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TREASURY DEPARTMENT
Washington
—
«••/.': \.Q .
FOR HELEW3E, EORHIHG 17E17SPAPERS,
Wednesday! April 7» 1943*
Not to be used on radio before
8:00 p.m, EWT Tuesday, April 6,
1943-
Ho. 36-3
The Treasury today made public a letter from Secretary
Korgenthau to the Ministers of Finance of thirty-seven countries inviting them to send technical experts to Washington to
discuss suggestions for an International Stabilization Fund of
the United and Associated Nations*
The text of the letter*is
as followsx
ISy dear Mr* Kinister:
I am sending for your examination a preliminary
draft of a Proposal for an International Stabilization
Fun* of the United and Associated Nations. This draft
was prepared by the technical staff of the United
States Treasury in consultation with"the technical experts of other departments of this Government.
The document is sent to you not as an expression
of the official views of this Governnent but rather
as an indication of the' views widely held, by the
technical experts of this Government. I hope you
will examine the draft and submit it for critical
study by the technical experts of your Ministry and
your Government, After you and your experts have had
opportunity to study it, you may wish to send one or
more of your technical experts to Washington to give
me your preliminary reaction to the draft proposal,
and to discuss with our technical experts the feasibility of international monetary cooperation along
the lines suggested therein, or along any other lines
you may wish to suggest. Wo ere informed that the technical experts of the British Government have also
been studying the question and. will doubtless rake
their views available,
It seems to me that the enclosed draft proposal
points the way to an effective means of facilitating
through cooperative action the maintenance of international monetary stability and the restoration
and balanced growth of international trade. It is
my hope that as a result of unofficial discussions
involving no commitments, we may find a sufficient
area of agreement to v/arrant proceeding on a more
formal basis.
Very truly yours,
HEHKY MORGENTHAU, JR.,
Secretary of the Treasury.
The countries to whose Pinance Ministers the letters
were addressed are the following*
Australia
Belgium
Brazil
Canada
China
Costa Rica
Cuba
Czechoslovakia
Dominican Republic
El Salvador
Ethiopia
Great Britain
Greece
Guatemala
Haiti
Honduras
India
Iraq
Luxembourg
Mexico
Netherlands
Hew Zealand
Nicaragua
Norway
Panama
Poland
South Africa, Union of
Union of Soviet
Socialist Republics
Yugoslavia
Bolivia
Colombia
Chile
Ecuador
Paraguay
Peru
Uruguay
Venezuela
-0Q0-
MBOUHSOTK
A Stabilization Fund
of the
United and Associated Nations
i t i s s t i l l too soon to know the rrpcise form and magnitude of postwar monetary rroblemr.
But i t i s certain that we shall be confronted with
the task of dealing -vith three inseparable isonetary rrobler^:
to prevent
the disruption of fo reit-;n exchanges, to avoid the collars© of some monetary
systems, and to f a c i l i t a t e the restoration and balanced growth of i n t e r national trade.
Clearly, such ? formidable task czn be successfully handled
only through international action*
The creation of instrumentalities adequate to dec!', -vith the inevitable
post-war monetary problems should not be postponed u n t i l the end of h o s t i l ities.
I t would be ill-advised i f not dangerous to leaVe ourselves unpre-
pared at the end of the ipar for the d i f f i c u l t task of itttc-roationfil monetary
cooperation.
We should begin now to devise ?.n internetionfel monetary
agency, for the t?sk is eert&in to take many months fit lepfei*
Specific ?nd
prrctical proposals must b.;- formulated by the experts end most bt carefully
considered by the policyv6h?ping officials of the vejrioua countrien»
In
each country acceptance of a definitive vlsn cr.n follov, only upon legisl?~
tive or executive pction,
And even when e. plan i s finally sdopted, much
time vdll be consumed in gathering personnel rnd in establishing an organiza.
tion before en internr-tlonrl i n s t i t u t i o n for monetary cooperation can begin
effective work.
There is another imrortant reason for i n i t i a t i n g now concrete d i s cussions of specific rroposrls.
A plan for internrtional monetcry
~2 cooperation can 'oe a factor in winning the war.
I t has been suggested, and
with much cogency, that the task of assuring the defeat of the Axis powers
would be made easier if the victims of aggression, actual and potential,
could have greater assurance that a victory of the United Nations will not
mean in the economic sphere a repetition of the exchange instability and
monetary collapse that followed the l a s t v/ar.
given nc/,7.
That assurance should be
The people in a l l of the United Nations must be encouraged to
feel themselves on solid ground.
They :;mst be given to understand that a
victory of the United Mations will not usher in another two decades of
v/idespread economic oisruption.
The r .ople must know that wo at last
recognise the fundamental truth that prosperity, like peace, is indivisible.
One of the appropriate a^ncies tr. deal with international economic
and monetary problems v;ould be an international stabilisation fund with
resources and powers adequate to the task of helping to achieve monetary
stability and to facilitate the restoration and balanced growth of international trade.
appended.
& proposal drafted by American te clinical experts is
The draft presents only the essential elements of an international
stabilisation fund.
The provisions of the.- proposal arc in -.-very scr.se
tentative, intended as ?. oasis for discussion and exdiange of views*
Obviously, tiu.ro are many details that hove been omitted and that can be
better formulated a i t r there is agrecront on the general r.ri:;cipl^s.
I t i s rocogni^ed tbat an internal:. >nal stabilisation :\ini is only one
of the instrumentalitif.s which may be n-. :ded in the field of international
economic cooperation.
Other agencies
-e also needed to provide capita
-3 for post-war reconstruction and development, to provide funds for
rehabilitation ana relief, and to promote stability in the prices
of primary international conanocities*
There is a strong teiaptation
to embrace within a single international agency the responsibility
for dealing with these and other international economic problems.
"<Ve believe, however, that international economic institutions can
operate more effectively if they are not burdened with important but
extraneous duties for which they have not been devised and for which
they are unsuited.
For example, the highly specialised nature of
international Monetary stabilization end the provision of lone-term
capital would seer, to call for separate institutions each designed
to deal with its distinct problems.
It should be emphasized that the appended draft deals only n±th
an international stabilization fund. It is anticipated that there
will also be submitted for consideration a preliminary draft of a proposal for an international agency whose function will be to provide
capital for reconstruction and development. It is hopod that the
appended draft will call forth from the experts of the United Nations,
critical consent and constructive suggestions*
It is our belief that
a workable and accept ble plan can emerge only from the joint efforts
of the- United nations*
Washington, D.
January, 19-43 •
U . S . Tre a s u r y D e p a r tin en t
Preliminary Draft Outline of
Proposal for a United and Associated Nations
Stabilization Fund
I•
purposes of the Fund
It
To stabilize the foreign exchange rater; of t.
currencies of the United Nations and nations
associated with them.
2.
To shorten the periods and lessen the decree
of disequilibrium in the international balance
of payments of member countri< i .
3>. To help create conditions under which I
smooth flow of foreign trade and of -reductive
capital among the member countries will be
festered.
I4.. To faciliti be the effective utilization of the
abnormal foreign balances accumulating in some
countries as a consequence of the war situation*
II.
5.
To reduce the use of foreign exchange controls
that interfere with world trade and the international flow of productive capital.
6.
To help eliminate bilateral exchange c h a
arrangements, mult3 vices, and
Lscriminatory for< I
ixchange practices.
Composition of the Fund
1.
[he Fund shall consist of gold, currencies of
member* countries, and securities of member
governmentst
2.
Each of the member countries shall subscribe
a specified amount which will be colled its
.iiiota,
of [uotas of the member
countries shall be the equivalent of at least
55 billic .
The quota for each member country shall be
determined by an agreed upon formula. The
formula should give due weight to the impor
factors relevant to the determination
of ., otj ; , : .;., 8 country's holdings of gold
and fo3 ' 1 exchange, the .
e of the
fluctu
' . its balance of '
national
pay
. ,
its national Lnco]
J.
L'ach
with
date
Fund
be '
.:u.;:;ber country th.-.li provide trie Fund
SO percent of its quota on or before the
set by the Board of Directors of the
on which the Fund's operations are to
.
III.
!(-•
Che initial payment of each member country
(consisting of ^0 percent of Lts quota)
shall be 12#5 percent of Its fuota in ;old,
12.3 percent in local currency, and 2.5 percent in its own (i.e., government) securities .
However, any country ijavJn^ less than §yOQ
million in gold need provide initially only
7.5 percent of its quota in gold, and any
country having less than $1CO million in gold
need provide initially only 5 perocent of Its
quota in sold, the contributions of local
currency being Increased correspondingly. A
country may, at its option, substitute gold
for its local currency or sec\:riti<s in meeting its quota requirement,
5.
The member countries of the Fund may he called
upon to make further provision toward meeting
their quotas pro rata at such times, in such
amounts, and in suc:i forrr. as the board of
Director.0: of tho Fund may determine, provided
that the proportion cf gold called for shall
not exceed the proportlc
ndlcatcd in II-I4.
above, and provided that .r. four-fifths vo'te
of the Board Bhall be r<; quired for subsc rucnt
ci-ils to meet quotas,
6#
Any changes in the quotas of member countries
shall be made only with the approval of a
four-fifths vote of the Board,
powers and Operations
The Fund shall have the following powers:
1.
To buy, sell, and hold gold, currencies, bills
of exchange, and government securities of member countries; to accept deposits and to earmark gold; to issue its own obligations, and
to discount or offer them for sale in member
countries; and to act as a cl<
house for
the settling of international
;ien ts of
balances, bills of exchange, and gold.
All member countries agree that all cf the
local currency holdings shall be free from
any restrictions as to their use. This provision does not apply to abnormal v
lances
acquired in accordance with the orovisions of
III-9, below.
2.
To fix the rates at which it will buy and sell
one member's currency fc.
ther, and the
rates in local currencies at which it will buy
and sell gold. The gu 1 ding principle lr. tho
fixing of such rates shall
'lity in exchange relationships. Changes in these rates
shall be considered only when essential to
. 3correction of a fundamental disequilibrium
and be permitted only with the approval of
fQur-fiftha of member votes.
3.
To s e l l to the Treasury of any member country
(or stabilization fund or central ban:: acting as i t s agent) at a r^te of exchange determined by the Fund, currency of any member
country which the Fund holds, provided that:
a.
