The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Pear Kim:
Tkauk you very much Cor sending aoe the report
of the meeting m Baste aad keeping rae posted on develop*
ment*. This is very helpful and I have given both Secretary
Anderson anil Al Hayes a copy. I think you can depend on
then* to keep it strictly private and confidential.
With all good wishes,
Sincerely youra,
Wm. McC. Martin, Jr.
The Honorable Cameron F. Cobbold,
Oovermor,
Bank of England,
.London, England,
WMM:mnm
SECRET
Sank d
9th November I960.
My dear Bill,
I had some talk with the other European Governors
in Basle over the weekend about the gold market and all that.
Parsons did the enclosed note, which has been approved as a correct
record by all who were present.
I thought you would be interested
to see it.and Dr.Holtrop and ray other colleagues concurred.
I found several of them very much bothered about
all this, both on merits and because they did not quite understand
what was going on.
I think that our talks at least served to
clarify their minds and to some extent, therefore, to calm them
but there is no doubt that keen anxiety will persist so long as
the gold price in European markets continues at a premium.
I hope
that I have correctly interpreted your attitude where I referred to
it.
I shall be grateful if you will let Al Hayes have a
copy of this letter and enclosure.
You may also care to inform
Secretary Anderson, as I have informed the Chancellor,
Apart from
this I think the closer it is kept the better.
Yours sincerely.
Mr.Wm.McC.Martin, Jr.
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Federal Reserve Bank of St. Louis
COPY
SECRET
An Informal meeting of central-bank governors who
are Board members of the B.I.S. was held on 6th November to
discuss recent developments in the gold market.
Present:
Dr.Holtrop
Mr0Asbrink
M. Ansiaux
Dr.Baffi
Herr Blessing
M. Brunet
Mr.Cobbold
Dr.Schwegler.
Also present by invitation:
M. Guindey
Mr.Parsons.
Dr.Holtrop introduced the subject and stressed the
interest and involvement of all present in the matter.
They had
. watched with concern, the movements in the London gold price and
they had read of the contacts between the Bank of England arid the
U.S. authorities.
He asked the Governor of the Bank of England
whether he would be willing to explain what had been happening and
what policy was governing action In London.
He also asked
whether they could be given an indication of the size of the
market and the ultimate destination of the gold which was bought.
Mr.Cobbold explained the history of developments since
about the end of August.
He mentioned the normal speculation
apt to precede the I.MCF./I.B.R.D. meeting;
this year the
speculative attention had focused on gold.
There were also the
uncertainties surrounding the U.S. balance of payments and
elections.
All these had contributed to an increased demand for
gold by non-central-bank buyers<>
This, superimposed on a fairly
active central-bank demand at that period, had led to a strong
upward pressure on the London price, which by raid-September had
reached about f35«25«
At this point the Bank of England had
discussed the matter with the U.S0 authorities in Washington, arid
had found a tendency on their part to suggest that the market
should be left to manage itself without too much active intervention by the Bank of England.
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Federal Reserve Bank of St. Louis
Shortly afterwards, in spite of
— 2 -
the fact that central-bank buying had ceased, and in spite of
continued attempts by the Bank of England to moderate the increase,
the London price rose to about $40 on a very substantial increase
in private demand.
Mr.Parsons had then gone to Washington at
the suggestion of the U 0 S. authorities, and discussions led to
complete agreement as to how the situation should be handled.
Broadly speaking, the U.S. authorities recognise that the objective
should be to keep the price as low as possible, while economising
as much as possible in sales of gold out of reserves.
The Bank
of England was carrying on its usual policy, endeavouring to keep
the London market as orderly as possible, and ear-marking in New
York in accordance with normal practice.
The Bank had undertaken
to keep in close touch with the U.S. authorities as to the size
and scope of the market and of their operations.
The ultimate
objective was to bring the price back to within easy range of $35
as soon as this could be achieved.
At the present time, however,
it seemed that the feasible floor is somewhere in the region of
f36> as a very substantial additional demand appeared as soon as
the price fell much below that figure.
Mr.Cobbold added that as far as he was concerned he
thought that in the short term European central banks would be
unwise to think of reaching any formal agreements among themselves
on this subject.
Such agreements might create new difficulties,
particularly if they became known, and his impression was that they
would not be welcomed by the United States.
He thought the
central banks should continue to behave as they had been doing,
and carry on with their normal policy with due self-restraint.
