The Carter Administration and the short second life of the IMF's Substitution Account, 1978 – 1980

Abstract

After the dramatic changes in the asset of the international monetary system that took place at the beginning of the decade, the 1970s saw the international community plagued by excessive liquidity, worrying stagflation and the role of the dollar as primary international reserve asset starting to be questioned. To alleviate the pressure on the US currency, in 1978 the International Monetary Fund issued the proposal of a Substitution Account. The instrument, administered by the Fund itself, would gradually replace dollar reserves for equivalent claims of Special Drawing Rights, seemingly helping to boost the usage of SDRs and to resolve the issue of the dollar “overhang”. This thesis sets out to examine the proposal of the Substitution account, the reaction of the Carter Administration and the reasons of its ultimate failure.