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May 2, 1945 — 2:00 P.M.
(Twentieth day of hearings)

Questioning, of Dr. Kemmerer was resumed at the afternoon Session.
Representative Crawford {R. Mich.) asked if he was correct in assuming that
there were two distinct groups in the United Kingdom, the first favoring continuation of the sterling bloc in its present rigid, wartime form, the second
favoring adoption of the Bretton Woods program and greater multilateral co- '
operation. Dr. Kemmerer suggested that the first group could be subdivided
further to identify those who,wanted the-Bretton Woods program but who believed
that it would bo consistent with continuance of sterling bloc operations in
their present form. He mentioned Lord Keynes as an example. The witness agreed
with Representative Crawford that the existence of 3 billion pounds of blocked
sterling balances would promote continuance of the sterling bloc by strengthening the interest of the creditor countries in maintaining the value of the
British, pound. Representative Crawford asked how the United States would manage in the long run to accept the imports necessary for payment of interest and
amortization on our loans to foreign countries. Dr. Kemmerer replied that as
an economist he believed such imports could be accepted without harm to the
economy but that he realized difficult political-questions would be raised by
the internal adjustments which would be required. In reply to Representative
Crawford, the witness stated that he did not believe the point had been reached
at which the domestic accumulation of capital could not be invested in this
Representative Sumner (R. 111.) asked whether the witness believed
every country should go back to the gold standard independently and as soon as
possible. Dr. Kemmerer agreed that he would advocate this, though he hoped
that there would bo increased resort to voluntary consultation among the monetary authorities of the various nations and a strengthening of some central
agency such as the Bank for International Settlements to operate as a clearing
house for central bank transactions and for the collection of monetary information. In reply to the Congrcsswoman, Dr. Kommeror attributed the present
antipathy of Britain toward the gold standard to that country's attempt to
stabilize the pound at too high a rate in the twenties. Representative Sumrier
asked whether by supporting the Bretton Woods program the United States would
in fact delay world economic recovery. Dr. Kemmerer replied that in his judgment this would be the result of the resurgence of nationalistic policies which
could be expected under the program.
Representative Woodhouse (D. Conn.) asked whether a return to the
gold standard would stabilize our domestic price level and pointed to the magnitude of fluctuations under that standard. Dr. Kommerer stc.ted that in the
long run -we would find greater stability under the gold standard since we would
be less subject to inflationary influences arising from currency debasement
abroad, fie contended that truly remarkable price stability had characterized
the period prior to 1914 and that no international gold standard had really
existed since that time. Representative Iffoodhouse asked if there were a real
chance to return to an international gold standard. Dr. Kemmerer replied that
opposition to this cqurse was greatly exaggerated. Foreign nations were interested in acceptance of the Bretton Woods program because they hoped to increase their external purchasing power thereby. A few years of experience

under politically managed currencies would cause the nations of the world to turn
again to gold. In the United .States strong support could be found for the gold
standard and it was possible that we might eventually adopt the standard even if
the United Kingdom refused to do so. In reply to Representative Woodhouse, he
suggested that trade between a gold standard country and non-gold standard countries would be easier than trade among..countries with fully managed paper currencies. Representative Woodhouso pointed out ;that Dr« Kemmerer's prepared
statement had suggested that currency debasement might bo caused by expensive
social welfare policies and asked if a return to .gold would mean a. curtailment
of such progressive measures. Dr. Kemmerer said this would .not necessarily be
the case, but that each nation must be prepared to pay for such services in
terms of domestic consumption standards.
Representative Smith (R, Ohio) credited the witness with having
pointed out that the Fund was not an instrument for stabilizing currencies but
a measure for legalizing currency debasement. The witness agreed. Representative Smith remarked that Lord Keynes in his original plan for a clearing union
had never mentioned the word stabilization.and stated there was no article in
the body of the present Fund Agreement which provided for stabilization.. Dr.
.Kemmerer agreed that there was very little left of the professed, function of
stabilization .when the exceptions arid escape /Clauses were taken into consideration. He believed the Fund Agreement would make monetary debasement an accepted
measure of monetary policy, one of the new rules of the game.

.Board of Governors •
of the Federal Reserve System •
Division of Research and Statistics
May 3, 1945 . • / .