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March 15, 1950

Board of Governors


Mr. Szymczak

Resume of historical American
attitude toward the Bank for
International Settlements

The creation of the Bank for International Settlements resulted
from proposals made by the Committee of Experts on Reparations, better
knovn as the Young Committee, in 1929.
While the immediate objective of
the Young Plan was to provide in the Bank an organization through which
the reparations agreements incident to the Versailles Treaty might be
carried out, the Bank was envisaged, in the longer run, as an agency for
cooperation among central banks and bankers.
Although, as such, it would
have appeared to afford a natural means of contact between the Federal
Reserve and foreign central banks, this has never eventuated during the
years since the B a n k ’s organization for various reasons, more or less
unrelated, which are referred to below.
It was the original intent of the organizers that the capital of
the Bank would be provided by central banks in several countries, includ­
ing the United States.
However, strong isolationalist forces in this
country, which looked with distrust on any international alliances, pre­
vailed with the result that our Government declined to permit the Federal
Reserve Bank of New York, which under the Young Plan was identified as
the bank of issue in the United States, to participate in the underwriting.
As a consequence, the United States shares of the Bank were taken up by a
private syndicate composed of J. P. Morgan and Company, the First National
Bank of New York, and the First National Bank of Chicago.
Even though the Federal Reserve System did not subscribe for
shares in the B.I.S., it had the right to be represented on the B a n k ’s
board of directors.
It was estopped from exercising this right, however,
by State Department policy, as expressed in a press release of Secretary
of State Stimson, dated May 16, 1929, to the effect that while the American
Government looked with interest and sympathy upon the effort of the Com­
mittee of Experts to suggest a solution and a settlement of the problem of
German reparations, the Government did not desire to have any American
official, directly or indirectly, participate in the collection of German
reparations through the agency of an international bank or otherwise; that,
in accordance with this principle, it would not permit any officials of
the Federal Reserve System either to serve or to select American repre­
sentatives as members of the proposed International Bank.
The Federal Reserve Bank of New York did, however, with the con­
sent of the Board, agree to open an account for the Bank for International
Settlements and to carry out operations for it along the same general
lines and subject to the same terms and conditions which prevailed for
foreign central banks having accounts with it.
In the early 1930's, the Roosevelt Administration, primarily at
the instance of Secretary Morgenthau, adopted a policy favoring direct
Treasury relationship with foreign monetary authorities.
This policy was


Annex 1-2

a contributing factor toward the continued remoteness of relations be­
tween the Federal Reserve and the Bank, and, of course, had to be taken
into account in the B o a r d ’s discussions with respect to representation
of the Federal Reserve System on the directorate of the Bank.
In reply
to a letter from Governor Harrison, of the New York Reserve Bank, con­
cerning this matter, the Board informed him under date of November 28,
1 9 3 3 , as follows:
"The Board has considered your letter of October 19th in
which you ask for an expression of the views of the Board with
respect to your accepting the post which the statutes of the
Bank for International Settlements reserve for the Governor
of the Federal Reserve Bank of New York on the Board of
Directors of Bank for International Settlements.
"The Board has carefully considered this matter in view
of its general supervisory duties with respect to the opera­
tions of Federal Reserve Banks, and especially in view of the
responsibilities placed upon the Board under subsection (g)
of section 14- of the Federal Reserve Act relating to relation­
ships and transactions with foreign banks and bankers.
"The Board has reached the conclusion that you should not
accept the appointment which has been offered you by Mr.
Fraser, President of the Bank for International Settlements,
and begs to advise that at the present time it would not be
willing to grant the permission for such step made necessary
by the subsection of section 14 cited."
In late 1936, the matter of System representation on the Bankas
directorate was again brought to the Board's attention, and the minutes
show that the Board gave consideration to proposing to the Congress an
amendment to section 14(g) of the Federal Reserve Act making it clear
that a member of the Board of Governors, with the approval of the Presi­
dent of the United States, might serve as a director of the Bank for
International Settlements, in order to enable the Board more effectually
to carry out its functions under section 14(g) of the Act with regard to
relationships of Federal Reserve Banks with foreign banks and bankers.
A copy of a memorandum dealing with American representation on the Board
of Directors of the Bank, prepared by the Boa r d ’s staff under date of
January 11, 1937, is attached hereto as Exhibit "A". 1/
With the advent of World War II, the activities of the Bank
again fell under some suspicion.
There was apprehension lest the Bank,
with its headquarters located in Switzerland, a neutral country, and with
Germans and Italians among its officials, might serve as an avenue through
which funds would pass to the Germans.
Also, at the time of the Bretton
Woods Conference in 1944-? there was some expression of opinion that the
Bank would act as a competitor of the International Monetary Fund; and the
conference recommended that the B.I.S. be liquidated at the earliest
possible moment.
1 7 “ There are at present no Americans serving on the B a n k ’s Board of


Annex 1-3

After the war, however, it became clear that the B.I.S. did not
really represent any threat to the new Bretton Woods institutions, and
that the countries whose central banks held membership in the B.I.S.
were not disposed to liquidate it.
In the early part of 194-8, the
European countries in the OEEC decided to use the B.I.S. as a clearing
agency for the intra-European payments arrangements that they were work­
ing out in connection with the Marshall Plan.
In April 194-8* the N.A.C.
decided that the U. S. Government should regard the matter of liquida­
tion as closed, unless some other country desired to pursue it further.


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