The foreign exchange demanded from the
Fund is required to meet an adverse
balance of payments on current account
Lth the country whose currency is
b e i n g dcmanded.
b«
The Fundfs holdlri.f. cf the currency of
any iKNftber country shall not exceed
during the f i r s t year of the operation
of th<; Fun-I, the sjuota of that country;
i t shall not exceed during the f i r s t
two yef.rs 150 percent cf such quota:
and thereafter i t shall not exceed 200
percent of such quota; except that upon
approval by four-fifths of the member
votes, the Pund may purchase any local
currency in excess of these l i m i t s ,
provided that at least one of the
following two conditions is met:
i.
The country whose currency i s being
acquired by the Fund agrees to adopt
and carry put measures recommended
by the Fund designed tc correct the
disequilibrium In the country's
balance of payments, or
Li,
I t i s believed that the balance of
payments cf the country whose currency is b '
acquired by the Fund
will be such ar to warrant the expectation that the excess currency
holdings of the Fund can be disposed
of within a reasonable time.
c.
When the Pundfs net holdings of any local
currency exceed the quota for that country,
the country shall deposit with the Fund
a sp^. eial reserve in a c cordanco wi th
regulations prescribed 0; the board of
Directors, This provision does not apply
to currencies acquired under III-9 below.
:i.
uhCxi ^ iiujcjbor
COU.M. ,
_
.... s i t i n g
its
quota more rs
rranted in
the-judgment of the Board of Directors,
the Board may place such conditions upon
Lditlonal s a l t s of foreign exchange to
that country as i t deems to be in the
neral i n t e r e s t of the Fund.
e.
A charge at the rate cf 1 percert per annum,
payable in gold, shall be levied against any
member country on the amount of ifes currency
held by the Fund in excess of trie quota of
t h a t country.
Abnormal war balances acquired by the Fund ( i n accordance with III-9
belo;v) s h a l l not be included in the computed
balance of l o c a l currency used as a b a s i s
for t h i s charge.
f.
When the Fund's holdings of the l o c a l currency of a member country exceed the quota
of t h a t country, upon r e q u e s t by the member
country, the Fund s h a l l r e s e l l to the
member country the Fund's excess holdings
of the currency of t h a t country for gold
or acceptable foreign exchange.
i\..
The r i g h t of a member country to purchase f o r eign exchange from the Fund with i t s l o c a l currency f o r th,e purpose of meeting an adverse
balance of payments on current account i s recognized only to the e x t e n t of i t s quota, subject
to the l i m i t a t i o n in I I I - 3 above and I I I - 7 below.
5.
With the approval of f o u r - f i f t h s of the member
v o t e s , the Fund in exceptional circumstances may
s e l l f o r e i g n exchange to a member country to
f a c i l i t a t e transfer of c a p i t a l , or repayment or
adjustment of fcr^.l^n d e b t s , ^tan in the judgment of the Board such e transfer i s d e s i r a b l e
from the point of view of the general i n t e r na 11 enal e conomic si t u a t i o n .
6.
When the- Fund's holdings of any p a r t i c u l a r
currency drop below 15 percent of the quota of
that country, uid a f t e r the Fund lies used for
a d d i t i o n a l purchases of t h a t currency,
(a)
Gold in an amount equal to the c o u n t r y ' s
c o n t r i b u t i o n of gold to the Fund, and
(b)
The c o u n t r y ' s
contributed,
o b l i g a t i o n s or 1 j i m i i l y
the Fund h^is the t a i t h o r i t y and the duty to
render to the country a r e p o r t embodying an
am. l y s i s jof the cv.uses of the d e p l e t i o n of i t s
holdings of that currency, a forecast of the
p r o s p e c t i v e balance of payments in the absence
of spcclc.1 measures, and f i n a l l y , v. commendat i o n s designed to i n c r e a s e tht Fund's holdings
of that c u r r e n c y .
The Bo-_.rd member of the
country in question snould bt
-: :..••. p of the
Fund committee appointed to d r a f t the r e p o r t ,
Tnit- r e p o r t should be sent to n i l member
count:
nd., If deemed d e s i r a b l e , mi
nublie.
Member eountrl s : :j;ree that they will give
immediate and careful attention to r©•cinmenationflmade by the Fund,
7,
Whenever it becomes evident to the Board ©f
Directors that the anticipated demand lor any
particular currency may soon exhaust the Fund's
holdings of that currency, the Eoard ©f Director*
of the Fund shall inform the member cour.tr:*. £ of
the probable supply of this currency and of a
proposed method for its equitable distribution,
together with su^^-stions Jcr* helping to equate
the anticipated demand and supply for the ourrency*
The Fund shall make every effort to Increase the
supply of tin. scarce currency by acquiring that
currency from the foreign balances of member
countries. Tht, Fund may make special arran
ments with any nember country for the purpose of
providing an emergency supply under appropriate
conditions which are acceptable to both the Fund
and the member country.
The privilege of any country to acquire an
amount of other currencies eaual to or in excess
of its quota shall be limited by tiu necessity
of assuring an appropriate distribution among
the various members of any currency the supply
of which is being exhaustedf The Fund shall
apportion its sr^les of such scarce currency.
In auch apportionment, it shall bo guided by
the principle of satisfying the most urgent
needs from the point of view of th general
international economic situation. It shall
also consider the special needs and resources
of the particular countries making the r< iu st
for the scarce currency •
8.
In order to promote the r.ost effective us-; of
the available and accumulating supply or foreign exchange resources of member countries4
c;
mber country agrees that It will offer
to sell to the Fund, for , to ioc.l currency or
for foreign currencies which it needs, all
foreign exchange and ^old it acquires in excess
of tho amount it possesaed Inanediate 1 y after
Joining the Fund, For the. purpose of this
provision, including computations, only free
foreign exchange and ;~old are considered. The
Fund may accept or reject the offer.
To help achieve this objective each member
country agrees to di scour-age the unnecessary
accumulation of foreign balances by its nationals« The Fund shall inform any member country
when, in its opinion, ny fur the jp growth of
privately-held foreign balances Vippears
unwarranted •
- 6 Tc buy from the Tovenuients of
-' countries,
abnormal war balances held In other countries,
provided t i l the following conditions are met:
a.
The abnormal war balances are In member
countries arid are reported as such (for
the purpose cf this provision) by the
member government on date of i t s becoming
a member.
b«
The country s e l l i n g the i-bnorrr.sl war
balances tc the Fund agrees to ti'onsf- r
these balances tc the Fund and tc r e :;urcni.se from the Fund LUJ percent of them
( a t the sainc price) with joid or such free
currencies as the Fund may wish tc accept,
at the rate of Z percent of the tr-.nsi'.rred
b;:i:..nces each yc^&r for 2." ye.^rs bc^innin^
not l&ter th.-^n 5 years after the date of
transfer«
c.
The country in which, the abnormal w::.r
b^luncc-s u.rc held agrees to the transfer
t c the Fund of t h e ball vct-c d e s c r i b e d i n
(b) above, and t o repurchase from the
Fund no percent of them ("t t h e same p r i c e )
with gold or such currencies as the Fund
n;-r wish tc accept, at th< rat< of 2 pc:rc^nt of the transferred balances e&ch year
for 20 ;;ei:r'o bc^iar^nj; not i ter than 3
y< vs after the date of brsnsf r .
d,
Acharge
f 1 percent, payable i n ^ o ,
shall be levied against the country s e l l in.', i t s abnonaal war balances and -.gainst
the country in which the balances &re held*
In addition a charge of 1 percent| payable in gold, shall be levied annually
against them en the amount of such bal&n*3?s
remaining ic cc: ropurc;v.^^^ b; each country.
If the countr-y Bcllir , abj orrc 1 war b-.lances tc th? Fund ^slra for foreign oxchr-in^
rather Qian locui currency, the r $iest
w i l l not :
• ntcd unless the country
cda tiie foreign
for t) i
irpose
of itifctting an adverse balunce oi pa^iaents
not arising from the acquj
I n cf gold,
the aocunrul
i of foreign biilJincea, cr
ether capital
trtnsactions,
Either country may, at i t s option, ^ncr»,:.sc the amount i t ?< jure
. annually.
But, in the c- se cf th« country s e l l i n g
abnormal w»:.r b .1 nc- s tc the Fund, net
more than 2 percent ; . r .Ji/.ura of the o r i c i
ov-.i' b
. ;.
. .
:
-
come fr. - , . r.d onlj ftf,r 5 y^i rs sholl
V€ elapsed since the sr.lt of the balances
to the Fund.
-7 g.
The Fund has the privilege of disposing
of any of its holdings of abnormal war
balanceG as free funds after the 23 year
period Is passed, or sooner under the
following conditions:
• i.
its
the
are
its
holdings of the free funds of
country in which the balances
held fall below 15 percent of
quota; or
II.
the approval Is obtained of the
country in which the balances are
held.
h.
The country in which the abnormal war
balances are held agrees not to impose
any restrictions on the use of the Installments of the i+O percent portion
gradually repurchased by the country
which sold the balances to the Fund.
i.
The Fund agrees not to sell the abnormal
war balances acquired under the above
authority, except with the permission or
at the request of the country in which
the balances are being held. The Fund
ma> invest these balances in ordinary or
special government securities of that
country. The Fund shall be free to sell
such securities in any country provided
that the approval of the issuing government is first obtained.
j." The Fund shall determine from time to
time what shall be the maximum proportion
of the abnormal war balances it will
purchase under this provision.
Abnormal war balances acquired under this
provision shall not be Included In computing the amount of foreign exchange
available to member countries under their
quotas.
10.
To buy and sell currencies of non-member countries, but shall not toe authorised to hold
such currencies beyond sixty days after date
of purchase, except with the approval of fourfifths of the member votes.
11.
To borrow the currency of any member country,
provided four-fifths of the member votes
approve the terms of suci: bci'i
12.
To sell member-country obligations owned by
the Fund provided that the Board representative o: the country in which the securities
are to be sold approves.
* 8.
To "use its holdings to obtain rediscounts or
advances from the central bank of any country
whose currency the Fund requires,
13*
To invest any of its currency holdings in
government securities and prime commercial
paper of the country of that currency provided
four-fifths ©f the member votes approve, and
provided further that the Board representative
of the country in which the investment is to
be made approves.
ll|.. To lend to any member country its local currency from the Fund for one year or less up
to 75 percent of the currency of that country
held by the Fund, provided such loan is approved by four-fifths of the member votes,
15 • To le-'y v.pon member countries a pro rata share
of the expenses of operating the Fund, payable
in Icoal r?i~rrenoy, not to exceed 1/10 percent
per annum of. the quota of each country. The
levy may be made only to the extent that the
eamJxiga of the Fund are inadequate to meet
Its current expenses, and only with the approval
of four-fifths of the member votes.
