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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.