In addition he thought that central banks generally should take
every opportunity of saying, when asked, that the buying of gold
at high prices is a nonsense and that they consider the devaluation
rumours absurd.
After some discussion about the size of the market and
the origin of the demand, the Governor of the Bank of France said
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Federal Reserve Bank of St. Louis
that he and his government are deeply concerned about what has
been happening in London0
France; has a national gold market
and London an international one, but the Paris market could not
fail to be affected by the developments in the London marketo
3o long as the price remains above $35 "the situation looks
unstable, and. there is a constant danger of its getting out of
hand, o
Ke suggested therefore that the European central banks
should consider entering into a joint venture to sell gold in
London in order to bring the price down to about §35«
This
would also involve joint discussion of policy from time to time.
Mr.Cobbold commented that he felt strongly that such a joint
operation could only be contemplated if the U.S. authorities
themselves were to take an initiative in such operations;
otherwise Europe would appear to be taking over the responsibility
of supporting the U.S. dollar price for gold, in London.
At some
stage the European central banks might well find the burden too
heavy:
the result of starting on such a course arid, then being
unable or unwilling to continue would be disastrous0
The President of the Swiss National Bank said he
shared M. Brunet's worries about the present situation, which
in his view cast doubt on the value of all currencies. He would
therefore like to see the dollar price for gold, in London back at
its normal level as soon as possible.
Dr.Holtrop, supported by
the Governor of the National Bank of Belgium, said he was content
with the way the matter was being handled in London*
Ke added
that he thought the Dutch authorities had taken the best course
in forbidding their nationals to hold gold either at home or
abroad.
The President of the Deutsche Bundesbank explained that
he is in a delicate position.
His policy had been to hold
reserves 50 per cent, in gold and 5C per cent, in exchange.
At
the moment, owing to a large inflow of hot money in recent months,
his gold holding is down to 43 per cent.
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Federal Reserve Bank of St. Louis
He had been reluctant
to earmark the full 50 per cent, of accruals to reserves in
present circumstances, but strictly speaking he ought to earmark
another $500 million.
He confirmed that he became more uneasy
In this regard, as the market price rose.
He too thought that the
short-term situation is being handled in the best way.
It was generally agreed that the Governors should be
kept informed of developments, and that the subject might need
further review in the near future.
In the meantime all the
Governors expressed general agreement with the way the matter is
being handled in the London market at the present moment, although
they all felt that the situation presented dangers and needed to
be watched from day to day.
It was also generally felt that, in present circumstances,
even if the London price were to fall to, or near to, parity, it
would be preferable for European central banks not to buy gold in
London without first notification to the Bank of England. If any
central bank needed to sell gold to acquire exchange, there could,
be no objection to their selling in London, thereby reducing the
burden of support;
in this case also it would be convenient if
the Bank of England could be informed.
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Federal Reserve Bank of St. Louis
COPY
Be Mederlandsche Bank N. V.
Private and confidential
Amsterdam
Hovember 11, I960.
Mr, Wra. MeChesney Martin, Jr., Chairman,
Board of Governors of the Federal Reserve System,
Washington 2§, JXC*
How that the American people have made their crucial choice and Senator
Kennedy has become with a surprising small majority the president-elect., we
shall all have to prepare ourselves for the policy decisions the new Administration will take. Heedless to say that we very much hope on this side that the
statement Senator Kennedy made some ten days ago about the position of the Federal* will have indeed some intrinsic meaning and that the voice of you and your
Board will be heeded in the process of framing monetary and financial policies
of the new Government.
The reason that 1 aim writing you is that I feel 1 must tell you that 1 have
found, of late, more serious worrying about the political decisions that might
be taken in the monetary field by a new Administration than I would have thought
possible. Personally 1 must say that 1 had come back from the Fund/Bank meeting In a rather reassured state of mind about what might happen under a democratic Administration* It was not only my contacts with the Federal both in
Washington and in. New York that made me feel good, but also contacts with
people like Eddy Bernstein. Rather to my surprise 1 find, however, that there
are others in various responsible positions in Europe who feel less sure. In my
opinion this need not at all be due to less confidence in American statesmanship,
but may also be based on a difference in attitude towards some of the fundamental
problems with which we are faced, vim. both the still existing disequilibrium in
the balance of payments between America and Europe and secondly the problem
of the price of gold* It is clear that someone who in his heart of hearts believes
that rates of exchange tend to be governed by purchasing power parity, or who
thinks that in the long run it is impossible to keep the price of gold stable, when
the price of all other things goes up, has a greater tendency to believe that a
new Administration might suddenly take radical policy decisions than someone,
like myself, who rather tends to think that the determinants of the rate of exchange
are so complex that it is mo use to try to figure out a theoretical "correct** rate
and that the price of gold is far more a convention than a free market phenomenon*
1 thought it good to mention these considerations to you. They convinced me
still more of the necessity that we central bankers should do some thorough work
upon the long term prospects of our present international payments system.
