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STRICTLY OOSFIDEHTIAL
Chairman Eecles

April 1,
Continuation of buying rate on

L. 1 * Piser
1

90-day bills

You asked me yesterday for my opinion on continuing the
buying rate of 3/8 of one per cent on bills that mature in 90 days
or less instead of establishing a buying rate of 5/8 of one per
cent on all bills. It seems to me that such a proposal would not
be satisfactory from the point of view of the Treasury in that they
would have no assurance that tenders for five- or six-month bills
would be received at 5/8 of one per cent*

It might be necessary

for the System to support the market actively at this rate in order
to assure the Treasury of adequate tenders*

A more important dis-

advantage, however, would be that, if holders of bills purchased
them at 5/8 of one per cent, they would be able to sell them to
the System at 3/8 of one per cent as soon as the bills had 90 days
to run and would thereby make a profit of 2/32 on their holdings*
There would be an incentive, therefore, to play the pattern of rates
by repeating this process every two months.