View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


Post Office Delivery Unit 13

June 27, 1944

Board of Governors
of the Federal Reserve System,
Washington 25, u. C
Dear Sirs:
In accordance with the invitation contained in your letter of June 8, I am enclosing a
statement of our directors and officers with respect to certain aspects of the proposal for an
International Monetary Fund*
Very truly yours,
(Signed) Hugh Leach


Statement of the Board of Directors and Officers
of the Federal Reserve Bank of Richmond with respect
to the establishment of an International Monetary Fund
A conference of delegates of the United and Associated
Nations has been called by the President* The conference is to
meet at Bretton Woods, New Hampshire, on July 1, for the purpose
of considering proposals looking to the establishment of an international monetary fund and also possibly the proposal for a
Bank of Reconstruction and Development - Chairman Eccles, of the
Board of Governors of the Federal Reserve System, has accepted appointment as one of the members of the American delegation to this
tfader date of June 8, 1944* Chester llorrill, Secretary of
the Board of Governors, advised President Leach of the approaching
conference and also of a meeting of certain Reserve System people,
held under the auspices of the Board, in Washington, on J m e 6, for
the purpose of considering plans for both the proposed monetary fund
and bank* In this communication, Mr* Morrill mentioned the desire
of the Board, expressed at the conclusion of the meeting referred
to, that directors and officers of Federal Reserve banks supplement,
if they so desired, views previously expressed to the Board on the
international monetary fund* Albert If* Creighton, Chairman of the
Conference of Chairmen, attended the meeting of June 6, on invitation
of the Board of Governors, and under date of June 8 he advised Cnaiman
Lassiter of this Board of the gist of the discussion at the meeting*
It will be recalled that the directors and officers of this
bank submitted to the Board of Governors, on August 12, 1943, a
statement concerning the Plans for the Stabilization of Post-War

- 2 Currencies* Ihile they did not commit themselves at that time with
respect to either the Keynes or the White plans for stabilization,
they did express a desire that there should be no ^repetition of
the chaotic conditions which prevailed in the international exchanges
following the conclusion of World War !•*

They were therefore

"hopeful that a workable plan can be evolved for the establishment
of a central fund from which deficit countries may obtain temporary
advances, with appropriate limitations, likely to contribute to
more stable economic conditions in those countries •tl Continuing,
they pointed out that these exchange controls which hamper international trade and finance should be removed as fast as it is consistent with the economic welfare of the countries now employing
them and with the achievement of the broad purposes of the plans•
In supplementing at this time the statement of August, 1943*
the directors and officers logically should consider whether w a
workable planri has been prepared for presentation to the July conference at Bretton Woods, and, if not, they should then point out
those respects in which the plan should be amended in order to make
it workable* It is the feeling of the directors and officers that
the plan to be presented to the Bretton Woods conference is not
workable as it stands, and to become workable certain changes are
essential* Specifically, the substance of the changes which would
seem to be desirable is as follows:
1. The plan to be considered at Bretton Woods, in section X,
wisely recognizes distinctions between the period of transition
immediately following the war, i*e*, in the early post-war years,
and the period following the transition during which exchange controls

-3 of one sort and another would

be abandoned. The transition period

contemplated is three years* The plan does not require termination
of exchange controls at the end of three years, but it does require
the members to confer with the fund at that time respecting their
intentions concerning the further use of exchange controls. There
is involved here a question of considerable moment, for it is conceivable that, in order to achieve internal stabilitjr at a hirti
level of employment, some member may desire to retain exchange controls well beyond the three-year period.

