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Monetary Policy
Although I have suggested what I think is a more desirable composition of the committee, this is not the essential point* Neither is it
vital whether reserve bank governors are on the committee, and if so, how
many as against Board members*

The fundamental point in the provisions of

the House bill, as passed, is that the committee, however composed, shall
have complete authority and full responsibility for the exercise of all
powers necessary for monetary control*

There are three such powersj

and control cannot be effectively exercised, in fact can be stalemated,
unless all three pomrers are exercised by the same body*

Open market operations*


These powers are:

Member bank reserve requirements.

C* Rediscount rates*
The provisions in the House bill were proposed in order to
remedy the existing division of authority and responsibility with reference
to the above powers* The Senate Subcommittee proposal retains this fatal
division as it gives to the committee open market operations alone and
even as to that, leaves considerable doubt as to whether the committee can
make its policies mandatory on the reserve banks• It is utterly useless
to have one body charged with open market operations and a different body
charged with the changing of reserve requirements and raising or lowering
of discount rates*

Either body can effectively nullify the action of the

— 2—

Reserve Requirements and Inflation
The Senate draft gives the Federal Reserve Board, under its new
name, power to change the reserve requirements upon an affirmative vote of
five of seven members but limits the lowering of the requirements to the
present ratios and limits the increase of requirements to double the ratios
now existing. It is not likely that a lowering of the existing ratios will
become important but in view of the tremendous potential expansion of bank
credit, it is entirely thinkable that doubling of present ratios might not
be sufficient to effectively check a run-away inflation

Very likely the

desire on the part of some members of Congress to restrict the power of the
Board or the committee over reserve requirements, arises out of the fear of
inflation but it is submitted that the raising of these requirements can only
be used in the direction of controlling an inflation and, therefore, this
power should not be limited*
The provisions in the House bill are in fact the minimum requirement
for effective monetary control which must include (a) open market operations
mandatory upon the reserve banksj Cb) the regulation of member bank reserve
requirements without any limitation; (c) raising or lowering of the discount
rate in order to supplement and strengthen the effect of (a) and (b)»

Reserve Bank Aximini strati on
The provisions of the House bill were intended to bring about
a unified and economical administration of the Reserve banks, ending the
present duplication. The Reserve Board was to give up the appointment of
chairmcua and agent

at each bank, together with the assistants and staff

involved, the total of which for the System is approximately 800 persons.
The office of chairman and agent was to be combined with that of governor,
resulting in one executive head at each bank instead of two. By leaving
the jurisdiction over this personnel to the boards of directors of the
various Reserve banks, it was felt that a stronger and more economical
local management would result* At the same time, cooperation between
the Reserve banks and the Board at Washington was provided for by giving
to the Reserve Board the approval of the chief executive officer of the
Reserve bank. The terra of this officer and other details in connection
therewith are not important. The main points were unified administration,
economy, and cooperation. The Senate bill entirely overlooks these forward looking considerations, leaving the present dual system in effect
and, if anything, detracting from the present autonomy of the Reserve