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< F.



5 1 1

Miss Egbert





The Chairman asked that I check with
Mr. Gardner this morning to make sure
that copies of the attached had been sent
to the list which the Chairman gave Mr.
Gardner, and they have been sent as requested.



18, 1943
Stabilization of currencies and the provision of a
mechanism for international short-term lending cannot by itself
achieve international monetary stability* but it can provide a
working basis for the reestablishment of world trade, facilitate
the adoption of other more fundamental programs, and contribute to
the maintenance of continuous international monetary stability,
The plan provides fort (1) An international agreement to
determine and stabilize the rates of exchange between national currencies, (2) A definite relationship of these currencies to a gold unit,
(3) Ihe establishment of an international loan i\md out of which countries which are not. selling enough abroad to pay for their imports
can temporarily obtain international means of payments, Such loans
are intended to provide a breathing spell during which the countries
can take steps to adjust their international position, (4) lhe
exercise of influence for the adoption of measures to bring about
equilibrium in the international balance of payments of countries
that are borrowing from the Fund and to a less extent of other countries with unbalanced accounts•
Under the headings below are set out the principal features
of the Treasury proposalf
•LL Contributions to j&e Fund
Each country agrees to contribute a stated amount, the contributions being partly in gold and partly in local currencies and securitiesf
The proportion to be contributed in gold is graduated in accordance
with each oowitry1 s gold holdings. The total contributions of individual countries are determined by a formula which takes account of
such factors as gold holdings, national income, and the magnitude and
fluctuations of the foreign trade of the individual countries. Total
contributions shall amount to at least $5 billion, possibly $10 billion.
The United States will contribute between $2 and $3 billion,
2JL Noting Power
A country' s share in the voting power and management of the
Fund is determined as follows: each country has 100 votes plus 1
vote for every million dollars contributed to the Fund. No~country

- 2 -

i s entitled to more than one-fifth of the total voting power. Ihe
United States will have about oneHfifth of the vote, England about
one-tenth, and the British Empire as a whole - one-f if th*
3JL Lending Obligations of Member Countries
Each country i s in effect committed to lend through the Fund
up to the amount of i t s own contribution and no more* If, for example,
foreign countries obtain from the Fund dollars contributed by the
United States, what this amounts to i s that they are borrowing from
the United States through the Fund dollars with which to purchase goods
in the United States f Ihe only way the Fund can obtain dollars in
excess of the United States contribution i s by selling foreign gold
to the United States or borrowing here f Ihe Fund cannot borrow here
without our consent,
4*. Borrowing Rights of Member Countries
Each member countiy has the right to borrow foreign currencies from the Fund up to the amount of i t s contribution* ftiis right
to borrow, however, i s limited to borrowing for the purpose of meeting
deficits in international balances of payments arising from the purchase
of goods and services, A country i s thua able temporarily to maintain
i t s purchases abroad without being forced to lose gold, adopt deflationary policies, control foreign exchange transactions, or allow
i t s currency to depreciate, Ihe amount i t can borrow i s limited, however, and the borrowing country i s , therefore, under pressure to bring
i t s purchases abroad into balance with i t s sales,
5i Possible demand for dollars
On the basis of a 10 billion dollar Fund the total demand
for dollars without a special vote could reach a theoretical maximum
of 9 billions, To meet that demand for 9 billion dollars the Fund
would have 5 billion dollars of gold (3 billions contributed by the
United States and 2 billions by others) which it could exchange for
dollars, Ihe difference between the 5 billions and the 9 billions
could be raised by borrowing in the American market or from the
Federal Reserve Banks, provided the United States was willing to
authorize s\xch borrowing. If it was not willing to authorize it,
the amount of dollars available wpuld fall short of the demand, and
dollars in the Fund would have to be rationed, It should be remembered,
however, that those are only possibilities, and that it is not at all
likely that all of the demands of all of the countries would concentrate
on any one country,
&•. Influence oj[ Fund on Policies of Member Countries
Ihe Fund, as a condition of extending further loans to a
country, may require it to take steps to adjust its position, Ihe
more gold and free foreign exchange there is contributed to the Fund,

- 3 the sooner members will find it necessary to resort to the Fund to
meet an adverse balance of international trade, thus subjecting
themselves to such conditions as the Fund may wish to impose# While
most of the world1 s gold and foreign exchange holdings will remain
outside the Fund, it may make recommendations to countries which are
not borrowing from it, but which are in part responsible for international disequilibria,
!LL Exchange Rates
Initial exchange rates are to be established in accordance
with the relative values of the member currencies on July 1, 1943#
unless either the member country or the Fund considers that rate inappropriate. In such case the rate will be determined by consultation
between the member country and the Fund. All member countries agree to
maintain the exchange rates established, During the first three years,
however, a member country may alter its rate by 10 per cent after consultation with the Fund in order to maintain a balanced position for
that country. Further changes in the first three years require the
approval of a majority vote of the Fund. After the first three years
changes in rates can be made only whsn necessary for the correction of
a fundamental disequilibrium and with the approval of a 3/4 vote of the
Although the **und contemplates relative stability of exchange
rates it does not contemplate absolute rigidity, Ihe Fund may recommend
changes in exchange r&tes as a means of restoring balance in an individual
country's foreign exchange transactions.
*LL International Capital Movements
Large movements of short-term funds from one country to
another for speculative reasons or because of a loss of confidence
in the monetary system of a particular country have been & disturbing
element in international monetary relations* In the plan any country
is allowed to control capital movements into or out of the country
and all countries agree to cooperate with other countries which have
imposed controls on the export of capital with the approval of the
Fund. Furthermore, a country borrowing from the Fund may be required
to control an outflow of capital as a condition of obtaining further
aid from the Fund, and the Fund may recommend the imposition of capital
controls to any country, whether it is borrowing from the Fund or not,
which appears to be disturbing the equilibrium.
9^ Exchange Controls
Another disturbing element has been the rapid growth of
restrictions of all sorts on foreign exchange transactionsf In the
plan member countries agree to abandon all restrictions on foreign
exchange transactions as soon as they feel that they are in q position
to do so, except for the restrictions which are imposed as a means of

controlling capital movements. All countries agree not to impose
any new restrictions without the approval of the Fund except those
required to control capital movements. More specifically member
countries agree not to enter into any new bilateral clearing arrangements nor to have various exchange !rates for different purposes if*
in the judgment of the Fund, these arrangements retard the growth
of world trad© <Jr the international flow of productive capital*
1O.« Possible Effect on Gold Flow to the United States
As far as the United States is concerned the plan adds 2 or
3 billions (depending on what contribution is detenained) to the
theoretical maximum of gold that may cane to this country. This
theoretical maximum, counting the 11 billions of gold held abroad
plus 3 billions contributed to the Fund by the United States, aggregates 14 billion dollars to which should be added a billion dollars
of newly mined gold every year. The proposal, however, creates a
stabilizing mechanism which, if it is successful, may result in
reducing the concentration of the demand for goods and services on
this countiy and the consequent flow of gold to the United States#
It may be said that the degree of the plan1 s success could be measured
by the extent to which it will make unnecessary and, therefore, will
avoid further concentration of gold in the United States.