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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.