Iran,The Dollar,and the International Monetary System

"Why did Chase move so fast?" Euromoney (January 1980), p. 13.

Ibid., p. 14.

Ibid., p. 12.

Ibid., p. 16.

The second loan was a Chase Manhattan managed $120 million credit to the Iranian Industrial Credit Bank that was defaulted under an 'adverse credit clause,' not because of later servicing.

Thomas Hanley , United States Multinational Banking: Current and Prospective Strategies (New York: Salomon Brothers, 1976).

Jane D'Arista, 'Private Overseas Lending: Too Far, Too Fast?' in J.D. Aronson (ed.) Debt and the Less Developed Countries (Boulder, Colorado: Westview Press , 1979), p. 70.

Doris Stenton , English Society in the Middle Ages (Harmondsworth : Penguin, 1965), pp. 194-202.

Raymond de Roover , The Rise and Decline of the Medici Bank 1397-1494 ( Cam-bridge, Massachusetts: Harvard University Press , 1963), p. 370.

Fernand Braudel , The Mediterranean and the Mediterranean World in the Age of Philip II (New York: Harper & Row, 1972), p. 511 and Richard Ehrenberg , Capital & Finance in the Age of the Renaissance: A Study of the Fuggers and Their Connection (New York: Augustus M. Kelley, 1963).

Harold Peters , The Foreign Debt of the Argentine Republic (Baltimore: Johns Hopkins Press , 1934), p. 17.

Herbert Feis , Europe the World's Banker 1870-1914 (New York: W.W. Norton, 1965), pp. 314-317, 383; Susan Strange , "Debt, Defaulters and Development," International Affairs (July 1976), p. 517; and also see: David Landes , Bankers and Pashas: International Finance and Economic Imperialism in Egypt (New York: Harper & Row, 1958).

Feis, op. cit., p. 12, and Willy Freuerlein and Elizabeth Hannon , Dollars in Latin America (New York: Council on Foreign Relations, 1941), p. 13.

Charles P. Kindleberger , "Debt Situation of the Developing Countries in Historical Perspective," Paper for a Symposium at the Export-Import Bank on Developing Countries' Debt, April 21, 1977, mimeo, p. 9.

Slason Thompson , A Short History of American Railways (Chicago: Bureau of Railway News and Statistics , 1925), p. 264. Also see: Dorothy Adler , British Investment in American Railways 1834-1898 (Charlotte, Virginia: Charlotte University Press of Virginia, 1970).

H.V. Hodson , Slump and Recovery 1929-1937 ( London: Oxford University Press, 1938), pp. 110-111.

James Gantenbein , Financial Questions in U.S. Foreign Policy (New York: Columbia University Press, 1939), p. 155.

Freuerlein and Hannon , op. cit, p. 14.

Patrick de Fontenay , Multilateral Debt Renegotiations: 1956-1968 (Washington: World Bank, April 11, 1969). Between 1956 and 1978 there were 38 separate international debt rescheduling exercises involving 12 debtor states. A list of these is found in Brian G. Crowe , 'International Public Lending and American Policy,' in J.D. Aronson (ed.), op. cit, pp. 38-39.

Arab commercial and investment banks are increasingly important global financial actors. Arab owned banks are receiving OPEC deposits and relending the funds in the Euromarkets. See: ' Arab Banking ,' Euromoney (April 1980), pp. 93-104. Other Arab financial institutions are also growing in importance. See Lynn Brenner , "A new reinsurance giant in the Middle East," Institutional Investor (September 1980 ), pp. 203-210.

The number of American banks among the largest in the world has been steadily dropping in the last decade. (See The Banker's surveys.)

The evolution, mechanics, and dwindling American leadership of the Eurobond market is documented in M.S. Mendelsohn , Money on the Move ( New York: McGraw Hill, 1980).

The Euromarkets received their initial boost in the late 1950s when the Soviet Government deposited dollars in their wholly owned London and Paris banks which were then re-lent as dollars. The Soviets feared that if their dollars were deposited in the United States, they might be frozen. They assumed that the American Government and courts could not attack their dollar funds deposited outside the United States. For a recent view of the debate about greater government control over the Euromarkets see: Edward Frydl , 'The Debate over Regulating the Eurocurrency Markets,' FRBNY Quarterly Review (Winter 1979-80), pp. 11-19.