From Cobbold you have heard about our discussions in Basle on the gold
question. I know that Hayes intends to let Coombs pay a visit to Basle on the
occasion of the December meeting. 1 think it will be extremely useful to have
that kind of personal contact.
With kindest regards,
Yours sincerely,
(Signed) Marius
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Federal Reserve Bank of St. Louis
M. W. floltrop
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Federal Reserve Bank of St. Louis
Airmail
November 15,
Bear
Thank yom for yotir note. It is very helpful
for you to keep tis posted on these matters aad I appre
ciate very much your taking the tr ©table to write.
This is going to be a, difficult period but I
am m0r« confident than ever that we caa haadle it.
? ith all good wishes,
Cordially yours,
. ^ned) Bill
Win. Mc€. Martia, Jr.
* M. W»
Fresideiat,
Be ffederlaadsche Baak
Amsterdam,
The Nether lands.
WMMimnm
DE N E D E R L A N D S C H E BANKN.V.
PRESIDENT
Private and confidential
AMSTERDAM,
November 1 1 , 19^0
Mr.Wm.McChesney Martin, Jr.
Chairman
Board of Governors of the
Federal Reserve System
v
Dear Bill,
Now that the American people have made their crucial choice
and Senator Kennedy has become with a surprising small majority the
president-elect, we shall all have to prepare ourselves for the policy
decisions the new Administration will take. Needless to say that we
very much hope on this side that the statement Senator Kenned}/ made
some ten da3^s ago about the position of the Federal, will have indeed
some intrinsic meaning and that the voice of you and your Board will
be heeded in the process of framing monetary and financial policies of
the new Government.
The reason that I am. writing you is that I feel I must tell 3ro
that I have found, of late, more serious worrying about the political
decisions that might be taken in the monetary field, by a new Administrat
than I would have thought possible. Personally I must sa}' that 1 had
come back from the Fund/Bank meeting in a rather reassured state of
mind about what might happen under 4^e democratic Administration. It
was not only my contacts with the Federal both in Washington and in New
York that made me feel good, but also contacts with people like Eddy
Bernstein. Rather to my surprise I find, however, that there
others
in various responsible positions in Europe, who feel less sure. In my
opinion this need not at all be due to less confidence in American
statesmanship, but may also be based on a difference in attitude towards
some of the fundamental problems with which we are faced, viz, both
the still existing disequilibrium in the balance of payments between
America and Europe and secondly the problem of the price of gold. It is
clear that someone who in his heart of hearts believes that rates of
exchange tend to be governed by purchasing power parity, or who thinks
that in the long run it is impossible to keep the price of gold stable,
when the price of all other things goes up, has a greater tendency to
believe that a new Administration might suddenly take radical policy
decisions than someone, like myself, who rather tends to think that
the determinants of the rate of exchange are so complex that it is no
use to try to figure out a theoretical "correct11 rate and that the price
of gold is far more a convention than a free market phenomenon,
I thought it good to mention these considerations to you. They
convinced me still more of the necessity that we central bankers should d
some thorough work upon the long term prospects of our present internatj
nal payments system.
From Cobbold you have heard about our discussions in Basle on
the gold question. 1 know that Hayes intends to let Coombs pay a visit
to Basle on the occasion of the December meeting. I think it will be
extremely useful to have that kind of personal contact.
With kindest regards,
y
-
.
.
-
.
Digitized for 4402,10.59.1
FRASER
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Federal Reserve Bank of St. Louis
-
.
.
-
-
.
.
.
£
^
.
.
X
^
"
"
"
*/
COPY
SECRET
An informal meeting of central-bank governors who
are Board members of the 6.I.S. was held on 6th November to
discuss recent developments in the gold market.
' Present:
Dr.Holtrop
Mr.Asbrink
M. Ansiaux
Dr.Baffi
Herr Blessing
M. Brunet
Mr.Cobbold
Dr.Schwegler.
