends directly on the public\'s psychological reactions, which are, as is well known, sometimes entirely irrational. On the other hand, this same psychology is counted on to develop initiative and activate growth. That is the objective of liberalisation. The effects have been spectacular. In a few years South East Asia has almost caught up with the standard of living of the industrialised west. But this liberalisation has a price, which is the extreme fragility of the mechanism. A doubt or an uncertainty about the value of a currency can set off a panic which goes far beyond the cause that originated it. The destruction of a country\'s currency can paralyse its reconstruction. Sometimes years are needed to return to the situation prevailing at the time the crisis erupted. There are two ways of preventing or halting a panic: regulating and taxing trade or accepting the excesses of a liberal regime but strictly limiting the excesses caused by the panic by accepting the risk and and introducing the means to s the panic as soon as one threatens. This second solution is the most creative one. At present the only institution capable of intervening in last resort is the International Monetary Fund (see entry in this glossary). Its means of intervention are inadequate and will remain so because all it has available to it is national currencies issued by sovereign States. National currencies are bad instruments of intervention, added to which is the natural reluctance of States to make them available to the IMF in sufficient quantity. Instead of national currencies, the Centre Jouffroy proposes the New Bancor as a non-national currency which could be issued instead . Its exceptional properties as an anchor and its considerable issue potential would help act as the shock absorber and the means of regulation that is tragically absent from the present form of international monetary organisation.


This term describes the exclusive privilege that governments have of issuing "claims on themselves" as means of payment, without the obligation to deliver any good or service in return. The corollary is the imposition on each person by the government of the obligation to accept, throughout the national territory, this claim on itself that the government has issued in payment or remission of a debt. The power of/to issue of the government constitutes the pivot of any national monetary system. Any numeraire offered to the public in payment can only derive its ultimate legitimacy from the fact that it is a right to legal tender money issued by the government because that is the only way that the bearer can know with certainty that the means of payment will be accepted. In terms of goods and services, what a unit of legal tender money gives entitlement to is the average of goods and services produced during the average period for which it is held, between two consecutive final consumption transactions, of which this unit is the instrument.


The world\'s first and so far sole model for a private international currency is the private ECU which was issued by an association of 101 international banks, known as the Ecu Banking Association (EBA). The private ECU was a remarkable innovation from which many lessons may be learnt. It was not, any more than clearing and the euromarket were, the product of a protracted study before being launched. The ECU itself was created in 1979 as a numeraire reserved for the EEC institutions (European Currency Unit). Once it had been created it was taken up by the proponents of a federal Europe. As a result, Jacques Delors at the beginning of the 80s, asked the French banks, and primarily the largest, the Crédit Lyonnais, to "put the ECU into circulation". Tentatively and after some hesitations the ECU started to circulate in the form of a basket of its component currencies. Then an agreement was entered into by a group of banks to obviate the problem of this multipicity of transfers with, initially, a rudimentary system of clearing which developed into the EBA (1985). In this way, in a small office at the Crédit Lyonnais, an experiment started that was to be the witness of a remarkable event - observed by no one else - namely the birth of an exclusively private international currency unit, with no central bank, no central money and governed by the simplest legal form possible: an association under the French Law of 1 July 1901. The Centre Jouffroy, which had revealed the clearing mechanism (see entry in this glossary)in 1975 and had demonstrated its essential role in the circulation of money, was involved in the work of the EBA up till the time when the EBA, anticipating the cessation of its activities by what amounted to the nationalisation of the private ECU (its transformation on 1 January 1999 into the Euro), turned towards the marketing of the clearing techniques that it had gradually developed and perfected for the circulation of the private ECU.The success of the private ECU may be measured by the volume of deposits and corresponding liabilities in ECUs in the member banks of the EBA, a total which quickly reached the figure of 200,000 million ECUs (1 ECU = 1 EURO). Also see “ECU Banking Association (EBA) in this glossary.



The real value of a monetary unit can only be defined by what on average it can buy. This is the reason why this value is measured using the statisticians\' basket and the exchange rate, where the monetary unit is foreign to the country in which the purchasing power is being measured. The purchasing power of a monetary unit thus varies from one country to another for the same basket. The significance of an international monetary unit in its role as reference and measurement standard is all the greater the broader the base of the basket. This is the merit of the New Bancor, the basket of which is an average of the Euro basket and the dollar basket. Also see « Constant Currency », « Constant ECU» entries in this glossary


The diminution of purchasing power as the corollary of the creation of new means of payment that gives the person who puts it into circulation by settling a debt the benefit of goods or services which he has not "earned", i.e. in return for which he has not made an equivalent amount of "production". The mirror image of reduction is restoration, or the addition of purchasing power following the destruction of a quantity of means of payment (or the loss of its "transaction function" – see entry in this glossary)



Seigniorage is the profit which accrues to the "seigneur" when he exercises his "royal right" to coin money without the obligation to supply anything in return for the means of payment which he puts into circulation. The Central Bank, acting on behalf of the State, is the best example of modern-day enjoyment of seigniorage. To a much smaller extent, the banks also enjoy seigniorage when they create bank money through credit. In return for the interest that they receive they must bear the cost of a partial reserve in central bank money corresponding to the loans they have granted, but they also receive interest on the deposit. An argument often advanced against the world-wide privilege enjoyed by the dollar is the seigniorage it procures for the American banking system.


