Author Description

Because of an international monetary crisis in 1973, major industrial countries changed from fixed to floating exchange rates for their currencies. The floating rates have caused problems for the Department of Defense (DOD) in managing programs financed with foreign currencies because the long leadtime between budget preparation and execution results in expenditures of foreign currencies at different exchange rates from those budgeted. If expenditures are made at less favorable exchange rates than those budgeted, DOD must either seek supplemental appropriations and reprogramming authority or absorb the increased costs. This causes delays and uncertainty in carrying out programs. If not enough funds are obtained in this way, reductions in approved programs must be made. Gains attained from favorable exchange rate fluctuations enable DOD to either offset unbudgeted costs or to finance unfunded requirements. An alternative funding method which would eliminate exchange rate gains and losses from the DOD budgetary process would insure that DOD does not supplement its appropriations through gains derived from favorable currency exchange rate fluctuations or suffer from losses.