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******* 581 B O A R D OF G O V E R N O R S OF THE X—9589 FEDERAL RESERVE SYSTEM WASHINGTON address o f f i c i a l t o May 16, 1956. Dear Sir: There are inclosed, for your information, a copy of a letter dated April 8, 1936, from Mr. Young, President of the Federal Reserve Bank of Boston, inquiring whether all direct or participating transactions of Federal reserve banks in the purchase or sale of bills payable in foreign currencies will come under the jurisdiction of the Federal Open Market Committee, and a copy of the Board's reply thereto of May 15, both of which are self-explanatory. Very truly yours, Chester Morrill, Secretary. Inclosures. TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS. the c o r r e s p o n d e n c e board X-9589-a FEDERAL RESERVE BANK of Boston April 8, 1936 Mr. Chester Morrill, SecretaryFederal Open Market Committee Board of Governors of the Federal Reserve System Washington, D. C. Dear Mr. Morrill; With further reference to your letter of March 24 regarding the action of the Federal Open Market Committee on March 19, 1936, I observe from the last paragraph that the Committee authorized the Federal Reserve Bank of New York to direct the purchase of bills payable in foreign currencies in such amounts as may be necessary to replace maturing bills now held for the account of the Federal reserve banks by foreign central banks, including the Bank for International Settlements. I assume from this that all direct or participating transactions of Federal reserve banks in foreign transactions will come under the Federal Open Market Committee. At your convenience will you advise me if my assumption is correct. Yours very truly, (Signed) R. A. Young R. A. Young President. 583 X-9589-b May 15, 1956. Mr. R. A. Young, President, Federal Reserve Bank of Boston, Boston, Massachusetts. Dear Mr. Young: This refers to your letter of April 8, 1956, inquiring whether all direct or participating transactions of Federal Reserve banks in the purchase or sale of bills payable in foreign currencies will cdme under the jurisdiction of the Federal Open Market Committee. Inasmuch as this question involves the jurisdiction of the Board as %ell as that of the Federal Open Market Committee, I have submitted the question to the Board. It is the Board's view that all open market operations of Federal Reserve banks under the provisions of section 14 of the Federal Reserve Act are within the jurisdiction of the Federal Open Market Committee, and Federal Reserve banks cannot lawfully engage or decline to engage in such transactions except in accordance with the direction of and regulations adopted by the Committee pursuant to section 12A. This, however, is in addition to the requirements contained in section 14 of the Federal Reserve Act and no Federal Reserve bank can lawfully engage in open market transactions at home or abroad except in accordance with the provisions of section 14 and the regulations issued pursuant thereto. Thus, no Federal Reserve bank can open ;:nd maintain accounts in foreign countries, appoint correspondents or establish agencies in such countries except with the consent of the Board, nor can it engage 584 - 2 - X-9589-b in the purchase or sale of bills through such accounts, correspondents or agencies without the consent also of the Federal Open Market Committee. Likewise, all relationships and transactions between Federal Reserve banks and foreign banks or bankers continue to be subject to the provisions of section 14(g) and the Board's Regulation N; and, if such transactions involve open market operations, they are also subject to the jurisdiction of the Federal Open Market Committee. As the Board had already authorized the establishment of the foreign accounts referred to in my letter of March 24, 1936, written as Secretary of the Federal Open Market Committee, it was within the province of the Committee in the direction of open market operations to authorize the replacement of maturing bills held in such accounts by the purchase in the open market of a like amount of bills payable in foreign currency. A copy of your letter and this reply is being forwarded to the Presidents of all Federal Reserve banks for their information. Yours very truly, (Signed) Chester Morrill Chester Morrill, Secretary.
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