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Division of Research and Statistics
Highly Confidential

October 31, 1935

The current movement of gold from Europe to the United States began
early in September with small shipments from London. On September 17 the
first gold arrived from France, and on September 33 shipments were received from the Netherlands. In the five weeks ending October 21 about
$370,000,000 of gold arrived in the United States, and $50,000,000 more
is scheduled to arrive during the next ten days. Of this $420,000,000
France has shipped $195,000,000, England $135,000,000 and the Netherlands
$55,000,000, 35N|; remainder has come largely from India and Canada,
This heavy movement of gold does not reflect an excess of payments
due to the United States on ordinary transactions with the world. Recently this country^ merchandise exports have exceeded its imports by only a
small amount. Largely because of agricultural developments the surplus of
exports has been cut down from an average of $33,000,000 a month for the
first eight months of 1934 to less than $4f000,000 a month in 1935. This
small excess, together with income from foreign investments, has been more
than balanced in 1935 by tourist expenditures abroad, immigrants1 remittances, and freight payments to foreign vessels*

That gold nevertheless

has flowed to the United States during the year is attributable to the
heavy movement of capital to this country. The volume of gold imports has
been held below the inward movement of capital by purchases of silver abroad
for account of the United States Treasury.

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Dutfiftg the crisis in the gold bloc countries last spring, the movement of capital was largely in the form of short-term balances. Speculative
and flight funds were being transferred from these countries to Hew York,
There was also a large return of Hew York funds from London, where the discount on forward sterling made the continued holding of balances unprofitable. During the summer forward quotations on sterling and gold bloc currencies continued to be at a discount, and there was little return to Europe
of funds that had come here in the spring crisis* There was, in fact, a
considerable net inflo\7 of short-term funds, reflecting liquidation of
Garman short-term indebtedness to the United States, and a movement of
balances to this country from Latin America and the Par East, In addition
there was a large movement of European resources into the New York security
market. Purchases were isostly of American rather than foreign securities*
From the end of the spring crisis until September the greater part
of this inward movement of capital was offset by purchases of silver abroad
for account of the United States Treasury*

There \vere, however, imports

of gold amounting to about $60,000,000 during July and August, half of
which was shipped from the Netherlands during the week in which the Dutch
Cabinet was overturned. The movement ceased with the passing of the
Cabinet crisis.
Aside from the Dutch shipments Europe lost little gold to the United
States during the summer months, but losses in reserves suffered by commercial bonks in Paris and Amsterdam during the outward movement of gold in
the spring were not restored and these centers continued to carry the indebtedness incurred at their central banks at that time. Early in September,

when the current gold movement began, reserves were still at the lowest
level reached since the international crisis in 1931 : n indebtedness
was near the spring peak.

The cost of this indebtedness has been lowered

in France, however, by successive reductions in the rate charged by the
Bank of France, Prom 6 percent on June 20 the bank had lowered its rato
by August 9 to 3 percent.

The Netherlands Bank, after reducing its rate

three times, raised it from 3 to 6 percent during the crisis in July and
thereafter reduced it to 5 percent. On September 17, in the face of the
renewed gold outflow, the rate was again raised to 6 percent.

In view

of the substantial volume of indebtedness to the central banks, the course
of central bank rates has largely determined the course of open-market
rates in Paris and Amsterdam.
The fact that the current movement of gold to tho United States led
only the Netherlands Bank to raise its discount rate is attributable to
several peculiarities in the situation. Pressure on European currencies
developed toward the end of August as silver purchases abroad by the United
States Treasury diminished in volume. During September there was little
further activity of the Treasury in foreign markets and consequently the
movement of capital had its full effect upon the movement of gold#


direct shifts in capital between countries, however, did not correspond
with the flow of gold.

Throughout the month funds continued to be trans-

ferred to New York for Tar Eastern account; and, although gold began moving in heavy volume from the Netherlands and Trance, the transfer of funds
on Continental account was largely for Switzerland and the smaller European

It appears that the Japanese, Swiss, and others who moved bal-*

~ 4 -

ances to this country were for tho most part transferring London balances
to Hew York.

In addition the British themselves were building up balances

and buying securities in New York.

As a result the pressure of the capital

movement was concentrated on London,

The British Fund transferred this

pressure to Prance by selling francs obtained through the release of gold
earmarked in Paris.

The sale of francs depressed the franc to the gold

export point and nearly half the gold received in the United States has
consequently come from Prance. But it has come, not from reserves of
the Bank of Prance v/hich have increased during the movement, but from
holdings of the British Fund.

In addition substantial amounts of gold

reaching the London bullion market from South African mines, Indian
hoards, and other private holdings have been transferred direct to the
United States. Recently there has been some evidence that the Fund itself has been selling gold in London.

It is in the nature of the Fund's

operations, however, that they cannot affect either the reserve position
of the Bank of England or of the London clearing banks, for its gold
transactions are automatically compensated by its purchases or sales of
Treasury bills. Hence not only has the Pa^is money market been unaffected
by the gdld flow from France to the United States but the London market
has also been unaffected by the heavy outward movement of balances and
gold together.
The movement of balances from London to New York appears to reflect
the disturbing possibilities of the existing situation in Europe and the
prominent role played in it by England.

On the other hand there is little

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evidence that the movement of gold from the Netherlands in September was
attributable to the same cause. Dutch exports of gold began on the eve
of the reconvening of Parliament when there was considerable chance that
the Catholic Party might withdraw its cooperation with the Government and
overthrow the economy program. When the Catholic Party failed to develop
a program of its own and voted for most of the Governments measures designed to balance the budget, the gold outflow practically ceased. Dutch
shipments of gold to this country during October have been negligible,
and the Netherlands Bank has been able to replace through purchases in
Paris sone of the gold lost in September. On October 17 it reduced its
discount rate to 5 percent.
Gold has continued to flow to the United States, however, from
England and Prance. The movement has been moderated somewhat by renewed
purchases of silver abroad for account of the United States Treasury.