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t l V FEDERAL ADVISORY - COUNCIL STATEMENT FOR THE PRESS For r e l e a s e i n morning p a p e r s , Wednesday, May 14, 1924-. At the meeting of t h e Advisory Council of the Federal Reserve Board held i n Washington on May 12th and 13th, t h e r e s i g n a t i o n of Mr. A l f r e d L. liken, as a member and Vice P r e s i d e n t of the Council was p r e s e n t e d . Mr. Cnarles A. Morss, of Boston, has been, designated by the Boston Federal Reserve Bank to succeed Mr. Aiken, and i n h i s p l a c e he was e l e c t e d a member and Vice Chairman of t h e Executive Committee. Mr. E. F. Swinney, of Kansas City, was e l e c t e d Vice P r e s i d e n t of tne Council. In a d d i t i o n to the customary discussion of discount r a t e s and economic conditions, t h e Council a t the request of tne Board gave c o n s i d e r a t i o n t o the Dawes r e p o r t . In view of the general i n t e r e s t in the matter i t was de- cided t o permit the p u b l i c a t i o n of tne C o u n c i l ' s statement to the Board bearing on t h i s .subject, a s f o l l o w s : "At t h e r e q u e s t of t n e Federal Reserve Board the Advisory Council has given c a r e f u l c o n s i d e r a t i o n t o t h e Report of t h e F i r s t Committee of E x p e r t s , the s o - c a l l e d Dawes Report. The Council wishes to record i t s admiration f o r t h e e x c e l l e n t work done by the Committee and to express the nope t h a t with the l e a s t p o s s i b l e d e l a y t h e Committee's recommendations w i l l be c a r r i e d i n t o a c t u a l e f f e c t . The Council f u r t h e r m o r e endorses the wish r e c e n t l y expressed by P r e s i dent Co&lidge t h a t American p r i v a t e c a p i t a l and i n i t i a t i v e give t h i s p l a n i t s h e a r t y support a s a demonstration of the Nation*s d e s i r e to do i t s f u l l share in t n e economic r e h a b i l i t a t i o n of tne Old Forld. The Council has given p a r t i c u l a r thoug.it to the q u e s t i o n of how f a r t h e Federal Reserve System may a i d t h e country in accomplishing these aims. I t i s obvious tiiat the Federal Reserve System, as such, cannot by any action of i t s own cooperate in the f l o t a t i o n and. d i s t r i b u t i o n of the new German loan, the absorption of which on a l i b e r a l s c a l e by the United S t a t e s i s one cf the p r e r e q u i s i t e s , of the Dawes P l a n . Nor should anj- such d i r e c t a i d oy the Federal Reserve System be necessary. There snould be no d i f f i c u l t y in p l a c i n g t h i s loan provided i t i s p r o p e r l y secured and provided tiie investing public f e e l s confident t n a t the debtor, having accepted tne ourden in good f a i t h , w i l l be f r e e to ^o about h i s work without hindrance as long a s he makes the utmost e f f o r t of which he i s capable. Ydhilei t h e r e f o r e , the Council has no suggestion to o f f e r to the Federal Reserve Board concerning t h i s phase of the problem, t h e r e a r e important services the Federal Reserve System could render with regard t o the operat i o n s of the new Note-Issuing Bank which Germany i s to organize under the provisions of the Dawes Plan. The Council urges the Federal Reserve Board to examine very closely i n t o the powers vested in t h i s r e s p e c t in the Federal Reserve Banks and to study the question now f a r i t may be d e s i r a b l e t o amend e x i s t i n g r u l i n g s and regulations i n order to approach the problem of Europe 1 s f i n a n c i a l and economic r e c o n s t r u c t i o n in t h e most h e l p f u l s p i r i t , in t h e same manner as i s being done by the Bank of England and other c e n t r a l n o t e - i s s u i n g banks* Unless America finds* ways and means t o permit her excessive banking strength to b e n e f i t other c o u n t r i e s , p a r t i c u l a r l y those s t r i v i n g to bring t h e i r house in order, the d o l l a r cannot maintain i t s p o s i t i o n as a world standard of exchange, and f o r e i g n countries - and even American banking and conmerce - w i l l , once more, in a l a r g e r degree become dependent upon.and t r i b u t a r y to t h e pound, s t e r l i n g , t o the g r e a t e r exclusion of the d o l l a r . I t i s i d l e , however, to preach the u s e of the d o l l a r , u n l e s s , a t t h e same t i m e , we render i t p o s s i b l e f o r o t h e r c o u n t r i e s to a v a i l themselves of our dollar f a c i l i t i e s . I t i s obvious t h a t our c r e d i t power cannot continue to grow i n d e f i n i t e l y without the danger of over—saturation. If the stream of gold t h a t f l o o d s our shores i s not stemmed i n time i t i s to be f e a r e d t h a t , u l t i m a t e l y , we w i l l not be able to ward o f f i t s i n f l a t i o n a r y e f f e c t s . And i n f l a t i