Harold S. Nathan , 'Can those set-offs be justified?' Euromoney (January 1980), p. 33.

Sometimes rescheduling was in the best interest of the borrowers. In a buyer's market they sometimes improved their spread and decreased their payments by prepaying and reborrowing funds. See: Business Week (February 27, 1978), pp. 45-46.

For instance, bank syndicates have assumed the political risks in loans to subsidiaries of Mobil and Esso operating in Indonesia and Malaysia. Should they be 'unfairly' nationalised, the banks would have to recover their funds from the expropriating government, not the expropriated borrower.

See particularly the cover story 'Meet the new breed of banker: the political risk expert, ' Euromoney (July, 1980), pp. 9-21.

Business Latin America (July 29, 1979), p. 233.

Euromoney and Institutional Investor, for example, are debating the merits of their political risk measures. Quantification of risks is extremely difficult. While many analysts agree on the direction of changing political risks, questions of timing and relative corporate vulnerability is even more difficult. Some senior line officers appear to view the political risk staff as a scapegoat who will be available to take the blame when the next country goes sour on them.

World Financial Markets, Morgan Guaranty Trust Company (October, 1980), p. 14.

For possible alternatives see: Alan Moore , 'The Arabs seek a bigger rôle in recycling their funds,' Euromoney (April 1980), pp. 106-11; Yves Laulan , 'Recycling oil surpluses: can the banks do it this time?' The Banker (April/May 1980 ), pp. 43-49; Herman Nickel , 'The Right Road for OPEC's Billions' Fortune (November 17, 1980), pp. 38-43.

Robin Pringle , 'Re-cycling in the 1980s - the IMF's role,' The Banker (July 1980), pp. 19-24.

Private political risk schemes are multiplying in England and the United States. Governments have long maintained political risk insurance options for investors (usually not for lenders). Even the Inter-American Development Bank is discussing a new political risk insurance scheme available to corporations investing in member countries.

See W. Ladd Hollist , 'Brazil's Debt Burdened Recession: Consequences of Short-Term Difficulties or of the Structure of Production and Consumption? ' in J.D, Aronson (ed.), op. cit, pp. 171-186.

Peter Field and Stephen Downer , "Brazil's Rescheduling: This Year, Next Year, Sometime, Never?" Euromoney (October 1980), pp. 89-98.

Ghana and Indonesia have been the most successful nations in extracting generous rescheduling terms from their creditors by threatening, with conviction and seeming irrationality, that if something were not done they would simply default. Jamaica has attempted a similar strategy with much less success.

Figures for closing New York spot rates as provided by Union Bank.

World Financial Markets , Morgan Guaranty Trust Company (January 1980), p. 3, and "The Great Capital Flight," Euromoney (April 1980), pp. 93-94, 100-104.

Figures reported on a broadcast of 60 Minutes in January 1980.

For earlier developments see: Loukas Tsoukalis , The Politics and Economics of European Monetary Integration (London : George Allen & Unwin, 1977 ).

'Group of 30 Sees Urgent Need for Substitution Account Plan ,' IMF Survey (March 3, 1980), pp. 65, 71-74.

"Sdr is Simplified ... Value, Interest to be Based on Basket of Five Currencies," IMF Survey (October 13, 1980), pp. 297, 325-327.

Cover stories on the necessity for improved financing and recycling appeared in the IMF Survey issues of May 5, 1980; May 19, 1980; June 3, 1980; July 7, 1980; and September 1, 1980.

'The Iraq-Iran conflict and oil prices,' World Financial Markets (Morgan Guaranty Trust Company October 1980), pp. 4-6.

The insurance industry was actually in a more precarious situation. War risk insurance rates for shipping in the areas rose rapidly in response to the war. However, the private insurance markets do not insure land-based war risks and so were not liable for most of the damages in Iran and Iraq.