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rm F. R. 131 BOARD OF GOVERNORS or THE FEDERAL RESERVE SYSTEM Office Correspondence To Chairman Eccles From Mr. Goldenweiser/<7 Date October io, Subject: Attached i s a memorandum that I gave Mr. Morgenthau l a s t night at his request. October 29, 1936 Memorandum for Secretary Morgenthaut The alternative course© of action in connection with the Belgian negotiations are outlined in John Ifilliams1 aeaor&ndua, and the exact fora of the announcement and of the changes in regulations that need to be aade can be easily worked out after the general policy has been determined* It has occurred to ae that one thing that I aay possibly add to the discussion is my general view on the question what kind of a monetary standard we would like to see in the world. While I realise that it is mot up to us to dictate to other countries the way they should do business, it will nevertheless be easier to decide upon a course of action if we clarify in our own mines the character of monetary arrangements that we would consider desirable* If, for example, we consider it desirable to hare the management of gold in the hands of treasuries in all countries, then it Bay be wise for us to throw obstacles in the way of an agreement with Belgium, which relies upon a central bankf because by doing so we would exert an influence in the direction of treasury control of monetary matters in foreign countries. Before st&ting ay o«n views on this setter, I should like to say that I aa not in favor of a return of the world to an automatic gold standard* X feel strongly that the power to change the gold content of currencies should be in the hands of an executive body, so that legislation would not be required for making a change* The reason is that legislation Is too protracted and cluasy a proceeding to use in an emergency* At the same tiae I think that It would be desirable to Page 2 have such economic conditions in the world that exchange stability could prevail and gold could aaove freely froa one country to the other in settlement of temporarily unfavorable balances. Since I an not looking forward to a return of the automatic gold standard, I aa not interested in preserving Belgium as a nucleus of gold standard from which it could spread to other countries. I am inclined to look at this matter from a practical, realistic point of Tie*. I ask myself the question, what would be to the advantage of this country and to the advantage of world trade in the immediate future? Beyond the iaaediate future it is difficult to look at the present tine. It would sees to aie thut the desirable thing is for the three great trading countries to lie on the basis which has now been established, namely, a basis of aaitual cooperation between treasury-controlled stabilization funds used for the purpose of aaintaining exchange stability so long as it is not inconsistent with national prosperity* I feel that at present there is a better chance of revival of world trade under this arrangement than under §>ny other that can be visualised* The iamediate question is whether it would be to our advantage to have the smaller countries handle their affairs in the sa&e way as the three great countries in the agreement. My feeling is that it would not be to our advantage and that it would be better for world trade and for our own recovery if the little countries had a fixed price for gold* These countries are not r^ry important to the world froa the point of view of trade, but the world is Y9ry important to then because they de~ pend largely on foreign trade* while they cannot upset the general world Page 3 equilibrium materially, vide fluctuations in their exchanges add a hazard to the business of many individual firms and to many lines of trade* One could feel more secure about world trade if these little countries had firmly fixed currency values. To come to the point under immediate consideration, since I believe that it Is to our advantage to have Belgium continue on the gold standard, and since X am convinced, as X believe you are, th&t it is not desirable for us to exert pressure on her in any direction, I think that it would serve our purposes best to accept the agreement of the Belgian Government that Belgian monetary relations with this country will be conducted in accordance with the agreement of September 25 and to be willing to trade froa day to day with the Bank of Belgium, which is designated by the Belgian Government for this purpose. I think that we have nothing to lose by this agreement and that we have something to gain* ftie gain would arise partly from the fact stated above that it Is advantageous to us to have Belgium have a currency with a fixed gold value. Another gain would be that much a procedure would help to maintain the prestige of monetary leadership which we have recently acquired* the tri-partite agreement concluded in September has raised American prestige abroad enormously, and I think that it would be helpful in mainmaining this prestige to proceed further in the direction of extending the agreement to other countries* For these reasons it would be regret* table to become too technical or to adopt an attitude that could be interpreted as trying to take a hand in influencing foreign countries to adopt the pattern of our financial institutions* s« k*
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