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R&S 100-1086

CONFIDENTIAL

TREASURY BILLS

The cycle of an increase of 200 million dollars a week in outstanding
Treasury bills will be completed with the issue dated August 3* Before making
the following week*s offering on August i . the Treasury will need to decide
j,
whether to increase outstanding bills further at that time. If a further
increase is to be made, the Treasury will need to decide upon the amounts
The table below indicates that between May 10 and June 21 the
Federal Reserve Banks increased their bill holdings by more than the increase
in outstanding bills as a result principally of a reduction in holdings by
New York City banks• Following the release of reserves in connection with
the drive, however, bank holdings increased sharply and Federal Reserve
holdings declined. This latter trend is already being reversed, however,
as required reserves are again increasing,
OWNERSHIP OF TREASURY BIL1S
(In millions of dollars)

May 10
Total
Federal Reserve Banks
Weekly reporting member
banks:
New York City
Other
Other investors

June 21

July 19

13.165
7,60^

li+,327
9,2I£

15.151
8,655

967
1,831

582
1,799
2,700

1,358
2,5U9
2,569

If there is no further increase in outstanding bills, we estimate
that the Treasures cash balance at the middle of November will be between
5 and 6 billion dollars, the same level as before the fifth drive. It is
obvious, therefore, that the Treasury will not need to raise additional
funds before the next drive in order to maintain a very comfortable balance.
On the other handf Federal Reserve holdings of Government securities
are likely to increase by i>. billion dollars between now and the next -drive.
-.0
If banks reduce their bill holdings to the June 21 level, which is probably
the smallest amount that they wish to hold in order to meet sudden drains,
the Federal Reserve will be able to obtain 2,0 billion dollars of securities
from this source. The Federal Reserve will also find it necessary to purchase
certificates from banks that need reserves but that have no bills or only
small amounts • Between February 9 an(* June 21, this increase was about
700 million dollars. A similar increase can reasonably be expected between
now and the next drive*
It appears, therefore, that, unless there is a further increase of
1.3 billion dollars in outstanding bills, the Federal Reserve will supply
reserves during the next few months by purchasing more than 700 million of
certificates or by purchasing longer-term securities. Since Federal Reserve



CONFIDENTIAL

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R&S 100-1086

earnings are already large, there is no need for the Treasury to pay to the
Federal Reserve more than a nominal rate of interest in supplying reserves•
It appears, therefore, that the Treasury should make a further increase of
100 million dollars a week for the next 13 weeks. At the end of that time,
the program could be reconsidered in the light of intervening developments*
It seems likely that an increase in the bill rate should not be
recommended at this time* A considerable part of the argument in the
supplementary memorandum rested upon the substitution of 5/8 Pe*" cent bills
for 7/8 per cent certificates in raising funds between drives. If there is
no interdrive financing other than sufficient bills to meet the System1s
needs, however, the argument for increasing the rate will be weakened.

L. M. Piser
July 25, I9lh