The Fund shall make a service charge ©f I/I4.
percent or more on all exchange and gold
transactions,
16.
The Fund shall deal only with or through
a.
The treasuries, stabilization funds, er
fiscal agents of member governments;
b.
The central banks, only with the consent
of the member of the Board representing
the country in question; and
e.
Any international banks owned predominantly by -member governments.
The Fund may, nevertheless, with the approval
of the member of the Board representing the
government of the country concerned, sell its
own securities, or securities it holds,
directly to che public or to institutions of
member c0,111 tries <,
Monetary Uric cf the Fund
1.
2hemonetary unit of the Fund shall be the
Unitaa ( O ) consisting of 1$7 1/7 grains of
fine gold 'equivalent to $10 U,S.)« The
acc:/^:s cf the Fund sha.ll L
lished 'n terras ol Unitas.
t and
- 9The value of the currency of each member
country shall be fixed by the Fund in terms
of gold or Unitas and may not be altered by
any member country without the approval of .
four-fifths of the member votes.
Deposits in terms of Unitas may be accepted
by the Fund from member countries upon the
delivery of gold to the Fund and shall be
transferable and redeemable in geld or in
the currency of any member country at the
rate established by the Fund. The Fund shall
maintain a 100 percent reserve in gold
against all Unitas deposits.
No change In the value of the currencies of
member countries shall be permitted to alter
the value in gold or Tjnit&s of trie assets of
the Fund. Thus if the Fund approves a reduction in the value of the currency of a member
country (in term;? of geld or Unitas) or if,
in trie opinion of the poard, the currency of
a member country has depreciated to a significant extent, that country must deliver to the
Fund when requested an amount of its local
currency equal tc the decreased value of that
currency held by the Fund. Likewise, if the
currency of a particular country should appreciate, the Fund must return to that country
an amount (In the currency of that country)
equal to the resulting increase in the gold
or Unitas Vcilue of the FundTs holdings. T'he
same provisions shall also apply to the government
securities of member countries held by the
Fund. However, this provision shall not apply
to currencies acquired under III-Q (abnormal
war balances) .
V.
Management
administration of the Fund shall be vested
in a Board of Directors, ^ach government
shall appoint a director and an alternate, in
a manner determined by it, who shall serve for
a period of three years subject to the pleasure
of their government. Directors and alternates
may be reappointed.
In all voting by the Board, the director or
alternate of each member country shall be
entitled to cast an agreed upon number of
votes. The distribution of voting power shall
be closely related to the quotas of'member
countries, although not in precise proportion
of voting power would seem tc be the following:
Each country shall have 100 votes plus 1 vote
for the equivalent of each 100,000 Unitas
(&1 million) of its quota.
Notwithstanding the approved formula for
distributing voting power, no country shall
be entitled to cant
••• than one-fourth of
the aggregate votes regardless of its quota.
All decisions, except where specifically
provided otherwise, shall he made by a major*
ity of the member voces.
2«
The Board of Directors shall select a Managing Director of the Fund and one or more
assistants. The Managing Director shall
become an ex ofi'icio member of the Board and
shall be chief of the operating staff or the
Fund. The Mana^in^ Director and the assistants shall held oirice for tw< years, shaLl
be eligible for reelection, and may be removed
for cause at any tirr.e by the board.
The Managing Director of the Fund shall select
the operating staff in accordar.oe with regulations established by th€ Board of Directors,
•^er/bers of the staff may be made available,
upon request of member countries, for consultation in connection with international economic
prpb 1f:.-!.:s and policies.
3.
iJhe Hoard of Directors shall a-.point from among
its i^cr.-.hcrs an Executive Committee to consist
of not less than eleven members. The Chairman
ci' the Bc^rd shall be Chairman of the Executive
Committee, and the Managing Director of the
Fund shall be an ex officio member of the
EX£ CU t IV C;
COITUUJ- t t e t .
The ExecNfivo Committee shall be continuously
available at the ht ad office of the Fund and
shall exercise the authority delegated to it
by the Board, In the absence of any member
of the Executive Committee, his alternate
shall act in his place. Members of the
Executive Committee shall receive appropriate
remuneration,
!-!.. The Board cf Directors may appoint such
other commie tees as it finds necessary for
the work of the Fund. It may also appoint
advisory cornrnittees chosen wholly or partially from persons not <nnployv.d by the Fund.
5«
The Board of Directors may at any meeting,
by a four-fifths vote, authorize' any officers
or committees of the Fund to exercise any
specified powers of the Board. The Board
may not delegate, except to the Executive
Committee, any authority which can be exercised only by a f eur-f if ths
-11-£ .legated powers shall be exercised only
until the next'meeting of the Board,"and In
a manner consistent with the general pclicieg
and practices of the Board.
6.
The Board of Directors may establish procedural regulations governing the operations
of the Fund, The officers ixnd committees
of Sic Fund shall be bound by such regulations .
7.
The Board of Directors shall hold an annual
meeting and such other meetings as it may be
desirable to convene. On request of member
countries casting one-fourth of the votes,
the chairman shall call a meeting of the
Board for the purpose of considering any
matters placed before it*
8.
A country failing to meet its obligations
to the Fund may be suspended provided a majority of the member votes so decides. While
under suspension, the country shall be denied
the privileges of membership but shall be
subject to the same obligations as any ether
member of the Fund. At the end of tv;c years
the country shall be automatically dropped
from membership unless it has been restored
to good standing by a majority.of the member
votes•
Any country may withdraw from the Fund by
giving notice, and its withdrawal will take
effect two years from the date of such notice.
During the interval between notice of withdrawal and the taking effect of the notice,
such country shall be subject to the same
obligations as any other member of the Fund,
A country which is dropped or which withdraws from membership shall have returned to
it an amount in its own currency equal to its
contributed quota, plus other obligations of
the Fund to the country, and minus any sum
owed by that country to the Fund. Any losses
of the Fund may be deducted pro rata from the
contributed quota to be returned to the country that has been dropped or has withdrawn
from membership. The Fund shall have five
years in which to liquidate its ob 1 i:Ta.11 on
to suclx a country.
is dropped
or withdraws from 'the Fund, the rights of the
Fund shall be fully safeguarded.
- 12 9*
VI.
Net profits earned by the Fund shall be distributed in the following manner:
a.
53 percent to reserves until the reserves
are equal to 10 percent of the aggregate
quotas of the Fund*
b.
^0 percent to be divided each year among
the members in proportion to their quotas.
Dividends distributed to each country
shall be paid in 3ts own currency or in
Unites at the discretion of the Fund.
Policies of Member Countries
Each member country of the Fund, undertakes the
following:
1.
To maintain by appropriate action exchange
rates established by the Fund on the currencies of other countries, and not to alter
exchange rates except with the consent of
the Fund and only to the extent and in the
direction approved by the Fund, Exchange
rates of member countries may be permitted
to fluctuate within a specified range
fixed by the Fund,
2.
To abandon| as soon as the member country
decides that conditions permit, ail restrictions and controls over foreign exchange
transactions (other than those involving
capital transfera) wi th o the r member countries, and not to impose any additional
restrictions without the approval of the
Fund.
The Fund may make representations to member
countries that conditions are favorable for
the abandonment of restrictions and controls
over foreign exchange transactions, and each
member country shall give consideration to
such representations.
3.
To cooperate effectively with other member
countries when such countries, with the
proval of the Fund, adopt or continue
controls for the purpose of regulating
international movements of capital* Cooperation shall include, upon recommendation by
the Fund, measures that can appropriately be
t ak en:
a.
Not to accept or permit acquisition of
deposits, securities, or investments
by nationals of any member country imposing restrictions on the export of
capital except with the permission of
the Government of that country and the
Fund;
b.
To make available tc the Fund or to the
Government of any member country full
information on a l l property in the form
of deposits, securities and invfitment3
of the nationals of that member country;
and
c.
Such other measures as the Fund shall
recommend.
i}..
Not to enter upon any new b i l a t e r a l foreign
exchange clearing arrangements, nor engage in
multiple currencyr practices, except with the
approval of trio | und •
5.
To ^ive consideration to the 1
of the Fund
on any existing cr proposed monetary or economic policy, the effect of which would be to
bring about sooner or later a sericuc disequilibrium in the balance of payments of other
countries,
6.
To furnish the Fund with a l l infernation it
needs for i t s operations and to furnish su ch
reports as i t may require in the form and at
the times requested by the Fund.
7»
To adopt appropriate legislation or decrees
to. carry out i t s undertakings to the Fund
and to f a c i l i t a t e the a c t i v i t i e s of the Fund,
Statement of Secretary Morgenthau
before the Senate Committees on Foreign Relations and
Banking and Currency and the Special Committee on
post-War Economic Policy nnd Planning
Monday, April o, 194S
For some tine we in the Treasury have been deeply
concerned with the threat of international monetary chaos at
the end of tl is war.
We feel that international currency stability is essential
to reconstruction in the post-war period and to the resumption
of private trade and finance.
It is generally held that this
formidable task can be successfully handled only through interV
If
CJ
national cooperation.
I think further that most of us would arree that the
establishment of a prorrnm p.deouate to deal with the inevitable
post-war monetary problems should not be postponed until the
end of hostilities^ It would be ill-advised, If not dangerous,
to be unprepared for the difficult tank of international monetary
cooperation when the v;ar ends. Ho one knows how long or how
short the war will be. V.e therefore believe it is desirable to
begin now to devise an international monetary a~ency adequate to
cope with the problems with which we shall be confronted when
the war does end.
The completion of such a task is certain to take msny
months at the least, Sneclfic and practical proposals must be
formulated and must be carefully considered by the policy-shaping
officials of the various countries. In each country acceptance
of a definitive plan can follow only upon legislative or executive action. And even when a plan is finally adopted, much time
will be consumed in establishing an organization capable of
beginning effective work.
36-2
" 2 There is another io|>$rtfflit reason for dealing; with t: is
p e m now, h plan for*international monetary cooperation
can lo a factor in winning the war. It lias teen suggested,
and with much cogency, that the task of a.surKv; the defeat of
the Axis powers would be made easier if the victims of aggression, actual and potential, could have greater assurance
that a victory of the United Nations will not .no an in the
economic sphere a repetition of the exchange instability and
monetary collapse that followed the last war. That assurance
should ie given no;v. The people in all of the United Nations
must be encouraged to feel themselves on solid ground. They
must bo given to understand
that a victory of the United
;
Nations will not usher n another two decades of widespread
economic disruption. The people must know that vc at last.
recognize the fundamental truth that prosperity, like peace,
is indivisible,
Witt these p>ointc in mind tha technical experts of the
Treasury and other agencies oi the Government for some time
have "u en studying raetba&s by which past-war monetary stability
can ce achieved, llo specific olan ens as yet teen considered
by this Government, bux preliminary suggestions oi our technical
experts have l^^n formulated and have been made available for
exploratory study of the exports of other interested Governments,
The technical men of other Governments have likewise been studying tht problem.