Also present by invitation:
M. Guindey
Mr.Parsons.
Dr.Holtrop introduced the subject and stressed the
interest and involvement of all present in the matter.
They had
watched with concern the movements in the London gold price and
they had read of the contacts between the Bank of England and the
U.S. authorities.
He asked the Governor of the Bank of England
whether he would be willing to explain what had been happening and
what policy was governing action in London.
He also asked
whether they could be given an indication of the size of the
market and the ultimate destination of the gold which was bought.
Mr.Cobbold explained the history of developments since
about the end of August.
He mentioned the normal speculation
apt to precede the I.M.F./I.B.E.D. meeting; this year the
speculative attention had focused on gold.
There were also tha
uncertainties surrounding the U.S. balance of payments and
elections.
All these had contributed to an increased demand for
gold by non-central-bank buyers.
This, superimposed on a fairly
active central-bank demand at that period, had led to a strong
upward pressure on the London price, which by mid-September had
reached about
<f<1
35«25«»
At this point the Bank of England had
discussed the matter with the U.S. authorities in Washington, and
had found a tendency on their part to suggest that the market
should be left to manage itself without too much active intervention by the Bank of England.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Shortly afterwards, in spite of
the fact that central-bank buying had ceased, and in spite of
continued attempts by the Bank of England to moderate the increase,
the London price rose to about §40 on a very substantial increase
in private demand.
Mr.Parsons had then gone to Washington at
the suggestion of the U.S. authorities, and discussions led to
complete agreement as to how the situation should be handled.
Broadly speaking, the U.S. authorities recognise that the objective
should be to keep the price as low as possible, while economising
as much as possible in sales of gold out of reserves.
The Bank
of England was carrying on its usual policy, endeavouring to keep
the London market as orderly as possible, and ear-marking in Hew
York in accordance with normal practice.
The Bank had undertaken
to keep in close touch with the U.S. authorities as to the size
and scope of the market and of their operations. The ultimate
objective was to bring the price back to within easy range of $35
as soon as this could be achieved.
At the present time, however,
it seemed that the feasible floor is somewhere in the region of
$36, as a very substantial additional demand appeared as soon as
the price fell much below that figure.
Mr.Cobbold added that as far as he was concerned he
thought that in the short term European central banks would be
unwise to think of reaching any formal agreements among themselves
on this subject.
Such agreements might create new difficulties,
particularly if they became known, and his impression was that they
would not be welcomed by the United States.
He thought the
central banks should continue to behave as they had been doing,
and carry on with their normal policy with due self-restraint.
In addition he thought that central banks generally should take
every opportunity of saying, when asked, that the buying of gold
at high prices is a nonsense and that they consider the devaluation
rumours absurd.
After some discussion about the size of the market and
the origin of the demand, the Governor of the Bank of France said
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-3-
that he and his government are deeply concerned about what has
been happening in London.
France has a national gold market
and London an international one, but the Paris market could not
fail to be affected by the developments in the London market.
So long as the price remains above $35 the situation looks
unstable, and there is a constant danger of its getting out of
hand.
He suggested therefore that the European central banks
should consider entering into a joint venture to sell gold in
London in order to bring the price down to about $35 •
This
would also involve joint discussion of policy from time to time.
Mr.Cobbold commented that he felt strongly that such a joint
operation could only be contemplated if the U.S. authorities
themselves were to take an initiative in such operations;
otherwise Europe xfould appear to be taking over the responsibility
of supporting the U.S. dollar price for gold in London.
At some
stage the European central banks might well find the burden too
heavy:
the result of starting on such a course and then being
unable or unwilling to continue would be disastrous.
The President of the Swiss National Bank said he
shared M. Brunet's worries about the present situation, which
in his view cast doubt on the value of all currencies.
He would
therefore like to see the dollar price for gold in London back at
its normal level as soon as possible).
Dr.Holtrop, supported by
the Governor of the National Bank of Belgium, said he was content
with the way the matter was being handled in London.
He added
that he thought the Dutch authorities had taken the best course
in forbidding their nationals to hold gold either at home or
abroad.
The President of the Deutsche Bundesbank explained that
he is in a delicate position.
His policy had been to hold
reserves 5® per cent, in gold and 5® per cent, in exchange.
At
the moment, owing to a large inflow of hot money in recent months,
his gold holding is down to 43 por cent.
