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rm F. R. 131
BOARD OF GOVERNORS
or THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Chairman Eccles

From

Date

October io,

Subject:

Mr. Goldenweiser/<7

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*