Our own thinking along the lines of currency stability has
not been addressed to concocting some panacea that will automatically cure 8-11 the economic ailia&nts of a post*v/ar world.
Itather, nc have attempted to address ourselves to the specific
problem of foreign exchange stability and the common-sense way
of achieving this ..nd.
Our views arc based on the rich experience that this
country rjxs had in coop^ratin:1 with other Governments in our
attempts to naintcin exchange stability* Ue have tried to adapt
that experience to the broader and .aore difficult currency
problems confronting the world during the post-rar years* We
have P I S O kept in mind the pattern laid down "by the Tripartite
Agreement and our own stabilisation agreements*
- 3 Our tentative proposal is to establish an international
stabilisation fund In which all the United Nations and those
nations which are associated with then in this war would
participate. This Fund would constitute an international
agency with powers and resources adequate to promote the
maintenance of currency stability. The cooperating Governments
who would participate in the program would, among other things,
undertake not to engage in competitive depreciation of their
currencies. This stability would be in large measure secured
by fixing the value of currencies in terms of gold, and by
providing that changes could not be made without consultation
with other membei s.
The resources of the Fund that we have in mind would be
provided by the participating Governments in an amount and fon
or m
suited to each nation, participation would be in the form ofgold and local currency and public obligations of the member
countries. The operations of trie Fund would include buying and
selling of foreign exchange under adequate safeguards,
The Fund would deal only with Treasuries and central banks.
It would not compete with private banks or existing agencies.
Its operations would be maintained only to supplement the
efforts made by each member government to maintain monetary
stability. The established channels of internation?il trade and
international banking would be retained in full for ail international transactions.
We have given special attention to the solution of certain
troublesome monetary problems growing out of the war and have
included suggestions for the handling of such problems* In
particular, the. Fund would facilitate the restoration of free
exchange markets and 11 berate the abnormal balances which have
accumulated in some of the countries as a consequence of war
conditions.
The control of the operations of the Fund would be in
the hands of an international board appointed by the governments
of the member countries and the voting power on that "board
would be related to the contribution which each country makes to
the required revolving fund.
- 4 The creation of an international agency of the character
that we are contemplating is a logical development of the
various tentative steps which have been made in the direction
of stabilization of currencies during the immediate pre-war
ye ar s.
I have been anxious to discuss this matter with you and
to keep you informed of developments. Obviously, we are still
in the early stage's of our thinking and discussions. However,
I did want you to know what we are doing and I do want to fool
free to come lack from time to time and discuss the subject
with you and obtain your views and advice.
-0O0-
(Prepared by Press delations Tor use of the Press)
Hie Stabilization of Exchange Rates; The purpose of the proposed Stabilization Fund is to stabilize the value of the currencies of member countries.
The Fund would fix the rates at which it will buy and sell member currencies.
Changes in exchange rates could be made only vdth the approval of the Fund
and only to meet an extreme situation. Because changes in exchange r?tes
would be the result of international consultation, competitive currency
depreciation among the me iber countries v^ould be prevented*
Resources of the Fund* To achieve this desired currency stability the Fund
would, with adscuftte safeguards, me^t the legitimate needs of member
countries for foreign exchange for their current transactions, r'or this
purpose, member countries would subscribe at least &5 billion, mailing
initial payments of one-half of the subscription in the form of gold, currency
and government securities. Each country's subscription would be based on
s combination of such factors as its holdings of gold and foreign exchange,
its national income, and changes in its balance of payments position.
Removal of Exchange Controls; I.ith these provisions, the need for continuance oi exchange control by individual countries would be almost entirely
removed. No member country could adopt new exchange control measures except
to curb undesirable capital movements aid then only with the consent of the
Fund, Multiple currency devices and bilateral- exchange clearing arrangements
would also bo prohibited unless approved by the Fund, The Fund would make
possible the liberation of blocked balances growing out of the v.ar where
immediate unblocking of such balances would cause serious domestic and
international repercussions*
Powers of the Fund* The Fund -would be given the power to buy and sell gold,
currencies and, with their approval, securities of nns&ber countries* The
Fund could also borrovi local currency with the approval of the governments
concerned* The Fund would deal only vith the treasuries, central banks, or
fiscal agents of member countries, and with international banks ov&ed
predominantly by member countries.
New International Unit* The proposal provides for an international gold
monetary unit called the Unites, eoual in vrluo to $10, in tarna of which
accounts of the Fund would be kept. The Fund would not issue Unitas coins
or notes, but member countries could deposit gold with the Fund for a credit
in Unites, rodo<jmr.blu in i-'old, -which could be transferred between member
countries.
Mr nag omen t of the Fund; The Fund would be managed by a Board of Directors
representing tho member governments. Each country vjould have voting power
related to its subscription to the Fund, but no country could h?.ve more
than 25 percent of the- totrl votes. In genor?.l> the decisions of the
Board of Directors would be made by a majority vote oxc.pt for certain
importr-nt operations -where a four-fifths vote \.ould be necessary. The
dcy— to—dcy operations would be carried on by a Urn'ging Director and an
Executive Committee appointed by the Board*
FEDERAL RESERVE BANK
OF NEW YORK
April 13, 1943
Dear Mr. Fraser:
The recent publication in Washington and in
London of the so-called White and Keynes plans of international monetary stabilization offers an opportunity to
the committee of directors on foreign relations to study
a problem of importance and to lend its assistance to the
officers of the bank who, as you know, have been studying
these two plans in their various drafts for some time* I
am therefore sending to you, as chairman of the committee,
copies of the two plans and also a folder "Postwar International Monetary Organization" prepared by our Research
Division, I hope that you will be able to find time to go
over these papers, then circulate them among the other members of your committee and, in due course, to let us have
the benefit of such comments as the committee members individually or as a group may wish to make.
As you know, following the talk which Messrs.
Williams and Knoke had with you last January, our Research
Division is now working on other questions related to this
general problem as follows:
1. Conversion of the B.I.S. into an international stabilization and clearing bank.
History of the bank, and readjustments
required to make it serve the purpose
of White and Keynes plans.
2. Extension of the Tripartite Agreement to
principal countries, and modification to
permit more effective use as a mechanism
for currency stabilization.
3* Extension of Treasury's bilateral stabilization agreements (Brazil, China, etc.) to
principal countries.
4» Reciprocal credits between central banks
with government guarantees. Could the
central banks by such arrangements between
themselves obviate the necessity of any new
machinery?
5. The League Finance Committee: Role played
by It in European reconstruction after last
war and possibilities of using it again.
FEDERAL RESERVE BANK OF NEW YORK.
-2-
A/13/43
I plan also to furnish copies of memoranda on
these topies to you when they are finished.
Yours fai
All
Pres
Enclosures
Mr. Leon Fraser,
First National Bank,
2 Wall Street, New York,
This document is protected by copyright and has been removed.
Author(s): J. H. Riddle
Title: British and American Plans for International Currency Stabilization
Date: May 26, 1943
Page Numbers:
This document is protected by copyright and has been removed.
Author(s): [Paul van Zeeland]
Title: A Propos Du Plan Keynes
Date: July 23, 1943
Page Numbers:
August 20 , 1943
Dear Donaldson:
Referring to our conversation at the Federal,
I attach hereto a copy of the three articles in the
Lend Lease Agreement <?ith Great Britain, which is
dated February £3, 1942, that relate to the nethod
of settlement of Great Britain's net obligations to us.
You will observe that they are primarily for
the benofit of Great Britain and insinuate, though they
do not say, that no payments will have to be made unless the conditions set forth In Article VII are met.
Your own suggestion approached the question
from the standpoint of the creditor, namely, to state
conditions \mder which ^yments would be made. This
is obviously a benefit for us, but may not be so agreeable to the British. In fact;, Artiolo VII is doubtless
regarded by them as a pretty fine cover for them and
they may hesitate to alter it to something which would
protect the creditor. However, your excellent thoughts
should be explored as Article VII does open th* way to
further conversations.
With best wishes,
Faithfully yours,
Kncl.
Donaldson Brown, Esq.
General Motors Corporation
1775 Broadway
New York, N. Y.
EXTRACT FROM LEND-LEASE AGREEMENT
UNITED STATES & GREAT BRITAIN
FEBRUARY 2 3 ,
1942
ARTICLE V
The Government of the United Kingdom will return to the United
States of America at the end of the present emergency, as determined
by the President, such defense articles transferred under this Agreement as shall not have been destroyed, lost or consumed and as shall
be determined by the President to be useful in the defense of the
United States of America or of the Western Hemisphere or to be otherwise of use to the United States of America.
ARTICLE VI
In the final determination of the benefits to be provided to the
United States of America by the Government of the United Kingdom full
cognizance shall be taken of all property, services, information,
facilities, or other benefits or considerations provided by the
Government of the United Kingdom subsequent to March 11, 1941, and
accepted or acknowledged by the President on behalf of the United States
of America.
ARTICLE VII
In the final determination of the benefits to be provided to the
United States of America by the Government of the United Kingdom in
return for aid furnished under the Act of Congress of March 11, 1941,
the terms and conditions thereof shall be such as not to burden commerce
between the two countries, but to promote mutually advantageous economic
relations between them and the betterment of world-wide economic relations. To that end, they shall include provision for agreed action by
the United States of America and the United Kingdom, open to participation by all other countries of like mind, directed to the expansion,
by appropriate International and domestic measures, of production,
employment, and the exchange and consumption of goods, which are the
material foundations of the liberty and welfare of all peoples; to the
elimination of all forms of discriminatory treatment In international
commerce, and to the reduction of tariffs and other trade barriers; and,
In general, to the attainment of all the economic objectives set forth
in the Joint Declaration made on August 12, 1941, by the President of
the United States of America and the Prime Minister of the United
Kingdom.
At an early convenient date, conversations shall be begun between
the two Governments with a view to determining, in the light of governing economic conditions, the best means of attaining the above-stated
objectives by their own agreed action and of seeking the agreed action
of other like-minded Governments.
