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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
Board of Governors
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Walter R. Gardner <^~)( /

Date_ A P r i l 2 9 > 1 9 4 4
Subject: ^ ° ^ n ^ Statement on International
Investment Bank

Attached is a copy of the latest Treasury document on
the International Investment Bank. The Treasury has prepared
this document as a summary statement of principles to which experts of the United and Associated Nations might agree, as in the
case of the Monetary Fund. This statement eliminates many of the
details and some of the controversial points in the November 24
draft. The Treasury has indicated that they would like to publish
this statement as a joint statement of United and Associated Nations
experts in the near future preparatory to the international Conference which they are proposing for both the Monetary Fund and the
Bank.

Attachment

PRELIMINARY DRAFT
A Statement on the Establishment of
A Bank for Reconstruction and Development
The technical experts of some of the United and Associated i^ations who have participated in the discussions on
international financial problems are of the opinion that
the revival of international investment after the war is
essential to the expansion of trade and the maintenance of
a high level of business activity throughout the world. In
their opinion, the most practical method of encouraging and
aiding private investors to provide an adequate volume of
capital for productive purposes is through the establishment
of a permanent Bank for Reconstruction and Development.
They have set forth b n low the principles which they, as
technical experts, belirvr should be the basis for this
Bank. Governments are not asked to give final approval to
these principles until they have been embodied in the form
of definite proposals.
I.

Purposes and Policies or the Bank

1. The Bank will assist in the reconstruction and
development of member countries by facilitating provision
of long-term investment capital for productive purposes
through private financial agencies. It will do so by guaranteeing and participating in the loans made by private
investors.
2.
The Ban]: will supplement private financial agencies
by providing capital for productive purposes out of its own
resources, on conditions that amply safeguard its funds, when
private capital is not available on reasonable terms.
3. The Ban]r will promote the long-range balanced
growth of international trad" by encouraging international .
investment for the development of the productive resources
of member countries.
4.
The Bank will take into consideration, in its operations, the' pffect of international investment on business
conditions in member countries. In the immediate post-war
years, its policy will be t;o assist in bringing about a
smooth transition from a wartime to a peacetime economy.
II.

Capital of the Bank

1. The capital of the Bank will be the equivalent of
$10 billion, to be subscribed by member governments. Liability on shares will be limited to tho unpaid portion of the

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subscription.
Federal Reserve Bank of St. Louis
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- 2 2. A substantial part of thn subscribed capital of
the bank will be reserved in the form of unpaid subscriptions as a surety fund for the securities guaranteed or
issued by the Bank.
3. The initial payment on shares will be 20 percent
of the subscription, some portion of which should bn in gold
and th^ reminder in local currency. Further payment on
subscriptions v/ill be nade as the Board of Directors may
determine, but not more than 20 percent of the subscription
may be called in any one y^ar.
III. Operations of the Bank
1. The Bank will deal through the governments of
member countries and their fiscal agencies, the International
konetary Fund, ana other international agencies owned predominantly by member governments.
It may also deal v/ith the public and private institutions of member countries in the Bank's own securities or
the securities which it has guaranteed.

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2. An appropriate limit will be placed on the outstanding obligations of the Bank; and all the resources of
the Bank will be available to meet its obligations.
3. The Ban]: v/ill not finance the local currency needs
of a borrower except in those special circumstances where
facilities are not available for borrowing investment funds
at home.
4. The Bank may guarantee, participate in, or make
loans to any member country, its political subdivisions, and
business and industrial enterprises in a member country,
under the following conditions:
(a) Tho national government, central bank or a
comparable agency guarantees the payment of
interest and principal.
(b) The borrowrr is otherwise unable to secure
the funds from other sources under conditions
which in the opinion of the Bank ar^ reasonable.
(c) A competent committee, after careful study of
the merits of the project,
reports that the
n
loan would serve to rais the productivity of
the borrowing country and that the prospects
are favorable to thn servicing of thn loan.




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(d) Loans are made at reasonable rates of interest
with schedules of repayment appropriate to the
project and the balance of payments prospects
of the borrowing country.
(e) The bank is compensated for its risk in guaranteeing loans made by private investors.
5. To encourage international investment in equity
securities, the Bank may obtain a governmental guarantee of
conversion into foreign exchange of the current earnings on
such investments. It may also employ a small portion of its
capital directly in equity investment*
G. The Bank will impose no conditions as to the particular member country in which a loan will be spent. The Bank
will make arrangements to assure the use of the loan only for
the approved purposes.
7.
In providing the funds for loans made by the Bank,
its policy will be:

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(a) To furnish the currencies needed by the borrower
in connection with the loan.
(b) To make available an appropriate part of the loan
in gold or needed foreign exchange when a developmental program gives rise to an increased need
for foreign exchange.
(c) To furnish gola or needed foreign exchange for a
part of the loan expanded by the borrower at the
request of countries in which portions of the
loans a m spent*
0. No loans may be guaranteed or made by the Bank without the approval of the country in whose currency the loan is
made*
9* With the approval of thfl representatives of the
governments of the member countries involved, the Bank may
engage in the following operations:

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(a) It may issue, buy, or sell its own securities,
securities takon from its portfolio, or securities which it has guarant rod.
(b) It may borrow from member governments, central
banks, or private financial institutions in
member countries.




(c) It may buy or sell foreign exchange where such
transactions are necessary in connection with
its operations.
IV*

Repayment Provisions.

1. Payment of interest and principal on loans participated in or made by the Bank will he in currencies acceptable
to the Bnnk or in gold.
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In the event of an acute exchange stringency the
Bank may, for brief periods, accept local currency in payment
of interest and principal under conditions that safeguard the
value of the Bank's holdings.
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3, Payment of interest and principal, whether made
in currencies or in gold, must be equivalent to the gold
value of the loan and of the contractual interest thereon.

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1. The administration of the Bank will be vested in a
governing borrd and an executive committee representing the
members* The governing boprd may appoint an advisory council consisting of representatives of banking, business, labor
and agricultural interests, and such committees as it finds
necessary* Provision will bo made for consultation with
other interested agencies on matters of direct interest to
thorn*
2. The distribution of voting power will be closely
feinted to the s]ir.ro holdings of the member countries.
3. Thfl Ban]- will publish regularly R bnlnnco sheet
showing its financial position rnd a stntment of ^nrnings
showing thr results of its operations. The Bank may also
publish from tin- to time such other information fis would
be helpful to thr sound development of international investment.
4. One-fourth of tbr profits would be applird to
surplus until surplus equals 20 percent of the capital.
VI.

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'ithdrnwrl and Suspension
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1, A member country may withdraw from the Bank by
giving notice in writing.




- 5 -

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2* A member country failing to mnot its financial
obligations to the En.nl: may be d^cland in default and may
be suspended from membership, provided that a majority of
thr member countries so decides.
3.
If a member country ^l^cts to withdraw or is dropped
from thr Bank, its shares of stock would, if the Bnnk has a
surplus, be repurchased fit the price paid. If the Bank's
books show n loss, the country would oenr a proportionnte
share of the loss* Appropriate provision should be made for
meeting the contingent liabilities*

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