THE CLOAKROOM RULE OF INTERNATIONAL RESERVES: COMMENT.

This article presents the author's comments on Professor Fritz Machkup's article entitled The Cloakroom Rule of International Reserves. I would like to argue that the political problems with seignorage arise only if its distribution among countries is carried out in such a way that it involves an ultimate transfer of resources between countries and that there exists one logically possible and perhaps empirically feasible arrangement which substitutes the criteria of monetary neutrality, determinable by technicians, for criteria of political expedience, world equity and others, involving value judgments and haggling by politicians. Seignorage is only an apparent gain in resources on the consolidated world balance sheet since money itself has no utility attached to it other than through the services it can provide. In the real world where the output of countries does not grow at equal rates, the dependence on foreign trade, preferences and costs of making balance-of-payments adjustments change through time, economies of scale in the demand for international means of payment may occur, the income elasticity of the demand for money may be different from unity, and the criterion of neutrality so easily developed in my simple model is much more difficult to formulate.