COPY
UNITED KINGDOM PAYMENTS OFFICE
Government Temporary Building No.8
Qarllag Avenue, OTTAWA, Canada
3rd Stptember, 1943
Personal
Dear Fraser:
I was much interested in and attracted by the draft
scheme which you showed me. On thinking it over, however, there
seemed to be certain difficulties which I dare say you will deal
with in a later version. They are as follows:
1. All countries seem to be thought of as belonging either to the
dollar area or the sterling are??.. Actually there may be some which
are attached to neither currency and yet others att ched to both.
Those in the latter category could be told to make their choice or
have that choice prescribed for them,
2* What would you propose to do about Canada, which is in a special
position? It is normally long of sterling nd short of dollars, and
normally the U.K. has absorbed the excess sterling anahanded over
dollars in exchange. If the U.S.A. is to bolster Great Britain, and
through her the sterling area, what will she do about Canada, which is
not a part of the sterling area? Will the U.S.A. supply Canada with
the dollars she neods, leaving her to hold sterling In excess of her
requirements, or will Great Britain be allowed to provide for Canada's
need of dollars in the same way as if Canada were part of the sterling
re a?
3. While Great Britain under your plan would be made responsible for
the sterling area "111 not this task be a difficult one? Under the
gold standard there was an automatic mechanism for keepinp; countries
in equilibrium so that they hardly knew vfao was responsible for the
adjustments they had to make. In the absence of that mechanism may
it not be necessary to have exchange controls, bi-lateral agreements,
clearing arrangements, etc., in order to preserve enuilibrium within
the sterling area? However this may be, if a country In the sterling
area mismanages its economy and runs short of sterling reserves will
It not mean that the U.S.A. will be burdened with the holding of the
sterling which should be held by that country or countries? At that
point will not the U.S.A. accuse Great Britain of mismanagement and
be sorry that 3he did not assume some part of <he responsibility which
wcu2d have been hers through membership of a White plan?
4. It may be said in regard to 1 above that it does not matter much
about small countries; that they will fall into line somewhere and
somehow. But countries which are of minor or little importance
politically can be very important by reason of the character of their
exports. Canada is a case in po'nt. Others w^uid be the Argentine,
Sweden, Denmark, etc. It would, for example, not be a matter of
Indifference to the world what happened to the Argentine exchange
in view of the competition of Argentine wheat with other producing
countries. Even Denmark is of account as a producer of bacon.
I do not say that these difficulties could not be met
- 2 -
and no doubt you will be giving them consideration In any case*
Yours sincerely,
J. A. C. Osborne
Leon Fraser, Esq.
First National Bank
2 Wall Street
New York, N.Y.
U.S.A.
(sgd.)
FEDERAL RESERVE BANK
OF NEW YORK
September 7, 194-3.
Mr. Leon Fraser,
2 Wall Street,
New York 5, N. Y.
Dear Mr. Fraser:
Following the discussion at the meeting of the executive committee
held April 29, 1943, regarding the manner of determining monetary and fiscal
policy for territory occupied by American military forces, I wrote to Chairman Eccles of the Board of Governors of the Federal Reserve System on Mayl,
194-3t raising certain questions concerning the place of the Federal Reserve
System in the formulation of the Government's international monetary policies,
As I reported to the executive committee on August 26, 1943, I
received a reply from Chairman Eccles dated August 19, 194-3, enclosing a
memorandum entitled "The Federal Reserve System and Reoccupation Problems."
The executive committee approved my suggestion that this matter be included
in the order of business at the meeting of the board of directors on September 16, 1943. Copies of my correspondence with Chairman Eccles and the
memorandum he sent me are enclosed.
Yours sincerely,
ICTORY
BUY
UNITED
STATES
WAR
lines.
MISC. 140-I|-50M-2-43
fMBULL KI^.U.VL M B
,i'
Hi
May 1, 1943.
Honorable Marriner S« i»cciett, Chairman,
Board of Uovernora of tne
Federal heserve System,
Washington, D. C.
Dear Chairman JSecless
• request for authority to open an account for a foreign central bank in
an African colony, at a meeting of our directors yesterday, brought up the question
of plans and pro;rams which might be under consideration by the United States for
the financial administraLion of occupied territories, and cf the place of the
Federal iteserve System in the formulation of auch plans.
I had to tell the directors that, as far as this bank is concerned, we
had not been asked to participate, in any regular or formal way, la this phase of
the war effort, although ini'or:oai. requests for assistance had been made intermittently by two or three branches of tne government, which appear to be working in
this field. I mentioned that to our knowledge at least two brunches of the Army
had been in touch with ban^cs here in their search for trained bunking personnel)
that the Board of kconomio warfare had secured tne loan of the part—tine services
of one of tne aembers of our Research Dejgar^»nt, \ and that the Board of Governors
had also availed Itself of the part-t^aiise^yikeiWf one or two of our research
assistants. In addition, X said thatMre knewv of epurse, that the State and Treasury
Departments had an interest in a^'Umrev, asserting some authority in this field.
The question was^jhenWaised Djntfne directors as to whether this was not.
another one of those arejre inN^h^eh a diffused authority by a number of different
agencies would not give the best Results • \ A e need for a unified approach by the
armed forces during periods of milXfe^ry occupation which could be merged smoothly
into the succeeding civilVdainistfi^ion^eemed to be apparent. They were also impressed by the need for avoiding in] the future, if possible, a repetition of our
experience in North Africa wnmn the/exchange rate for the local currency was first
fixed at a level which, a a it sMsed to us here, was too low &ad subsequently had
to be raised, with a good deal of resultant confusion.
The directors recognised that this is a difficult matter and did not KJIOW
whether the FedercJ. iieserre System had any responsibility for seeking improvement
of what appears to be an undesirable condition. I tola them that X thought the
Board of Governors shared their concern about the course which this whole aatter
appears to be following, and they realise, of course, the difficulties of your
position. Nevertheless, I thought I would write to you to ask if you could tell as
what the situation really is, what if anything the System might do about it, and
where any reaponuioility which we might have would lie.
Xours faithfully,
(Signed)
ALLAH or»jiOUL
Allan Sproul,
President.
MISC. 14O-B-5OM-2-43
OF GO
IHM9 NMsi
August 19, 1943.
Mr* Allan Sproul. President,
Federal Reserve Bank of Hew Xork,
New Xork 5. H* I,
Bear Allans
This is in reply to your letter of Hay 1, 1943, in which you
raised questions respecting the place of tlie Federal Keaerve System in
the formulation of the Governmejr^hTl^tdrme^onal monetary polioies, with
particular reference to t&tinTimanclal problems, of military occupation*
As X explained to yp*H^heW you weWraiat hare, the delay im Bonding you
this reply was due to our desire toVr*e your questions careful consideration, including a review of ^thovhlcxoric&l developments involved*
In view of O » sc^e of our study, it seemed best to prepare a
memorandum under the title. "The federal Reserve System and Eeoccupation
Problems." The paper is enclosed herewith and I trust it will prove interesting and informative*
Should you have any comments with respect to
it, I should be glad to receive them*
With best wishes, I am
Sincerely yours,
(bignedj
It •
WM
M. U JScdes,
iLaclosure
CONFIDENTIAL
THE FEDERAL RESERVE SYSTEM AND REOCCUPATION PROBLEMS
The letter addressed to the Chairman by President Sproul of the
New York Bank on May 1, 194-3j raises the question of what responsibility
the System has or should have for determining the policies of this Government in connection with the financial administration of foreign territories occupied by our armed forces. The following memorandum summarizes:
(1) the earlier activities of the System in the international field;
(2) the present set-up in Washington for work on the financial problems
of reoccupation; and (3) certain suggestions as to how the Board (and the
System) might strengthen its position in this work.
Before outlining the history of the System1s operations in the international field, it should be emphasized that the international aspects
proper of reoccupation work are only part—and probably the smaller part—
of the problem. The monetary and banking questions which will arise in
occupied areas will in large part be concerned with the administration
of the domestic currency and credit system in the given foreign country.
This part of the task will call for techniques in the management of currency and banking with which the System is intimately familiar, although
it may be anticipated that the extraordinary problems of occupied areas
will call for drastic measures, some of which may be unprecedented in
American experience.
1, The earlier activities of the System in the international field.
In the years prior to 1933, the System was actively engaged in the
international field, largely through the Federal Reserve Bank of New York,
which acted on behalf of the other Reserve Banks and under the supervision of the Federal Reserve Board, The New York Rank played the conventional role of a central bank under the international gold standard,
buying and selling gold at a fixed price and thereby maintaining the
dollar at a fixed gold parity* With the consent of the Board of Governors,
it carried gold and dollar accounts for a large number of foreign central
banks, thus facilitating their exchange operations, and in a much more
limited way operated through gold and foreign currency accounts abroad
(with the Bank of England, Bank of France, and Bank for International
Settlements). These accounts were participated in by most of the other
Reserve Banks,
During and immediately after the first World War, the Federal Reserve Board as agent of the Treasury Department administered the regulations prescribed by the President concerning the exportation of coin,
bullion, and currency and concerning foreign exchange transactions. A
Foreign Exchange Division was set up in the Board, and the Federal Reserve
Banks administered the licensing procedure in the field. Most of the wartime restrictions of this sort were lifted in June, 1919,
In the 1920*3 and early 30 ! s, the United States monetary authorities
were relatively inactive in the international field. The gold parity of
the dollar was fixed, the United States had no exchange control, and the
principal corrective measures on the international exchanges were undertaken by foreign countries. However, the Federal Reserve Bank of New York,
operating under the supervision of the Board of Governors, actively supported the efforts of foreign central banks (including the Bank for International Settlements) to deal with their exchange problems.
The predominantly technical services of the New York Bank in handling the gold and dollar accounts of foreign central banks in this country,
as well as their short-term investments in this market* was a considerable
aid. The Bank made a more important contribution,-however, by advancing
dollar funds against gold in transit and under earmark abroad, and especially by extending large short-term credits to foreign central banks.
A number of such credits were arranged in the early 1920's in connection
with the return of various European countries to the gold standard, although in no case were these credits actually utilized. The most notable
example was a 200 million dollar gold credit to the Bank of England in
1925. Then in 1931-33, the Bank collaborated with other leading central
banks, such as the Bank of England and Bank of France, in extending shortterm credit facilities to central banks in Central Europe. Assistance to
such banks was also given through a 10 million dollar deposit established
with the Bank for International Settlements. All of these credits were
participated in by other Reserve Banks.
