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Jform'F. R. 131
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

Office Correspondence
To

nhftirmfin T^cni f>s

From

Date October 2 4 , 1
Subject:-Stabilization Fund Operations

Lauchlin Currie
sro

The examples I sent you yesterday I had prepared for me by a man
in the Foreign Section. He has just reworked the figures and
discovered some arithmetical mistakes. They do not affect the
principle but they cut down the loss a little. On the off chance
that you might have occasion to use the examples sometime, I am
enclosing a corrected draft.




16—852

Jtorm F. K. 181
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
•yo

Chairman Eccles

From

Date
Subject:

Stabilization Fund Operations,

Lauchlin Currie
6 P0

Examples illustrating loss to Stabilization Fund if operations are
engaged upon to maintain the $-i rate despite a rise in the price of
gold in England or to drive up the $-i rate after it has fallen and
the price of gold has risen correspondingly:
1. a. L-$ rate: $4.90
b. British Fund1s selling price for gold: 142s. 9jd.
c. U. S. Fund (l) sells 1 oz* of gold to Treasury and receives
$35; (2) buys L7.14 at rate of $4.90; (3) 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 U. S., L-$ rate
falls to $4.85
b. British Fund, therefore, raises selling orice of gold to

144s. 4fd.
c. U*S. Fund (1) sells 1 oz. gold to Treasury and receives $35;
(2) buys L7.22 at rate of $4.85; (3) buys 1 oz. gold from
British Fund at 144s. 4|d.
Net result: no gold loss.

3. a. U. S. Fund desires to push L-$ rate back to $4.90.
b. British Fund leaves gold price unchanged at 144s. 4fd.
c. U. S.1 Fund (l) sells 1 oz. gold to Treasury and receives $35;
(2) buys L7.14 at rate of $4.90; (3) buys 0.989 oz.gold
from British Fund at 144s. 4fd.
Net result: loss of 0.011 oz. gold, ~ $0.38 at $35
an oz.

4.

a. L~$ rate: $4.90
b. British Fund raises price of gold from 142s. 9jd. to 144s 4fd.
c. U.S. Fund wishes to maintain rate at $4.90 and prevent it from
falling to $4.85.
(1) Sells 1 oz. gold to Treasury and receives $35; (2) buys
17.14 at rate of $4.90; (3) buys 0.989 oz.gold from




16—852

-2-

British Fund at 144s 4fd. Net result: loss of 0.011
oz» gold z $0.58 at $55 an oz*
Conclusion;
U. S. Fund can maintain the $-t rate without loss so long as the
$-L rate is such and the price of gold in sterling is such as to make
gold equal to $55 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 $-L rate without paying more than $55 an oz, for gold.