o n would only aggravate the economic maladjustment a l r e a d y ex- i s t i n g within our own boundaries; a maladjustment which n o t only d i s t u r b s and endangers our t r a d e with other c o u n t r i e s , but which makes our a g r i c u l t u r a l s i t u a t i o n p a r t i c u l a r l y d i f f i c u l t and d i s t r e s s i n g . But, i r r e s p e c t i v e of the danger of i n f l a t i o n a g a i n s t which t h e r e s t i l l a r e a t our d i s p o s a l powerful cushions that could be a p p l i e d i n order to counteract or s o f t e n i t s e f f e c t , the problem ought t o be weighed from another and even more important angle. I t i s the q u e s t i o n of whether the world i s more l i k e l y t o r e g a i n the b l e s s i n g s of economic s t a b i l i t y under the sway of several f l u c t u a t i n g standards of exchange or by a general r e t u r n , as speedy as circumstances may permit, t o d e f i n i t e r e l a t i o n s of exchanges to gold as t h e u l t i m a t e measure and r e g u l a t o r . The Dawes Report l e a d s t h e world t o the c r o s s - r o a d s i n - t h i s regard. I t provides f o r a German n o t e - i s s u i n g bank on a gold b a s i s , but leaves the door open to p l a c e i t on a s t e r l i n g b a s i s , and i t cannot be denied that t h e r e i s no small p r o b a b i l i t y of the l a t t e r b a s i s being chosen. In the opinion of the Council the sooner Germany can be placed on a gold or gold-exchange b a s i s , the sooner can England, and other c o u n t r i e s , a l s o , r e t u r n to an "unrestricted gold standard, while, i f Germany were placed on a s t e r l i n g b a s i s , Ehgland, - i n returning to an unrestricted gold b a s i s - would have to p u l l not only her own weight, but that of Germany a l s o . I t i s obvious, therefore, t h a t , i f the new German bank i s placed on the s t e r l i n g exchange basis, the world mast prepare i t s e l f t o remain on a b a s i s of exchange i n s t a b i l i t y f o r a prolonged period, the end of which cannot be foreseen, n&ile the adoption of the gold (that i s , the dollar) basis would accelerate the return to world-wide s t a b i l i t y . I t i s t h i s momentous alternative that i s involved in the organization of the new German Note-Issuing Bank, and the Council deems i t . i t s duty t o point to i t s importance with a l l the eeqpnasis of which i t i s capable. It i s not as an American problem that we are discussing t h i s phase, but as one that, touches the future of a l l the world. The Council has bean pleased to learn that i t has been ruled that Federal Reserve Banks may consider as e l i g i b l e f o r their open market purchases certain German dollar trade b i l l s , payable in the United States, i f endorsed by t h e recently established German Gold Rediscount Bank, the soc a l l e d Schacht Bank, and by approved American endorsers. The Council s e e s in t h i s decision a move in the right direction* helpful t o a l l p a r t i e s concerned, inasmuch as i t transfers c r e d i t power from where i t i s i d l e and redundant to. where an acute shortage of c r e d i t cripples the purchasing a b i l i t y of a country, which normally ranks second i n l i n e as a buyer of our goods. The Council recommends t h a t , when the new German Note-Issuing Bank, provided in the Dawes Plan, i s organized, the Federal Reserve Banks take the steps necessary in order t o f a c i l i t a t e the rediscounting i n t h i s country . t .g. 307 of properly protected German gold b i l l s , be i t through the intermediary of American banking i n s t i t u t i o n s , or through s o - c a l l e d agency agreements, or such other arrangements as have been, concluded by Federal Reserve Banks with Central Banks of other countries. Measures of t h i s character do not only tend to bring our gold hoard into a c t i v e and healthy use, but by enabling and encouraging other count r i e s t o trade i n terms of dollars we stimulate our ovm f o r e i g n commerce. We f a c i l i t a t e furthermore, the direct s a l e i n d o l l a r s , of our own products, instead of Baking foreign countries and ourselves dependent in t h i s respect upon Great B r i t a i n ' s acting as broker and banker, as naturally she would, where the Pound Sterling would govern as an exclusive b a s i s of c.oranerce and trade. I f there i s any reason to assume that success of the Dawes Plan may prove the turning point in Europe's long road of suffering and decline,. i t i s a unique opportunity and duty f o r the United States t o lend a helpf u l &and to the utmost of i t s a b i l i t y . In the opinion of the Council, there does not seem t o be any room f o r doubt with regard to the p o l i c y which i n t h e s e circumstances the Fede r a l Reserve System should pursue.* May 13, 1924
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