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Federal Reserve Bank of St. Louis
He had been reluctant
* 4to earmark the full 50 per cent, of accruals to reserves in
present circumstances, but strictly speaking he ought to earmark
another $500 million.
He confirmed that he became more uneasy
in this regard as the market price rose*
He too thought that the
short-term situation is being handled in the best way.
It was generally agreed that the Governors should be
kept informed of developments, and that the subject might need
further review in the near future.
In the meantime all the
Governors expressed general agreement with the way the matter is
being handled in the London market at the present moment, although
they all felt that the situation presented dangers and needed to
be watched from day to day.
It was also generally felt that, in present circumstances,
even if the London price tvere to fall to, or near to, parity, it
would be preferable for European central banks not to buy gold in
London without first notification to the Bank of England.
If any
central bank needed to sell gold to acquire exchange, there could
be no objection to their selling in London, thereby reducing the
burden of support;
in this case also it would be convenient if
the Bank of England could be informed.
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Federal Reserve Bank of St. Louis
S3CRST
COPY
BANK OF ENGLAND, E.G.2.
9th November I960*
I had some talk with the other European Governors
in Basle over the weekend about the gold market and all that.
Parsons did the enclosed note, which has been approved as a correct
record by all who were present. 1 thought you would be interested
to see it,and Dr.Holtrop and my other colleagues concurred.
I found several of them very much bothered about
all this, both on merits and because they did not quite understand
what was going on. I think that our talks at least served to
clarify their minds and to some extent, therefore, to calm them
but there is no doubt that keen anxiety will persist so long as
the gold price in European markets continues at a premium. I hope
that I have correctly interpreted your attitude where I referred to
it.
I shall be grateful if you will let Al Hayes have a
copy of this letter and enclosure. You may also care to inform
Secretary Anderson, as I have informed the Chancellor. Apart from
this I think the closer it is kept the better.
Yours sincerely,
Mr. Wm.McC.Martin, Jr.
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
March 13, 1951
Mr. Martin
As per the attached
note from Mr. Bernstein, I am
forwarding his draft on Bank
Eligible Bonds and U.S* Credit
Policy.
Mr.
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Federal Reserve Bank of St. Louis
Southard
INTERNATIONAL MONETARY FUND
Date
TO:
3/13/51
(I) ...^.•..Southard
Room...926
(2)
Room
(3)
Room
I have promised Mr. Martin a
copy of the attached~ns?ould you
please send it on to him.
PROM
.?.?.. M.?..?ernste in
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Federal Reserve Bank of St. Louis
•
Room
RES
INTERNATIONAL MONETARY FUND
Research Department
Bank Eligible Bonds and II.3, Credit Policy
Prepared by E. K. Bernstein
March 13, 1951
One of the important problems in current credit policy is to encourage commercial banks to maintain or increase their investment in U.S,
securities and thus to diminish the supply of funds for loans to individuals and business. A helpful and inexpensive technique for this purpose
would be to increase the supply of securities of 10-year or longer maturity
available for investment by banks.
1. Supply and Yield of Bank-Eligible Bondgt
Beginning with maturities of June 1959f there are only two issues of
Treasury bonds which are now eligible for bank investment—the 2-3/4.3 of
December 1960-65 and the 2-l/2s of September 1967-72. All other issues of
3-year maturity or longer are still ineligible for nurch-.-.se by commercial'5
banks.
It would be expacted that virtually all of thp bank-eligible bonds
would be held by the banks. This is the logical consequence of the differential between bank-eligible and bank-ineligible bonds. On March 9* 1951,
the closing bid for the bank-eligible 2-1/Ps of September 1967-72 was
102-4/32; tho closing bid for the bank-ineligible 2-1/2s of June 1967-72 was
100-1/32. Vit
such a difference in markot price between bank-eligible and
bank-ineligible bonds of nearly tho saiae maturity, it would be expected that
non-bank holders would dispose of their eligible bonds at the higher
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Federal Reserve Bank of St. Louis
premium
- 2«
and acquire the ineligible bonds at the lower premium.
Of the |2.7 billion of this bank-eligible issue, only $72 million was
held by certain mutual savings banks and insurance companies and $257 million by unclassified investors, including some commercial banks. The rest
of the issue was held by reoorting commercial banks, the U.8, Government
investment accounts and Federal Reserve Banks. For practical purposes,
bank-eligible bonds of late maturity rmy be regarded as virtually all held
by commercial banks with the exception of the amounts held by the U.S.
