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April 19, 1945 — 10:oO A.M.
(Fifteenth day of hearings)


Mr. Karry White, Assistant Secretary of the Treasury, was the witness.
Representative Smith (R. Ohio) noted that since the Bretton Woods discussions
were not binding upon any of the governments represented at the Conference, each
nation retained the.right to suggest changes or to make reservations. He contended that Section 5 of the Bretton Woods enabling.legislation (H.R.2211). in-.,
corporated important reservations on the part of the United States. Mr. Luxford,
Assistant to the Secretary of the Treasury, pointed out that these provisions
simply state that the Congress shall determine the position to be taken by the
United States government on certain important questions, which under the terms
of the agreements must be referred to the government of the United States. They
ore not reservations in the legal sense of the word and do not in any way change
the terms of the agreements.
Mr. Smith quoted from Lord Keynes to the effect that the Bretton Woods
Agreements provided a "formula of protection against a recurrence of the main
cause, of deflation during the inter-war years, namely the draining of reserves
out of the rest of the world to pay a country which was obstinately borrowing
and exporting en a scale immensely greater than it was lending and importing"
and asked Mr. White whether he agreed. Mr. White answered that he' did not believe the Fund offered a complete solution or complete formula for prevention
of this situation. Through the scarce currency provisions of Article VII it
permitted countries to protect themselves from losing reserves to a country whose
currency had become generally scarce. In the absence of the Fund Agreement, of
course, countries could take whatever measures thoy wished to prevent the loss
of' reserves. The scarce currencies provisions stipulate that such protective
action shall be no more restrictive than the situation requires and shall be
relaxed and removed as rapidly as conditions permit. Representative Crawford
(R. Mich.) agreed with Mr. White that in the absence of the Fund countries would
protect their reserves by any independent action they might choose. He pointed
out, however, that United Kingdom representatives had stated that they would take
such action as they considered necessary whether Fund approval was received or
not. Mr. White stated that the United States had taken the load in insisting
that in the final analysis each country should retain the right to decide on unilateral action to protect its vital interests. Mr. Crawford suggested that the
large countries would probably come to the aid of small countries to avoid the
necessity of unilateral action by the latter and Mr. White agreed that this would
probably be the result of the fair and reasonable hearing which the Fund promised to all members.
In further discussion of the scarce currency provisions, Mr. White explained to Mr. Smith that determination as to when a currency hid become scarce
had been left to the discretion of the Fund management in the belief that the
rate at which the Fund's holdings of currency were being depleted was more significant than was the fact that such holdings had fallen by any specific predetermined percentage. Mr. White stressed that while the possibility of a general
shortage of dollars in the Fund was provided for, he believed that there was
little probability of such a shortage in the next six or seven years. Ha
pointed out that of the 11 billion dollars worth of gold received by the United
States between 1934 and 1939 only 3 billion came in payment for our excess exports
of goods and services. The Fund would not be used for the transfer of capital.

He believed the United States could increase its favorable balance on goods and
service account to 12 billion dollars in the first sis post-war years without
depleting the Fund's holdings of gold and dollars. Foreign countries would be
prepared to spend at least 3 billion dollars worth of the excess gold reserves
accumulated during the war; gold production outside.of the United States and' •
Russia would approximate 8 billion dollars; and American capital exports would
total at least 10 billion dollars. In reply to Representative Monroney '(D. Okla.),
Mr. White agreed that foreign investments, in the United States would decrease
the general supply of dollars available to foreigners for other purposes but
pointed out that the resources of the Fund could not be used, for such purposes.
Mr. Smith suggested that pro-war exchange- control, at least in the
United Kingdom, had been largely in private hands. Mr. White denied that this
was the case: exchange restrictions were essentially government functions. Mr.
Smith asked whether the United States government would be oblig-ed to maintain
its exchange rate-if dollars were declared scarce. Mr. White answered that the
obligation would be fulfilled by the purchase and sale of gold at the parity
price. Mr. Smith asked whether this would mean that exchange brokers could not
sell dollars at rates higher than parity. Mr. White indicated that sales at
other than the official rate would be considered black market transactions and
would presumably be concluded only by persons soekiug to evade the regulations
of the foreign country concerned. Mr. Smith inquired what measures Mr. White
would recommend if he were the United-States representative on the Fund and saw
a scarcity of dollars developing. Mr. White suggested that any gold held by the
Fund would be sold for dollars (although this was not mandatory) and that the
Fund would attempt to borrow dollars in the United Status or elsewhere. Mr.
Smith asked whether the Fund would not request; more money from Congress ana Mr.
White-replied .that it could do so and probably would.

Board of Governors
of the Federal Reserve System
Division of Research and Statistics
April 19, 1945