Although the System utilized the facilities of the B.I.S., the membership in this institution which was offered to the New York Bank was
never accepted. However, the continuous process of inter-central bank
consultation and the specific acts of central bank collaboration cited
above gave the System a definite role in the determination of this country's
international policies in the financial sphere.
The economic crisis which became acute in the early thirties forced
consideration of banking and credit measures to cushion the liquidation.
Those first taken reflected the prevailing concept of the leaders in Government, business and banking, who, generally speaking, regarded the crisis
as temporary or cyclical in nature and felt that Government, as such, had
only limited responsibility for bringing about a recovery. There was
great reluctance to enlarge the scope of the System's functions, particularly in the matter of extending credit to banks upon other than eligible paper. It was the general view among bankers and many of the officials of the Federal Reserve System that whatever measures were taken to
meet the financial crisis should be of a temporary nature and should be
terminated when the emergency was over. Their concept of the basic functions and policies of the System caused them to feel that it should not be
used for the administration of such measures, and this was the position of
the Banking and Currency Committee of the Senate under the leadership of
Senator Glass. Therefore, when it was decided that the Government should
extend emergency credit to rehabilitate banks and other financial institutions, a nev/ agency, the Reconstruction Finance Corporation, was established outside the Federal Reserve System and the only material change
in the statutory powers of the Reserve Banks to extend credit was the
enactment of Section 10-b of the Federal Reserve Act on February 27,
1932. Significantly, the original language of this Section permitted
loans by the Federal Reserve Banks on paper not eligible for discount
only "in exceptional and exigent circumstances".
The crisis culminated in the Banking Holiday, when the new Administration came into office in March, 1933. It resulted in radical changes
in credit and banking policy and the granting of new powers to the Government to stem the flood of liquidation and bankruptcy and to revive
economic activity. For the reasons above mentioned, plus the fact that
a number of influential officials in the new Administration were unwilling
to have the System exercise any of the new powers, Congress and the President conferred upon other agencies the major responsibility for rehabilitating domestic finance and for dealing with international monetary matters,
Congress passed legislation providing additional remedial facilities outside the System, including the enlargement of the authority and powers of
the R.F.C., the establishment of the Federal Deposit Insurance Corporation
and the Home Loan Bank System, and the expansion of the Farm Credit Administration. Control over gold and foreign exchange policy and even the
licensing of banks were placed by the President in the Treasury. The Gold
Reserve Act of 1934, transferring the gold reserves of the System to the
Treasury, establishing the Stabilization Fund, and authorizing the devaluation of the dollar in terms of gold, made the Treasury the dominant
agency of Government in the determination of international monetary policy.
As a consequence, the System has played a distinctly subordinate role in
the international monetary field. Looking back upon the crisis years of
1932-1933, it is apparent that the System suffered heavily in its prestige
and effectiveness through the lodgement in other agencies of powers and
functions of major importance in the banking, credit and monetary field,
both domestic and international«
Partially offsetting gains in the domestic field were realized
through the Banking Act of 1933 and the Securities Exchange Act of 1934..
More substantial gains have since been mado through the powers and responsibilities conferred br the Banking Act of 1935 and by the Executive
Orders relating to consumer credit and loans to finance war production.
In the international monetary and banking field, however, the lost ground
has not been recovered. The System was left with routine functions serving the needs of the Treasury and of foreign central banks and governments .
Subsequent developments have not substantially altered this picture.
Other agencies such as the Export-Import 3"iik and the R.F,C. have enbarked
on foreign lending programs, and in the last two years the Lend-Lease
Administration has developed into a foreign lending agency on a large
scale. The Treasury has closely participated in these enterprises while
the System has not except as fiscal agent. The Treasury itself has extended foreign credits through the Stabilization Fund as well as directly
in the case of the 500 million dollar war credit to China, It has negotiated exchange agreements and pursuant to the Tri-Partite Pact has conducted exchange stabilization operations with the leading European countries. It took the lead in 1940 in introducing Foreign Funds Control,
and has since developed the administration of this control through the
Reserve Banks into a powerful weapon of economic warfare. It has now
submitted plans for post-war international exchange stabilization agreements in which the Treasuries rather than the Central Banks of the respective countries would be the participating parties. Finally, it is
prominent among those agencies giving consideration to the financial problems of reoccupabion. (See below.)
It should be noted that the Treasury's work on reoccupation matters
has grown naturally out of its special functions in arranging for Army
and Navy disbursements in connection with overseas operations in Allied
countries. In close collaboration with the Federal Reserve Bank of Ne?/
York, the Treasury has devised methods for remitting dollar funds to Army
and Navy disbursing officers serving in foreign areas. While a great
variety of methods are employed in different areas, in general the fiscal
officers abroad are provided with either (a) dollar accounts in their names
with local banking institutions against which they can draw local currency,
or (b) facilities with local banks whereby they can obtain local currency
by cashing dollar drafts drav/n on the United States Treasury. For reasons
of secrecy, cable transfers and various other operations involved in
these procedures are normally routed through the foreign correspondents
of the New York Bank (in the Pacific: the Commonwealth Bank of Australia
and the Reserve Bank of New Zealand - in the United Kingdom, the Middle
East, India, etc.: the Bank of England). Ho7/ever, for practical reasons,
extensive use is made of the services of commercial banks in foreign areas,
including branches of American banks in London, and branches of British
banks in the United Kingdom outside London and in the Middle East and
India.
As noted below, when the question of occupation currency for French
North Africa arose, the Army Fiscal Division naturally turned to the
Treasury Department, and the latter agency made arrangements for supplying
yellow-seal silver certificates and some gold coin for use in the initial
North African operations. Subsequently, the Treasury directed the arrangements for remitting Army funds to North Africa through the local banking
institutions there.
2. Work in progress on financial problems of reoccupation.
This section gives briefly what is known of studies being pursued
in various government agencies with respect to the "financial" (i.e.,
currency, banking, foreign exchange, etc.) problems which may be expected
to arise in foreign areas occupied by American armed forces. By way of
preface, the preparatory action and present procedure in the case of
North Africa may be summarized.
North Africa, In the summer of 194.2, the Reoccupation and Reconstruction Division of the B.E.W. formed an interdepartmental committee
of technicians (B.E.Y*'., Treasury, and Board of Governors) under the
chairmanship of Mr. Rifat Tirana of the B.E.W. to work out procedures
for handling financial problems of reoccupation. Mr. Tirana had established contact with the Yfar Department (the Military Government Division—General Gullion—and the Fiscal Division—General Carter) and
apparently believed that he had a mandate from them to carry on this
work.
However, the participation of the Treasury Department representatives in the work of the committee soon became spasmodic, and when the
North African campaign opened it became apparent that considerable preparatory work for that specific area had been undertaken by the Treasury
in close collaboration with the Army Fiscal Division. This relationship
had grown naturally out of the Treasury's functions in handling Army remittances to friendly countries in which American troops were stationed
(U.K., Iceland, Australia, etc,), and considerations of military secrecy
militated against consultation with other agencies on North African problems prior to the invasion. The use of "yellow seal" silver certificates in North Africa and the fixing of the exchange rate were arranged
by the War and Treasury Departments.
After the campaign opened, the B.E.W. committee produced a series
of memoranda on North and West African financial problems for submission
to the War Department. It is not clear, however, what role these memoranda played in determining policy. While they are reported to have received praise from the military authorities, the work of the B.E.W. committee has recently been characterized by a high Army official as "purely
voluntary". In practice, in so far as financial policies in North Africa
have been determined by this Government, they seem to have been established
largely by the Treasury Department. The chief finance officer under
Robert Murphy, Civil Affairs Adviser to General Eisenhower, has been Colonel
Bernard Bernstein, former Assistant General Counsel in the Treasury.
Colonel Bernstein, though in uniform, is regarded as virtually a "Treasury
man"• A number of other Treasury men have gone out to North Africa in a
civilian capacity (including Harold Glasser, assistant to Harry White in
the Treasury's Division of Monetary Research).
This Treasury activity has been carried on within the framework of
a general organization for handling North African economic problems. This
framework,established after a period of initial confusion, consists of a
North African Economic Board in Algeria under Robert Murphy and a Combined
Committee on Civil Affairs for North Africa in the State Department, both
of which include some British representatives. The Financial Control Division of the North African Economic Board, headed by Colonel Bernstein,
is concerned with such matters as the exchange rate, the management of the
occupation currency, and liaison with the French authorities on control of
enemy interests in North Africa and on the broad questions of inflation
control. The policy on such matters in Washington is determined by the
Combined Committee, under the chairmanship of Mr. Thomas K« Finletter,
Special Assistant to the Secretary of State. This committee includes, in
addition to a few British members, representatives of the State, Treasury,
War and Navy Departments, the B.E.W., the Lend-Lease Administration and
the Maritime Commission. Presumably the Treasury (Mr. Harry White) has the
dominant influence in financial matters; the B.E.Vi. representatives on the
committee are men specializing in foreign trade and commodity problems.
Attention is drawn to the fact that in many respects the North African
case is not typical of the situation which will be encountered in occupied
areas on the European continent. Firstly, the domestic currency and banking system in the area was found in good working order, and secondly, what
needed to be done in this field was undertaken by the recognized French
regime. There has been no military government in North Africa, only liaison
with the French on their domestic problems and negotiation with them on
questions with international aspects: exchange rate, dollar occupation
currency, Lend-Lease financing, etc. In areas under military government
the management of the domestic currency and banking system will assume vastly
greater importance•
The financial problems of areas to be occupied in the future are currently being studied in the following quarters:
War.Department. Until recent months the War Department has concerned
itself principally with administrative rather than policy-making problems
in military government. For a time the idea prevailed that policy questions
would resolve themselves naturally if officials of the civilian agencies
of the Government—such as the Treasury Department, Federal Reserve Board,
State Department, etc.—were commissioned for military government work;
it was presumed that persons so commissioned would pursue policies reflecting the opinion of such agencies. General Gullion, himself, voiced these
ideas on several occasions in discussions with representatives of the Board.
Obviously, however, it does not make for good military organization for
officers to feel that they represent any person or organization other than
the Commanding General under whom they serve and the Staff Section which
assigned them. In any event, there was need of a better method of arriving
at policy.
For this and other reasons, the Civil Affairs Division, Office of the
Chief of Staff, was formed in March, 194-3, headed by General Hilldring and
under the supervision of Assistant Secretary of War McCloy. This Division
does the planning and policy making for the Military Government Division
and likewise deals with other phases of civil affairs, including relationships with the civilian agencies of the Government. It is represented on
the Combined Committee for North Africa. In this connection it should be
added that the Fiscal Division, under General Carter, is also represented
on the Combined Committee, for the reason that policy decisions may affect
its operating problems.
