View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

BOARD OF GOVERNORS

DF THE

FEDERAL RESERVE SYSTEM

Correspondence
Tn
Frnm

fihMmiim
*** ^ a P P
**

ltoaign

Date January 6, 1%8
Suhfot; National Advisory Council
meeting today

Suppleiaenting my nwemorandum of yesterday's date, I should like to
offer the following comments on the remaining items on todayfs National Advisory Council agenda*
1. United States assistance in tracing foreign private dollar assets in the

The problem here is what the U.S. should do to help foreign countries locate blocked assets held in the United States by their nationals
which are known to us but have so far been hidden from the foreign governments concerned. Many European countries (France is the best example) have
ordered their nationals to declare and deliver their dollar assets, but in
some cases there has been widespread disregard for such orders. On the
other hand, the Treasury will unblock European-owned dollar assets only
upon certification by the government concerned that no enemy interest is
involved. As a result, many of the holders seem inclined to leave their
assets in the United States blocked indefinitely.
The Treasury is anxious to wind up Foreign Funds Control and proposes in the near future to transfer its jurisdiction over the rexsaining
blocked accounts to the llien Property Custodian, now in the Department of
Justice. There has been some thought that the Alien Property Custodian
might proceed to vest as presumed enemy property all remining blocked accounts, which would "smoke out11 genuine allied holders who ware simply
hiding their assets from their governments. However, it appears that the
Alien Property Custodian doubts its legal powers to take such action so
that it might continue to sit indefinitely on these blocked assets*
Aside from the administrative problem, it is clear that the interests of the United States would be served by revealing to the foreign
governments concerned the blocked accounts held by their nationals tore,
since this would enable them to mobilize their dollar resources more fully.
On the other hand, this would mean a sharp departure from previous American
respect for private property rights, and such action by the United States
would render many foreigners subject to extreme penalties in their home
countries. This latter point of view is emphasized by the New York bankers
who say that many of the holders of these hidden assets are patriotic citizens
who will be glad to yield up their dollars when sound (non-socialist) governments are restored in their home countries.
Obviously this is a very prickly problem, and the Treasury has
definitely decided not to take any action on it without consultation with




-2Congress. The Treasury does feel, however, that some recoamendation should
be made to the Congress, preferably with the approval of the N.A.C., and I
believe it will today propose a recommendation to the effect that the U.S.
should disclose to foreign governments participating in the European Recovery
Program the blocked assets held by their nationals in the United States.
This Blatter has received a considerable amount of discussion in
the H.A.C. Staff Committee, but through pressure of other business has not
been pursued to a definite conclusion. In fact, most of the other agencies
have really tried to duck the issue and have left the matter to Treasury
and ourselves*
On our part, we have discussed this matter with the Hew York Bank
in our Staff Group on Foreign Interests and have had the benefit of Mr.
Sproulfs letter to Secretary Snyder on the subject (copy sent to you by
Mr. Sproul on October 22, 1947). In general, the Federal Reserve staff
people agree with Mr. Sproulfs position that (l) these blocked dollar assets should somehow be pat at the disposal of the foreign countries concerned, but that (2) if possible, we should not reveal information concerning
the identity of the holders or, if forced to this action, should seek to
have them granted some kind of an amnesty. In an attempt to reconcile
these objectives, we have spent a considerable amount of time in exploring Hrick schemes* which would make the assets available to the foreign
governments without revealing the identity of the holders. However, we
have been unable to convince the Treasury of the feasibility of any of
these schemes. Personally I do not believe that the Treasury has given
adequate study to such compromise proposals!/ but they feel strongly that
they should go ahead with a recommendation for disclosure*
Under the circumstances, I would recommend acceptance of this
proposal subject to suitable arrangements being made for amnesties in the
foreign countries concerned. It appears that most of the foreign governments concerned would be quite willing to grant such amnesties as a price
for U.S. cooperation.
Program
The National Advisory Council will be asked this afternoon to
endorse the work of the interdepartmental expert committees which have
worked on the I.E.P. estimates in the following terms:
1/ I have just been informed that the International Bank will put forward
some kind of a compromise proposal at this afternoon's meeting.