If so, then such a country

would have the advantage of those restrictions imposed by the fund
upon members that have abandoned exchange controls, and at the same
time it would have* the advantage of exchange controls. Such a
situation raises the question as to whether any plan for stabilization of exchanges is feasible during a transition period the duration of which cannot in the circumstances be defined.
If the stabilisation plan is to be attempted nov\r, it would
seem that the fund should have somewhat greater authority for the
transition period as well as later. As has been pointed out,
section X, 3 d o ^ not give the fund authority to require a member
country to terminate exchange controls even when failure to require
such termination may place heavy burdens on those countries not
enjoying exchange control, particularly creditor countries. Indeed,
the plan does not contemplate a recommendation by the fund that controls should be terminated by a particular member country.
It is possible that countries with frozen balances will
desire to retain exchange controls as a means of bringing about
conditions favorable to the liquidation of these balances. But

- 4such an arrangement may mean an exchange situation decidedly unfavorable to a large creditor country. Furthermore, as far as the
transition period is concerned, it is important to recognize the
fact that the fund alone will be only of minor significance.
Therefore, care should be taken to make it clear that the fund is
not to be used for purposes that can best be achieved in other ways.
2. A workable plan seems to reauire clarification of section VI relative to scarce currencies. If the currency of a
particular member should become scarce under the plan, that currency is to be apportioned and the fund shall make a report embodying the causes of the scarcity and recommendations designed
to bring it to an end.

It is conceivable that the only remedy

might be to borrow the scarce currency from the member country
or to buy it with gold*

Can a country whose currency is scarce

refuse to lend or sell if a refusal is in the interest of its internal equilibrium? The position of such a country might be
further complicated by the fact that its currency is on a gold
basis. Might not such a country be under compulsions of one
sort or another to lend or sell its currency?

Does not the plan

as it stands carry the probability that the creditor country
whose currency is scarce might well be confronted with a dilemma?
In view of these questions, it would seem desirable for the plan
to contain s i e provision for the protection of the country whose
currency is scarce, i*e., some definite limitation on its obligations to lend or sell its currency as an alternative to withdrawal
from membership. As the plan stands, it is conceivable that debtor
countries could place a creditor country whose currency is scarce

- 5 in a very embarrassing position, in that its refusal to lend, or
to sell its currency for gold, might be tantamount to a breakdown
of the fund* This assumes, of course, the possibility that the
governing board may be dominated by debtor countries*
How that the teeth have been extracted from the plan,
this country has been put in a position where it will be virtually necessary to put up more dollars because of the policies
that other nations may elect to pursue* While it may be necessary for creditor countries to make concessions, it is not believed that they should make all the concessions necessary to a
mutually beneficial plan*
3* Perhaps more could be accomplished towards stabilization
of the international exchanges in the transition period and the
transition period itself could be shortened if an agreement could
be reached among the major countries which have participated in
the preparation of the plan* Thus, it might be possible to reach
a fairly definite "understanding respecting the measures which
each of these countries proposes to pursue in its efforts to
attain approximately full employment internally* In this way,
perhaps, exchange controls on the part of some of them might be
terminated sooner* Perhaps it would be possible for the chief
creditor countries included in this lesser group to come to some
understanding with respect to ways and means of financing the
chief deficit countries in the same group, and a plan for extending the necessary credit might conceivably be worked out*
Moreover, this plan might include the frozen funds problem confronting any debtor country* Obviously, if these things could

- 6 be done, then more serious problems that would otherwise fall upon
the plan could be removed or at least considerably reduced*
4» I& section VII of the plan, it is provided that the
fund shall be governed by a board, on which each member will be
represented, and by an executive committee* The executive committee shall consist of at least nine members, including the
representatives of the five countries with the largest quotas*
Since it is certain that the United States would be one of the
five countries thus referred to, it follows that this country
would have a representative on the executive committee* But, in
view of the fact that in the event of the adoption of the plan
the decisions of the committee may have a considerable impact
upon the banking system of this country, it is highly desirable
that the American member of the executive committee shall also
be a representative of the Federal Reserve System^ It is quite
clear that otherwise steps might be taken by the committee, the
significance of which, for the Federal Reserve System, would not
be made sufficiently clear to the members of the committee and to
the governing board* If this cannot be done, some arrangement
should be made to the end that the American member shall work
closely with the System*

June 23, 1944