The Military Government Division, presently under General Gullion,
the Provost Marshal General, has the responsibility for selecting and
training officers to serve in foreign reoccupations. These and other
officers will be assigned by General Killdring to staff positions with
the Commanding Generals of occupation forces. Several categories of
technicians are being trained, viz., men qualified in engineering,
public health, public welfare, communications and utilities, education,
relief, etc., in addition to the fiscal and banking technicians.
At the request of General Gullion in November, 1942, the System has
been helpful in seeking out, contacting and recommending to the military
Government Division nones of men yfho have had experience in foreign banking, bank supervision, foreign exchange, public finance, and other financial or banking activities which would make then useful in foreign reoccupations. Also, mis cell cine ous questions are discussed informally between the Military Government division or the Civil Affairs Section of the
General Staff and representatives of the rioard of Governors.
Upon being commissioned from civil life, officers are sent either
to the School of military Government at Charlottesville, Virginia, or to
one cf a number of other training schools far junior officers now being
organized at several of the leading universities throughout the country.
At Charlottesville a considerable number of the officer students come from
the regular Army, and, generally speaKing, the graduates of that school
will be used for administrative assignments, including service abroad.
The other schools will train men of junior rank (through the grade of
Captain) for a specific foreign area. Financial questions have a prominent
place in the curricula of these schools.
The Military Government Division is also supervising the preparation
by the civilian Government agencies of kilitary Government Handbooks, information manuals on specific countries which will be used for training
purposes and will eventually be put in the hands of American military
administrators abroad. The financial sections of these Handbooks are being
prepared in the Treasury Department and in the Board of Governors, with
assistance from the New York B-mk and the S.E.C.
It should be mentioned that there has been a considerable amount of
confusion as to where the primary responsibility lies within the n»ar Department for fiscal and banking operations in foreign occupations. The
Fiscal Division moved first in selecting and comiissioning top-flight men
of foreign banking experience. Today several officers serving in that
Division are eminently qualified for service in military government,
whereas they are being used on assignments which could be performed equally
well by men without their unique qualifications. For a time there was
considerable agitation for the transfer to General Carter of the responsibility for fiscal and banking problems in military government, but this
proposal was dropped. It is believed that the setting up of the Civil
Affairs Division, Office of the Chief of Staff, will insure the handling
8
of fiscal and banking problems of reoccupation, in so far as they relate
to civil affairs, in that Division and the Military Government Division.
At the same time, various fiscal transactions arising out of the operations
of the armed forces during a military occupation—pay of troops, disbursements for supplies, the handling of soldiers1 allotments, subscriptions
to savings bonds, deductions for soldiers1 savings accounts at the Treasury,
etc.—will continue to be handled by the Fiscal Division.
Navy Department. The Navy Department is understood to have worked
out an agreement vdth the War Department whereby the Navy "will undertake
military government responsibilities only in ports and harbors and in certain islands of the Pacific area. It has established a school of military
government for naval officers at Columbia University.
State Department. The Combined Committee for North Africa meets
under the chairmanship of kr. Thomas K. Finletter, Special Assistant to
the Secretary of State, and it may be presumed that sens work in this
field—as well as some longer-range planning on reoccupation natters—has
been carried on within the Department, especially in the Division of
Economic Studies• A recent executive reorganization has greatly broadened
the functions of the State Departnent in reoccupation work - see below and it is expected that this will call for a major extension of the Department's personnel and studies in this field.
It should also be noted that the Lehman Office in the State Department
(Office of Foreign Relief and Rehabilitation) has recently been giving
active consideration to monetary problems in reoccupied areas, which obviously are closely related to their principal job of relief work. They
have been working on Greece as a special case study, and have invited a
member of the Board's staff to serve on an advisory committee for Italian
questions.
Treasury Department. The Treasury Department, as noted above, is
intimately concerned Y/ith the financial problems of reoccupation. Its
work on this subject is being pursued in Mr. Harry White's Division of
Monetary Research (under Mr. Taylor) as well as in the Foreign Funds Control (under Hr. Pehle and &r. Juuxford, legal adviser to the Foreign Funds
Control). The individuals mentioned attend the meetings of the Combined
Committee on North Africa. The Division of monetary Research is also
working on certain sections of the Military Government Handbook for all
potential areas of occupation; these sections cover public finance and
exchange control.
Office of Economic Warfare (Previously Board of Economic Warfare).
The Reoccupation Division of the O.E.W., after finishing its work on the
financial problems in North and West Africa, turned its attention to studies
of such problems as might arise in other areas to be occupied. Reports and
reccrar-iendations have been prepared regarding Italy, Greece and Spain. At
present their work is concentrated on elaboration of the Italian reports,
and on longer-range studies of the conduct of Continental European trade
and finance after the collapse of Germany. Representatives of the Board
of Governors and the Nevv York Bank have participated in all of these projects, although there have been no formal meetings of the interdepartmental
committee established last summer by the O.E.Vrf.
Aside from the work of the Reoccupation Division, a group in the
Enemy Branch of the O.E.'.V. is taking on increasing interest in military
government problems, which they rogard as a logical extension of their
present work on the Axis countries, ^embers of the Board's staff are also
cooperating with this group in assembling information on money and banking
in various European countries, particularly in Germany itself.
Board of Governors* The International Section of the Division of Resear ch~~a7n~S'tartistics~is collaborating with the Q.E.W, on policy recommendations with respect to the financial problems of reoccupation. It is
also engaged in the preparation of the money and banking sections of the
Military Government Handbooks. The Federal Reserve 3ank of New York is
collaborating in this work by furnishing the part-time services of J^r.
Tamagna and by contributing material in two special fields, i. e«, savings
banks and insurance companies. The cooperation has also been obtained
of the Securities and Exchange Commission which has assigned a man to
contribute material to us on the stock exchanges in the countries under
consideration.
Also, as mentioned above, a menber of the Board's staff is serving on
on advisory committee for Italian probleus organized by the i«ehinan office.
New Interdepartmental Organization on Heoccupation Problems. Larly in
June, the President transmitted to Secretary Hull a plan for work on reoccupation probleus by civilian agencies which had been prepared in the
Bureau of the Budget. This plan seens to constitute a complete vindication of the State Department's view that it should be charged with the primary responsibility for all civilian activities in foreign areas. It provides that an Assistant Secretary of State (understood to be Mr* Acheson)
should be assigned specifically to work on reoccupation matters and that
he should be Chairman of an Inter-departmental Policy Committee consisting
of the heads, or their deputies, of the following agencies: State Department, Treasury Department, Yfar Department, Navy Department, Office of
Economic V»&rfare, Office of i«end-Leaso Adiuinistration, Office of Foreign
Relief and Rehabilitation Operations (Lehman Office). Undvjr this Policy
Committee would be established a working group called the Coordinating
Comrdttee composed of representatives (presumably at staff level) of the
agencies represented on the Policy Comiiittee • Further provision is nade
for Sub-comittees on particular areas or particular problems, the rienbership of which is not laid down.
For administration in the field, it is stipulated that the Secretary
of State, with the approval of the Policy Connittee, shall appoint an
Area Director for each foreign area subject to military occupation. This
Area Director will be subject to the orders of the military coriander in the
10
area and of the Assistant Secretary heading up the Policy Committee. He
is to be given broad powers within the territory assigned hin and will
preside over the field activities of any U, S. civilian agencies operating
in the field.
The Inter-Departmental Committee for the Recruitment and Training of
Personnel is to be reconstituted as a sub-coivunittee under the Coordinating
Comrnittee. This sub-committee is to include representatives from the
agencies represented on the Coordinating Counittee plus nieribers from the
Civil Service Commission and the Office ofrt'orInformation.
Although it is not so stated in the Plan, presumably the Combined
Committee on Civil Affairs in North Africa will become an Area Sub-committee
under the Coordinating Committee. Also, once this machinery is set into
motion, it may be presumed that the Committees recently established by
the Lehuan office will pass out of existence •
Neither the plan nor the President's letter to Secretary Hull contain many specific references to the financial problems of reoccupation*
The President's letter refers to the Treasury's role as follows:
"The Treasury Department is responsible for fixing
exchange rates and should assist on monetary, currency control
and general fiscal matters. This important work mist be geared
in with the plans and activities of the other agencies."
The role of the Lehman office is described somewhat more extensively
with the distinction being made between its activities and those of the
Office of Lend-Lease Administration. Aside from "distributing relief
goods," and "goods to facilitate the production of basic civilian necessities," the W n m a n office is charged with "facilitating the restoration
of agriculture, housing and transportation." No mention is made of the
rehabilitation of industry or of the banking system. The Office of Economic
Warfare is assigned the field of Foreign Procurement, "certain industrial
development," and other matters, but no participation in financial questions •
3. How might the System strengthen its position in the reoccupation work?
The System can strengthen its position in reoccupation matters only
by further asserting its interest in and ability to handle certain of the
problems involved*
Its interest in the work derives from its particular responsibilities
in the monetary and credit field and hence in the reconstruction of a sound
and 7/orkable international economy. The events of the last decade have
sufficiently demonstrated the importance to the United States of stable
economic conditions abroad; no agency responsible for any segment of the
11
domestic economy can ignore the implications of foreign developments. The
administration of occupied areas in Europe and the Pacific may determine,
to a considerable extent, the course of economic and financial events in
those areas, before and after the occupation period proper. These events
will affect not only the business situation in this country, which the
Federal Reserve System is designed to serve, but through the international
flow of reserves they may alter to an important degree the donaestic credit
situation for which the Federal Reserve is directly responsible.
The capacity of the System to handle the financial problems of reoccupation is even more evident. V/hile it is true that international financial policy in recent years has been largely handled by the Treasury Department rather than by the System, the System (especially the New York
Bank) has had an important operating role and has kept in close touch with
policy developments. Moreover, as pointed out above, the problems under
consideration relate in large part to the administration of the domestic
currency and banking systems in occupied countries. While the Treasury
has had some experience as a bank supervisory agency, the System, as the
banking arm of the Government, obviously has outstanding qualifications
for such work. Uithin the Board of Governors and the various Reserve Banks,
there is a fund of experience and of trained personnel which could make a
very important contribution to reoccupation tasks.
