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BOARD DF GOVERNORS

DF THE

FEDERAL RESERVE SYSTEM

Office C o r r e s p o n d e n c e

Date

J«» iof 1947

To

Chairman Eccles

Subject! national Advisory CouncH meet-

Frnm

*&*• Knapp

ing to be held on Thursday

JJUJ

I should like to give you the following CGmaents on the items so
far listed for consideration by the National Advisory Council on Thursday.
It is possible that a further item will be added relating to some technical
matters in connection with International Bank securities} if so, you will
receive a memorandum on this subject from Mr. Dembitz before the meeting.
(1) Gold transactions at premium prices. The Staff Committee is
presenting a paper on this subject which closely parallels the work done by
the Federal Reserve Staff Group and Policy Group. As you are aware, it has
now been suggested, largely at the initiative of the British Director in the
International Monetary Fund, that the Fund issue a statement deploring international transactions in gold at premium prices and recommending that all
members take effective action to prevent such transactions* In the recommended
action by the Council, the Council would instruct the U.S. Executive Director
to support the issuance of such a statement, would ask him to seek the publication of the statement by the Fund (or at least to take the position that member
governments be permitted to publish the statement), and would approve "in principle* the desirability of appropriate action by the United States complying
with the request of the Fund.
¥ith respect to the last matter, it is suggested in the Staff Committee^ paper that the Treasury consider tightening its gold regulations,
especially as related to the import and reexport of gold from the United
States, and that the Treasury Department and the Federal Reserve Board,
after consultation with the Aldrich Ccaamittee, might "eseercise moral suasion
upon American banks and business enterprises to induce them to desist from
engaging in international transactions in gold at premium prices." This is
right in line with the recommendations contained in the Policy Group memorandum on gold problems which we hope to present shortly to Secretary Snyder.
I had an opportunity to discuss this whole matter with Mr. Sproul
before the Staff Committee meeting which considered the problem, and I believe
that he is thoroughly in agreement with the result. In particular, he strongly
favored the position which we had taken in favor of publication of the Fundfs
statement. It would seem to me far preferable for the Fund itself to publish
a statement, but it will certainly be sufficient for our pwrposes if we (i.e.
the U.S. Government)are authorized to publish it.
(2) Final draft of N.A.C. report. In an effort to meet Mr. Martin's
objections to some of the language used in the final section of the report, the
Staff Committee has decided to delete any references to a "foreign financial
program11 in the section reviewing our activities to date. I must say I think




To: Chairman Eccles

-2-

June 10, 1947.

this is iy rather silly performance; if the Council has not been pursuing a
a
lf
program , it has been failing to do its job*
The final paragraphs outlining the present position remain tinchanged, except that the last three sentences now read as follows:
''Thus, the question of the extent to which this country will
need to provide additional assistance to foreign countries
cannot be readily answered* Despite the fact that the International Bank and the International Monetary Fund have begun
operations, a number of countries may be forced to impose
greater restrictions on their imports, particularly of United
States goods and services, unless further financial assistance
beyond the present powers of the United States Government lending agencies is made available• The ^agencies of the/ National
Advisory Council JBT£/ /!§/ giving detailed consideration to the
extent to which essential imports may have to be restricted by
foreign countries, the impact of increased foreign import restrictions on the world economy and the United States, and the extent
to which it would be in the interest of the United States to provide additional financing for essential imports by foreign countries .*
The bracketed material represents a coinpromise suggestion which would duck
the question of whether or not the N.A.C. is responsible for developing the
foreign lending policy• Meanwhile, however, I understand that General Marshall
and the President are being requested to state whether or not they believe that
the Council should assume this responsibility. I understand that your position
is that if they approve, you would accept the language as it originally stood*
I should only like to add that it seems to me perfectly clear that
the Council should do the job. The State Department will, of course, make
its contribution as a member of the Council, and the policies formulated by
the Council are, of course, subject to approval by the President. The Council
remains, however, the body which is technically best qualified to pass judgment on the intricate problems of our foreign lending policy, and it seems
to me that the Councilfs "coordination* of the policies and operations of
foreign lending agencies necessarily implies the development in the Council
of the over-all program and objectives.