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STRICTLT CO»B)XSfIlL BOARD OF 00¥J OF THE FBMBUL RISSRVE SY81BX 3. Chairaan Booloa IN X. Mtor Attaohod Is a draft of tho briof statoaont that you atkod so to proparo yoitorday. X bollovo that it would bo a aietako to purofaaoo oortifioato* at yiolda no lower than of ono par oont booauoo of tho rooulting difficulty la obtalninc luffioiont toodort for bill*. libvember 3* Treasury bills at 3/& of one ptar cent are no longer hold as am lnvostaont, but are now almost solely hold as an instrument for mooting day-to-day adjustment* la tho reserve positions of commercial banks* At the present time, tho Federal Reserve System holds 3*5 billion dollars of bills, and other investors hold 7*5 billion. This latter emouass is far more than Is needed by banks for day-to-day adjustoents is their reserve positions* A further increase in the outstanding amount of bills is, therefore, umeeessary. Hi providing reserves, it should bo the policy of the System to encourage sanies to soil bills to tho System rather than other typos of securities. 4s long as the System continues to pay premiums oa certificates, however, it Is encouraging banks to soil certificates at a profit rather than to soil bills. If tho Treasury does mot adopt one of tho proposed methods of increasing the rate oa short-term paper* thus restoring it to an investment status, the System should frankly recognise that tho 3A °* on* P*r t**1* *•>*• on kills 1* really a discount rate and that bills are mot investments. The shortest-term investment paper would then be certificates, which the System should support only at a yield sufficient to maintain one-year certificates at 7/£ of ono p^r cent. Tho market might appraise tho certificates with maturities of from one day to ono year at varying yields, but the System would not purchase at yields othor than approximately f/B of ono per cent. Tho System would continue to purchase bills at the buying rate of 3/6 of one y^r cent* Tho present outstanding amount of bills coupled with tho elimination of tho profit oa soiling certificates would enable the System for sometime to supply necessary reserves by buying bills rather than certificates at premiums*
@FedFRASER