Will `Paper Gold' Make a Comeback?

`PAPER gold'' could make something of a comeback.

The Group of Seven (G-7) industrial nations are expected to discuss proposals for a new issue of special drawing rights (SDRs) at a meeting in Madrid tomorrow. The United States and Britain are proposing that the International Monetary Fund be allowed to issue between 12 billion and 16 billion SDRs worth $17.6 billion to $23.44 billion. These are assets created by the IMF out of nothing. Under this proposal, the SDRs would be given to 37 IMF member nations.

Many of the 37 member nations were Communist. They could, in effect, use their newly acquired SDRs to buy goods and services from other countries. One advantage for the Clinton administration would be that the SDR issue would provide foreign aid to these nations without having to seek congressional approval for an addition to the budget.

Consumers will not get SDRs for their wallets. SDRs are a sort of paper currency created on IMF books but usable only by governments to pay external bills. They aren't weighty in the scale of international finance.

``The SDR is a fiasco,'' Charles Kindleberger, a Massachusetts Institute of Technology economist, said at a Harvard University seminar this week. After SDRs were first issued to IMF members from 1970 to '72, they ``just dropped out of sight,'' he said.

Governments around the world today hold in their international monetary reserves some $900 billion (at current market price) in gold and another $900 billion in foreign exchange (US dollars, the German mark, etc.). They have only some $27 billion of SDRs on their books.

A nation uses its reserves to protect its currency when the value of it is under siege on foreign-exchange markets. Usually the trouble stems from red ink in a country's international balance of payments. The reserves give the government a financial cushion. The government doesn't have to adjust domestic economic policies so much or so fast to restore balance in its international payments.

When the plan to create SDRs was ratified at the 1968 IMF annual meeting in Rio de Janeiro, many believed SDRs would become highly important to the international monetary system.

Francis Bator, a Harvard professor and adviser to President Johnson during the 1968 meeting, recalls a dispute over the merits of SDRs. Some officials were opposed; one said he thought SDRs could be used to provide aid to developing nations. But in the end, SDRs were distributed to all IMF members on the basis of their quotas in the fund - meaning that major nations got most.

The intellectual fathers of SDRs, such as the late Robert Triffin, a Yale University economist, argued that there would be a world shortage of liquidity when the US balance of payments, then in the red, returned to a positive balance. The French government complained that the US could run a deficit and force other nations to buy dollars for their reserves to prevent a devaluation of the dollar, something other nations could not do with their currencies in the red. An international monetary system based on SDRs, the French said, would be more equitable.

As it happened, the US deficit got worse. This brought about an international monetary crisis in 1971. The dollar was devalued; the German mark and other currencies revalued. This shift didn't cure the problem, and in 1973, the system devised at a conference in Bretton Woods, N.H., in 1944 was revised. Fixed but adjustable foreign-exchange rates were abandoned. The dollar was set free to float in a value according to demand and supply on the foreign-exchange markets. Though nations still intervene occasionally to maintain a rough foreign-exchange rate (a ``dirty float''), international monetary reserves suddenly became less important. The need for SDRs diminished.

A further small issue of SDRs was agreed on between 1979 and '81. Now Michel Camdessus, the IMF's managing director, proposes a new issue of SDRs. The US and Britain want an issue limited to new IMF members who have not received SDRs earlier, but Germany is expected to view an issue as inflationary.

The G-7 will decide the matter, and the IMF is expected to go along with the decision. However, it involves congressional approval of a change in the IMF's Articles of Agreement, and that could be difficult to obtain.