A unit of money held by a payer is usually nothing more than an available claim on a bank for its equivalent in central bank money. A transaction is therefore not final until the sum received from the payer has been validated in turn as a claim on the central bank. Whence the necessity for the payer\'s bank to transfer to the payee\'s bank the amount of the transaction in central bank money. This operation is called settlement. This simple observation is enough to justify the explanation given by the Centre Jouffroy of the creation of bank money, which is not in agreement with the explanation most commonly found in the economics textbooks. Also see « Clearing » entry in glossary


The pre-war monetary system suffered very much from exchange rate instability and a situation of disequilibrium resulting from an excess of dollar reserves at some banks and a shortage at others. This was the origin of the idea of a "right to draw dollars" guaranteed by the International Monetary Fund (see entry in glossary)and exchanged by a deficit central bank for dollars from a central bank in surplus. SDRs may also be used by the IMF in order to procure extra dollar resources, over and above the loans and deposits it receives from its Member States. SDRs were not introduced by the IMF until some years after the Bretton Woods Conference of 1944.


Security in a general system of non-national currency is obtained by establishing ceilings for the balances of instantaneous clearing operations (in real time), which are themselves covered by guarantees in terms of collateral and the conditions for transfer orders for payments from one bank of the system to another. Should it be preferred to put the responsibility for the system on one of the members, the non-nataional currency would be created by this member only (the IMF in the case of the New Bancor) by credit (exclusively to a bank) or exchange for foreign currency. The other member banks will circulate non-national currency that had been bought, borrowed or deposited. The clearing balances will be settled between banks by transfers of non-national currency held in reserve, bought or borrowed from the issuing bank.

SPIRAL (inflationary)

This describes the phenomenon of the carrying forward into the future of a past price rise through the mechanism of pay rises. It also works in the opposite direction during a fall or a slow-down in the rate of increase of inflation (disinflation). It represents one of the most difficult problems that monetary regulation has to cope with.


This term is applied to operations by central banks intended to correct the undesirable effects of large-scale intervention on the exchange markets by the issue of a hard currency to buy up a weak one.



The objective that regulators set themselves, most usually concerning the growth of a monetary aggregate. Its is an essential factor in practical monetarism.


The expression used to refer to the use of "targets" (see above) for the purposes of monetary regulation.


Indicates the movement of a unit of money from one holder to the other, in return for something. This operation, which is dynamic in nature, is the very essence of the phenomenon of money. It oils the wheels of trade and, even more, of the conversion of final production into non-productive consumption or investment, the foundation of an economy. Transaction is one of the keys of monetary analysis. The "transaction function", and whether or not a claim has it, is what distinguishes what is really money from what is not.


A term used in economics to describe the mechanisms used by regulators to control the way monetary and economic phenomena work. The term "channel" gives an inaccurate picture of the reality. It would be better to speak of a more or less disjointed system of control rods.


UNIT OF MONEY (forms of)

Everywhere units of money take on different forms (e.g. bank-notes, credits to current accounts) which are all claims on institutions (the central bank or commercial banks). A unit of money is created, circulates, divides into two or agglomerates with others. It stays for a more or less long time in an account and then, by the effect of a transaction, it goes to another one. In so doing it is performing its prime function, which is to promote the exchange and conversion of final production into non-productive consumption or investment. After taking part in a number of transactions, thereby helping the economy to function, the unit of money disappears: in monetary terms, it is destroyed.



The prefix “xeno”is proposed in place of “euro”- (as in euromarket –see entry in glossary). The latter\'s origin is to be found in the name of the Russian bank in Paris, the Banque Commerciale pour l\'Europe du Nord-Eurobank, which transferred the USSR\'s dollar holdings from the American banks where they were deposited to British banks, which onlent them using the Forex market\'s prefix “euro”. This prefix is no longer suitable since the creation of the Euro, the currency of the European Union.Continuing to refer to eurodollars, euroyen etc when the currencies are foreign to the Euro zone can only create extreme confusion, whence the idea of using the prefix “xeno”- which gives an accurate picture of the nature of the numeraire created under the description "eurocurrency".
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