Government investment accounts and the Federal Reserve Banks.
The Importance of this is that the bank demand for such bonds is so
great as to absorb the whole of the issue. The premium is forced up to the
point where bank demand is restrained—end the funds that *---ould otherwise be
invested in such bonds are used either for loans to business or are put
into shorter-term U.3. Government paper.. At the present time, when it is
desirable to encourage banks to maintain or Increase their holdings of government securities, there is not *WP liable for purchase by commercial ban-ts the
securities of preferred maturity and yi^ld for which they already bid a substantial premium.
Nor will the supply of bank-eligible bonds be increased in the near
future, unless steps are taken for this purpose. No outstanding issues of
bonds now bank-ineligible will become bank-eligible until 1952.
Beginning
with May 5 of that year, rather substantial amounts will beeoire eligible for
purchase by commercial banks. Until then, the attempt to induce banks to
hold a larger portfoli-. of government securities and a smaller portfolio of
loans will be handicapped by the unavailability of bank-eligible bonds. As
a matter of fact, the supply may become smaller during the coming year, as
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Federal Reserve Bank of St. Louis
old Issues mature and new ones do not yet become ellfible for purchase by
commercial banks.
2. Increasing; the Supply of Ban1-- Blinible Bonds
There are three ways in which the supply of bank-eligible bonds can
be increased and greater process made toward achieving the objective of
halting or slowing down the sale of government securities by the banks.
At the end of November 1950, there were Ilf683 million of bank eligible
bonds held by the uV3, Gov ?rmaent investment accounts 4r»d the Federal
Reserve Banks. Some of these could be offered for sale, with or without
acquiring an equivalent amount of other securities. Unfortunately, only
$222 million of these securities are more than five years to thei?* earliest
call date and some of these issues are partially tax exempt. They do not
constitute, therefore, a substantial addition to the bank-eligible securities for which satisfactory substitutes aro not presently available•
A second method of increasing the suptxly of bank-eligible bonds would
be to declare ^s eligible at once some or all of the issues that ?-ould
normally becore ali aMe at various tines in 195?. This would have the effect
of providing the banks, at lower prevailing Drices, securities that would
oresupably cost more to acquire when they become bank-eligible bonds at a
later date. There can hardly be any objection to increasing the privileges
attached to an outstanding security (i.e., the privilege of being eligible
for purchase by commercial banks). If there Is any substantive objection
to such a step, it must be thfit it is not desirable at this time to encourage
the public to sell bonds, even If theso bonds are to be added to the portfolios of commercial banks.
That would leave only one other mean?? of increasing the supoly of bankeligible bonds—through ne?? issues. The Treasury would have the alternative
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Federal Reserve Bank of St. Louis
of new issues that meet the present eligibility requirements or new issues
on terms out/side the present requirements. On the whole, it rrpght be
preferable to offer a sin pie new issue bearing 2 or 2-f percent coupon, maturing in 12 years and callable after & years.
This is close to the present
yield for similar non-eligible bonds.
3. Effects on Bank Credit Policy
The reason banks are willing to liquidate sorae of their present holdings of government securities is that the return on loans Is far greater
than on the government securities they now hold. An increase in the supply
of bank-eligible bonds yielding 2 or 2f- porcent would provide thera with a
government security which is very attractive as an alternative to loan?- to
individuals, A nd it would provide this at a tl^e when the bank? are beginning to be concerned to maintain a better balance between their holdings
of governments and their other loans and investments.
How would an increa^e*e in bank holdings of Treasury bonds be finance 1?
Presumably, it would be largely done by reducing bank holdings of shortertern issues. But there is no reason to assume that it wmld be done entirely
in this way. A portfolio of government securities with a larger percentage
of longer-tenr- bonds would be r?ore attractive than a portfolio with a
smaller percentage of longer-tor^ "bonds. It nay be assumed, therefore, that
a^frerat- bank holdings of government securities would be soraev/hfct'greater
than they would otherwise be. Sowe of the acquisition of longer-term bank
eligible bonds would be in place of loans that banks wo^id otherwise make.
