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J u n e . 1 8 , 1 9 4 5 -- 1 0 : 3 0 A . M .

(Sixth day of hearings')

"• TheCommittee continued tp question Mr. Harry White, Assistant Secretary
: ;
of t he Treasury. ; Senator \Fu.lbright (D. ArkJ asked for an explanation of the
Fund's procedure in the event that any particular currency in the Fund should become scarce. Senator Taft.(R, Ohio),indicated- his interest in the same problem.
Mr.'White, replied that since, a'scarcity of. dollars was the usual assumption in
discussions of this problem he would speak in those tarms. As dollars were drawn
from the Fund at a more rapid'pace than they.were replaced, the first action taken
by the Fund would be to supplement the original holdings of dollars through sale
to: the'United.States Treasury of gold.held by the Fund. Let us assume that the
decline in dollar holdings continues so.that it appears that a general scarcity is
•developing." The Fund is then permitted to issue a report setting forth its interpretation of the causes of the condition in question .and to make recommendations
''for its "'correction. This, authority is permissive rather than-mandatory; if a report Is issued, a representative of the United States would assist in its preparation. , If the dollar holdings should decline- further to the point of actual
scarcity (Mr. White mentioned 50Q million to 250 million dollars)' the Fund would
issue a formal declaration of such scarcity together with a report of the alleged,
causes. This declaration would relieve the member countries temporarily of the
commitment not to place, any restrictions upon current dealings by their nationals
in dollars; they would be free to ration dollars to -their importers.

.Senator Millikin .{R. Q Q 1 O « ) asked whether-this did not mean that other
nations would have the power to.control our- foreign trade. Mr. White replied that
, they would have no .more power in that direction than they had In the pre-war perioc
' Each member country would be permitted to return to "pre-Fund". practices, but woult
be. required to use methods ,no more restrictive than necessary to limit the demand
for dollars to.the supply held by or accruing to the member.. Furthermore, they
"would be required to. relax those measures as rapidly as., conditions permitted.
This.was the., procedure, said Mr. White, but he did not agree that there
was much a anger of the fund's' holdings of dollars becoming, scarce in the early post
war years. He mentioned the,gold and dollar reserves accumulated by foreign countries during the war. Of these, the Treasury estimated, some 3 billion dollars
might be used for imports; newly mined gold from countries other than the United
States ancl Russia might furnish some 5 billion dollars worth of purchasing power
in a five-year period; United States capital investments abroad might be conservatively estimated at "a couple of billion" annually. Accordingly, over a five-year
period foreign countries would have 18 billion dollars to spend on United States
goods without taking into account the dollars accruing to them on current account
through United States purchases of goods and services. Senator Taft pointed out
that Chairman of the Board of Governors had testified in another connection
that the United States might be forced to ration exports in order to conserve
domestic supplies. Mr. White said he thought that he and Mr. Ecclos would probably
agree/if both were speaking of the same time periods. Mr. White did not think
foreign demand would prove embarrassing for very long. Senator Taft pointed out
that foreign gold holdings were unevenly distributed, and Mr. White replied that,
in general, the countries without fairly large gold reserves were not important

trading countries, ; Senator Tit It right asked whether all newly mined gold must
come to the Fund..; M r # . W h i t e 'answered that if a country had borrowed from the Fund
and if it's reserves had increased, then any gold it secured must be delivered to
the Fund. Senator F u i b r i g h t .asked how the United Spates might reduce the danger
of a shortage of dollars in the outside world. M r . White replied that lowered
tariffs and encouragement of international lending would work toward maintaining
foreign supplies of our.currency.
• . •
•••'• Senator Taft objected to the prospoct that the ^'und. might issue a report
blaming the United States, for a dollar scarcity for' which we might not be truly
responsible. M r . White, agreed that the United States representatives had considered this problem.. . Be stressed that'.any report published must bo approved by
the United States representative;• The report would then be considered by the
American government and approved or disapproved on the basis of all the facts. Tfc
report would not commit any government to specific action; the commitment was only
to give'Consideration to the;findings and proposals of the Fund. Senator Taft
quoted Lord Keynes to the effect-that the United States could never let the scarce
currency provision come into effect and that by accepting that provision it was
assuming a large share of responsibility for preventing deflationary effects which
might arise from undue absorption of world monetary reserves into this country.
M r . White stated that rue did not think Lord Keynes had. given-the soundest interpretation of the scarce currency provisions.
Senator Taft suggested that a shortage .of dollars i'n the Fund might
develop although private entities in foreign countries might hold large dollar
sums. M r . White pointed out that Article 19 (a) provided for an interpretation
of "official holdings" which would include excessive holdings of foreign exchange
by private banks and, indirectly, by corporations. This would preclude the danger
of the situation postulated b y Senator Taft 'on any large scale. Small private
holdings might exist in spite of a scarcity of dollars in the Fund. Senator Taft
suggested that the supervision necessary to prevent concealment of funds and. black
market dealings would require'widespread regimentation. M r . White replied that in
so far as the United °tates was concerned our obligation to prevent currency
dealings at other than established parities was fully discharged by our willingness
to buy and sell gold freely at the established price. A s to- private dollar balances held abroad which could not be detected from our own or foreign data, these
were "peanuts" in so far as the over-all picture of currency stabilization was

Board of Governors
of the Federal Reserve System
Division of.Research and Statistics
... June 1 8 , 1945