*The National Advisory Council Is satisfied that these
procedures (i.e. the procedures followed by the coamittees)
are sound, and has concluded that the recommended amount
(i.e. 6*8 billion dollars for the fifteen months ending June
30, 1949) is needed to achieve the objectives of the Program."
I fully appreciate the difficulty which you will find in joining
in such an action in view of the present state of your knowledge concerning
this technical work. However, I should like to give you the following explanation of the basic assumptions and methods by which this figure lms
been derived.
The basic assumptions have been:
(1) That the countries concerned will use their best
efforts to maximize their own production and to direct it toward sieeting their essential needs;
(2) That the intended levels of consumption (standard
of living) will be no higher than required to avoid
social unrest and to offer adequate incentives to
the working population; and
(3) That the investment programs will be appropriately
designed to increase productivity and to restore the
economies to a self-supporting basis by the end of
the recovery period.
Account has also been taken of the availability of supplies for
Europe.
On this basis, a calculation has been made of the balance of payments deficit of each country. Ifext it has been assumed that the European
countries can find ways and means to meet their deficit with the world outside the Western Hemisphere (except to a limited extent in the case of
Germany).
The final calculation on the need for United States assistance
is as follows:




15 months
April 1, 1948 to June 30* 1949
(in millions of dollars)
Deficit with Western ffemisphere
Portion of German deficit with
Eastern Hemisphere
Total to be financed
Means of financing
(1) From sources other than new
U.S. Government assistance
(a) International Bank and other
sources in U.S.
(b) Credits from other Western
Hemisphere countries
(c) Payments in cash
Subtotal
(2) From new U.S. Government
assistance
(a) for procurement in U.S.
(b) for procurement in other
Western Hemisphere
(c) for German procurement
in Eastern Hemisphere
Subtotal
Total financing

8,527
200
8,727

500^/
700^
852/
1,285

4,627
2,615
200
7,442
8,727

1/ }fy own breakdown of this figure is as follows: International
Bank 300 million; unutilized balances of previous Export-Import
Bank credits 140 million; private investment 60 million.
2/ Ify own breakdown is 350 million for Canada and 350 million
for Latin America (mainly Argentina).
2/ Deficit of Portugal. Two other countries, Turkey and Switzerland, are not expected to have a deficit with the Western Hemisphere,
and hence they also will not be receiving aid.
It is proposed that the total amount of U.S. Government assistance
for this period be provided as follows: 822 million dollars by appropriation
to the Department of the Army for German disease and unrest imports, and 6.6
billion dollars by appropriation to the new l.R.P. agency (which will cover




-5German requirements over and above disease and unrest imports)* The final
figure of 6.8 billion dollars requested for the new E.R.P. agency includes
200 million dollars to be spent prior to June 30, 1949 for goods which will
be delivered only after tlmt date.
lou will understand, of course, that estimates of this character
involve a large degree of personal judgment and conjecture even when—as
in the present case—an immense amount of energy and manpower has been
used in their detailed development. Neither you nor any other member of
the H.A.C. could possibly be expected to have examined these estimates in
detail, so that in effect what the Council is necessarily asked to do is
to give a vote of confidence to the Staff work.
3» Beport to the Congress by the national Advisory Council
The Staff Committee has discussed the general proposals which you
made at the last H.&.C. meeting concerning the production of an N.JLC. report
to the Congress containing a more analytic statement of our foreign financial
policies and a more constructive discussion, with recommendations, of future
policy. We have borne in mind two considerations: (l) that it is very difficult to write such a statement at the present time until the Congressional
attitude toward the E.R.P. has become clarified, and (2) that we are bound
in any case to present the Congress during the next six months with a comprehensive report containing a review of the International Fund and Bank
activities to date, appraisal of their contribution to the interests of the
United States and the world, and recommendations as to how they may be made
more effective.
In view of the immense long-term importance of the Fund and the
Bank to our foreign financial policy, we have decided to recommend to the
Council that the over-all statement of our foreign financial policy be
combined with our report on the Fund and the Bank,and that this report be
scheduled for production around March or April of this year.