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Form JT. « . 131

BOARD OF GOVERNORS
OF

THE

FEDERAL RESERVE SYSTEM

office Correspondence
__
_
prom

Date ^October gs, 1956,—
Subject:

Lauchlin ^urrie

I have had some examples worked out illustrating the point I was trying
to make to you the other day in connection with the Stabilization Fundfs
operations.




Form TL R. 131
BOARD OF GOVERNORS
OF THE

FEDERAL. RESERVE SYSTEM

Qffice Correspondence
To

Chairman Eccles

From

Date

October 25

>

Subject:

Lauchlin Currie
(PO

Examples illustrating loss to Stabilization Fund if operations
are engaged upon to maintain the $ 4 rate despite a rise in the
-»
price of gold in England or to drive up the $-L rate after it has
fallen and the price of gold has risen correspondingly:
1*

a. L - $ rate: $4.90
b. British Fund's selling price for gold: 142s.- 9jd.
c. U.S. Fund (1) sells 1 oz. of gold to Treasury and receives
$35; (2) buys L7.14 at rate of $4.90; (5) buys 1 oz.
gold from British Fund at 142s.-9§d.
Net result: no gold loss*

2. a. As result of capital movement from England to D. S.,
L-$ rate falls to 4.8T5.
b. British Fund, therefore, raises selling price of gold to
143s.-lljd.
c. U.S. Fund (1) sells 1 oz. gold to Treasury and receives
$35; (2) buys L7.24 at rate of $4.85; (3) buys 1 oz,
gold from British Fund at 143s.-lljd.
Net result: no gold loss.

3. a. U. S. Fund desires to push 1-$ rate back to $4.90.
b. British Fund leaves gold price unchanged at 143s.-ll|d.
c. U.S. Fund (1) sells 1 oz. gold to Treasury and receives
$35; (2) buys L7.14 at rate of $4.90; (3) buys
0.986 oz. gold from British Fund at 143s.-llfd.
Net result: loss of 0.014 oz. gold, z $0.49
at $55 an oz.

4.




a. Ir~$ rate: $4.90.
b. British Fund raises price of gold from 142s.-9jd to
143s.-ll^d.
c. U.S. Fund wishes to maintain rate at $4.90 and prevent
it from falling to $4.85.
(l) Sells 1 oz. gold to Treasury and receives $35;

16—852

-2-

(2) buys L7.14 at rate of $4.90} (S) buys 0.986 oz.gold
from British Fund at 143s.-Ujd.
Net result: loss of 0.014 oz.gold = $0.49
at $35 an oz.

General Conclusion:
U. S. Fund can maintain the $-i rate without loss so long as the
$-& rate is such and the price of gold in sterling is such as to make
gold equal to $35 an oz. in England. If the price of gold in England
rises more than in proportion to the fall in sterling, the U. S. Fund
cannot maintain the $-& rate without paying more than $55 an oz. for
gold.