At the present time the System is on the periphery of affairs in reoccupation work, although at the technical level a good deal of work has
been done. The Military Government Handbook project has given the Board
of Governors a foothold in this field with the war Department and other
agencies which will utilize this material • Leabers of the Beardfs staff
have been consulted on policy matters by the Board of Economic Warfare,
the Lehman office, State Department, and the "War Department through the
School of ililitary Government and—in one instance—Assistant Secretary
kcCloy. Finally, the 3oard of Governors and the Reserve Banks have been
of great assistance to the military Government Division of the tfer Department in the compilation of a roster of skilled personnel available for
financial work in military government.
It must be recognized that the Treasury Department has c. big head
start in the financial side of reoccupation work and has already built up
a substantial field personnel. However, the new interdepartmental organization seems to offer a framework within which the Board and the System
as a whole might make a contribution under the leadership of the State Department. It is presumably too much to expect that the Board should be
given a place in the principal Committees, which are composed of representatives only from those agencies v.iiich are most directly and intimately
engaged in reoccupation matters. It nay be presumed, however, that among
tht. functional sub-committees of the Coordinating Co-mittee, there will be
one on financial problems, membership on such sub-committees is not limited
by the terms of the plan to the members of the Policy Committee. The members
of a financial sub-committe^ would be in a position to express their
12
views on policy matters and to keep informed on developments in this
sphere. In particular, they would have access to the reports (by cable
and otherwise) from the field personnel, which in the North African
case were extremely instructive.
It is therefore suggested that one step to be taken in obtaining
for the System a wider role in reoccupation work would be to seek an
invitation from the State Department to have the Board of Governors
represented at the meetings of any financial sub-committee which nay
be organized. Little is known of "what steps the State Department has
taken thus far to implement the plan transmitted by the President; it
is understood, however, that initial meetings of the Coordinating Committee have taken place under the temporary chairmanship of Lr« Finletter.
Another category of information available to the State Department
(and presumably to the Treasury) which would be immensely useful to our
work is the minutes of and reports on the sessions in London of an InterAllied Committee studying the financial problems of German-occupied
countries. This Committee is made up of financial experts from the
British Government and the various European Governments-in-exile established in London, and its sessions have been attended by an observer from
our London Embassy* Access to this material should also be requested fron
the State Department.
In the case of the T.7or Deportment, while we have close working relations with the Military Government Division in connection with the
Military Government Handbooks, we have no such contact with the Civil
Affairs Division, Office of the Chief of Staff, one of the functions of
which is liaison work with civilian agencies interested in reoccupation
policy. If wo are to assert an interest in this field, we should establish
closer relations with officers in the Civil Affairs Division specializing
on financial problems. This question would presumably solve itself, however, if we obtained representation in a financial sub-coimittee on reoccupation problems, as suggested above.
MISC.
IC.JI4OA JOOM-5-42
FEDERAL RESERVE BANK OF N E W YORK
2J»
Hon. Marriner S. Eccles, Chairman,
Board of Governors of the
Federal Beserve flyston,
Washington * ? , D. C.
Dear iJa: rineri
Thank you for your i«tt*»r of August 19 th emci.o*in^ *.
oi*
on
SjsJ ^C:*, U ^e |HM
shall sake this information
to you. Hie historical
any QMMftts or suggestions t X
and partly because of
V
raises questions vhieh
guswary, of course, partly fey (reason
differences in recollection «n4 int«
eoulu be debated
terested in future
than in past oontroTsrsleiu but w HO far as this interpretation of the
past B M / b« ussful in ehartlng a future coursef I find it interesting as
veil as provocative*
Xoure sincerely^
(Signed) ALUI &FSOQL
Allan i> roul,
Preitldent*
/-!
September 14, 1943
B. G. Huntington.
President
«•
The Huntington National Bank
Columbus, Ohio
Dear Mr. Huntlnnton;
X oust charge up against a numb r of absences froa Hew
York the delay In answer
mr letter about the new International
bank. The truth Is, of course, that to answer It r>ropi*rly would
re ulre flfte^ typewritten
As at present advised, I aa not In favor of the white
plan, and certainly not In favor of the Xeynes plan which I regard
as something of an Ingenious Joke.
The four principal reasons for not falling In with the
^hlte plan are, first, that It Is premature nnd that plans of this
1 are subsequent rather than first steps* It Is also a politic 1
bank and a debtor bank. Considerable preparatory work Bust be done
before anything so worloVwlde as the lilte plan win hope to succeed*
In the second place, I feel It Is preferable to separate the transition problems from the permanent problems, and this Is clearly
Indicated In your own letter. In the third place, I feel that
Instead of scrapping all the existing Machinery we should build
on «tiat we have ~ with modifications, of course. This Includes
the Ispcrt-Sxport Bank, the Bank for International Settlements,
*?* loans to help International trade, tho Stabilization Fund, Central
Bank cooperation, and all thereat* In the fourth place* the White
plan does not tell us the whole story. It snys that It Is but one
of the many steps that should be taken without telling us the other
steps and how nuch they ar*: <*olnp* to cost the United State*. It
seems to me that we are entitled to have the *hole naeka&e or at
least a skeleton sketch of It before being asked to accent one
ser?sent.
Furthermore, I feel the general approach In wrong And
that Instead of a global, fprandlose Institution frota which wonders
will be expected, we o u ^ t to deal frankly and honestly with the
2
MfcHft r M
B. a, Huntlngton, Esq.
British situation, which is one though not the only outstanding
financial rjroblem.
A fmilt of White's plan, and to a
decree of keynes1 plan, ia that they try to camouflage the
British difficulty and merge it into a world situation. I
believe that it should be tackled directly and that we should
help - particularly in dealing with the blocked sterling balances
**hleh run into the equivalent of bill lone of dollars. Few things
would start world trade and finance mere quickly back on normal
lines than the release to their owners of the huge volume of
blocked funds held in London and Hew York. *fe have plenty of
resources to pay off our own an I believe we should make a
lonr terra loan to the British to penult them to make London a
Tree market once more.
I agree with you that a lon# term lending institution
should be totally separate from any stabilisation institution or
clearing arrangement • I ma not convinced that i universal clearing arrangement is necessary. If, through mutual aid, we could
get the dollar-sterling rate settled, and if we were prepared to
make long tore loans to needy areas, it seems to me that a good
deal of the clearing would then beooae automatic. It is not to
be forgotten that countries other than the United states today
hold more gold, valued in dollars, than was held by the entire
world, Including the United States, in 1929. It is not to be
forgotten that all of south America has more gold end more
dollars than at any time in their history and that the same Is
true of the neutral countries - ortugal, Sweden, -ind Switzerland.
It Is also not to be forgotten that many of the countries under the
heel of the Nazis are very rich in external assets - notably Fr nee,
Holland, and -elriuia. ^ a l n la in better shape than she has been
for a quarter of a century. So I am convinced that as a practical
atter, if we continue Lend-Lease to the devastated areas in the
transition period and give credits to Great Britain, China, and
perhaps to our nerennial borrowers in the Balkans, things may
et themselves adjusted, providing we keep our own house in order,
agree heartily with the report of the Policy Committee of the
, 3.A. which covers the -7hite plan, and I was privileged to cooperate in its preparation.
?
Put otherwise, I apnroaoh the subject from a realistic
point of view, namely, that as practically the only creditor
nation we should not hide our light under the bushel of a new
international bank and pretend that it Is doing the lending <md,
by the s me token, I would deal with the British problen first
>nd by itself. This does not mean that an International institution
such as a greatly modified 3.I.S. cannot be of infinite use, and
I feel that we should use it froa the beginning primarily as a
meeting plaoe for consultation, planning, exchange of information,
and relatively modest short term seasonal credits.
while I agree, therefore, with your letter in its fundamental aspect a, I am still not certain that trade clearing agreements
14
&• <*• HuntlnRton, Ea ,
going to be neoeesary except, perhaps, for the transition
period* Certainly we should try to get away froa thesi baoausa
they always lead to bilateral arrangenenta and c|iota systeas
and these always reduce the aggregate of world trade.
this hurried as well as late note,
with kindest regards.
Faithfully yours,
President
(
October 19, 1943
Dear Don:
We ere sorry to miss you in connection with the
further discussion on the draft memorandum sent to Washington
about the new banking proposals. The document you sent me
labeled "Basic Considerations etc.* has be<m very carefully
studied a.n ; i t i s believed that althounfr presented in different
language the substance i s contained In our memorandum dated
October 7. You sur>F*e9ted# among other things, that i t be
stated specifically that the plan should not attempt to
regulate ordinary commercial exchange regulations and that
the data available to institutions should also be made available to other organizations.
Because we were not discussing a specific plan, or
indeed proposing at present the proposed bank, i t did not seem
lo**ical to state that the information glenn^d by the Bank should
be made av dlable to others, but we did insert a sentence to the
effect that the clearing function*could well be handled by the
existing private machinery wit> a dispatch and smoothness not
likely to be matched by any ne<> world institution*.
Also, because i t did not seem to f i t in the character
of this particular memorandum although i t aay f i t at another
time, we did not go into a discussion of the liquidation of
Lend-L^aae. '4hile I believe our thoughts on the subjeot are
much the same, the very precise proposal you sent forward went
a l i t t l e farther in exactitude than T had in mind. Roughly,
my thought i s as follows.* First, If i t were practical r>olltlcally, I '^ould simply write the whole mess off and regard i t as
the cost of the war. vhntever we nay have sent the Russians i s
a pretty cheap price for the way they have been defending us.
To the extent that i t i s not p o l i t i c a l l y possible to wipe the
s l a t e , then I think we mi#it simply not demand repayment in
cash but preserve a c a l l on the nation involved for the return,
on our request, of the same type of commodities that
re shipped
to them, If and as we have need of them. As a practical matter
we shall probably never ask for the return of anything except in
another war or a national disaster, but at least the fiction
could be ~>re served for a few years; then, perhaps, later, outright
cancellation take place. Y^ur suggestion ia very ingenious and
probably could be v/oven In to the s*©e general idea* to * i t f that
while creditors we would abstain fron asking for repayment save
in a preat national emergency.
2
October 19,1943
Donaldson Bra*n,
Without Indicating the origin of your enclosure, I
tried It on one of the bright young men at the Federal. Kla
co; tnent Is a l i t t l e caustic, taut M he, too, Is anonymous I
thought I would aend It alon?: for what It la worth.
best
ever
F a i t h f u l l y yours,
enol*
Donaldson Brown,
Vic 3 Chairman
General Motors Corporation
1775 Broadway
H«w York, H.Y#
This document is protected by copyright and has been removed.
Author(s): Orville C. Sanborn
Title: The New World: An American Peace Plan
Date: November 1943
Page Numbers:
@FedFRASER