If one purpose of credit policy is to encourafte banks to maintain their
Investment in government securities, here is a way It can "be done at very
moderate cost, Because the issue is to be bank-el iprible, at a yield somewhat
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Federal Reserve Bank of St. Louis
_ 5less than bank-ineligible issues now bear, It would have almost no effect
on the yield of the present restricted Issues. The whole cost of the measure
la the difference between the lonper-ter-> rate OP a new issue of bank«*eliglble
bonds and the lower rates on the short-terni securities they would largely
replace. At present, this difference is not very large—say J: to •£• percent
per anmnu This difference would be paid only on the new issue of bankeligible bonds—amount!.ng perhaps to *2 billion or *3 billion.
Whatever the merit of the original concept that it Is desirable to
keen banks from loading to th-i government (a concept which assumes that lendinp by the banks to the government is additional and n-^t In place of lending
to private business), It is economically s^und only if the Federal Reserve
Banks are not aceumulatinr government securities . Where the alternative
to commercial bank holdings la enlarged Federal Reserve holdings, It is
clearly better to induce the banks to roaintaln end even increase their Investment In government securities. An improved supply of government securities for banks (and particularly a supplementary supply of bank-el iirible
bonds during the present year) wo\ild encourage more bank holdings of
government securities and less bank loans with funds secured through the
sale of government securities.
The sharp change in the pattern of government securities held by the
:w? ---rcial brinks is shotcm in the following tables
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Federal Reserve Bank of St. Louis
-6•
Bank Hftlding.3 of U.S. Socuritl^. ^y Gall or Matirrity
(Billion dollars)
lloveraber 30,
October 31,
. 1946
Perqerr^
125Q
Prreent
Due on first be*
coirino callable
Within 1 year
20.5
2B.8
19.9
36.4
1 to 5 years
27.9
39.3
24,4
44.7
5 to 10 years
17.7
25.0
6.1
11.2
Over in years
-4.8
6.9
4.2
7.7
70.9
100.0
54.6
100.0
Sources Treasury Bulletin, January 1947, p. A9; February 1951, p. 37.
In October 194.6, reporting ooameroial banks held 31.9 percent of their
governments Jn securities more than 5 years to maturity or call (in fact,
$2.5 billion was in securities noro than 20 years to maturity or call). In
November 1950, only 18,9 p-rcent of the holdings of con^^rcial banks were
more than 5 yoars to maturity or call (and none of the holdings was more than
20 years to maturity or call).
The sales of government securities by banks, when they reduce their
portfolios, are almost entirely of short maturities. This can be seen from
a comparison of bank holdings on December 31, 1949 with their holdings on
November 30, 1950. On the former date, reporting commercial banks held
$59.8 billion in U. 3. securities, of which ^24.1 billion was due or callable
within one yesr, On the latter date, reporting commercial banks held only
•54*6 billion in U.T. securities, of Tshich 119.9 billion was due or callable
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Federal Reserve Bank of St. Louis
HOTEL PLAZA-ATHENEE
23A27, AVENUE
MONTAIGNE
PARIS
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Szymczak
-over-nor Robert.S
i/
GOTO rnojL 'i^ti ftp i? rrl
GoTorrroi 'K'in ••
Please return to
Governor Balderston
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Federal Reserve Bank of St. Louis
Hotel Plaga-Athenee
Paris
August 27* I960*
Dear
Have just arrived in Paris after a wonderful tour, spending
3 days with our "mbassador^ .Doe Matthews, an -old friend in Vienna,
and a pleasant day in Luxembourg with their Prime Minister also an
old friend, Have avoided all press so far and believe ray travels
largely unknown, Just finiahei a long luncheon with Bauugartntr
(only the two of us at his home) and also some other French inspectors
of old school. Have kept trip on a tourist visit basis and go to
London Monday and Tuesday, Plan to return home September U or 9th
getting to office not later than September 12th, Will be at Savoy
Hotel (London) 29, 30f 31st if for any reason you need to contact me
(Hope not). Following items ?nsy be of a little interest,
(1) Dollar OK - stronger than a year ago, Thl* virtually
unanimous, Switzerland, Austria, Germany, Prance, British press
beginning to cfuopaigi vs, dollar**»but so far having little effect,
Inflation getting ahe^.d of Europe and ovar capacity
developing,
(3) Our monetary policy generally approved but fearful it
may go too far. Bill rate of under ^% deplored, &J$ primsf 3^
discountt 2% bill not too serious bat f«»r of tU 3, recession greater
thnn easing money,
(4) Africa, Cuba, S, Anierica very serious
(5) Fear—particularly Adenauer & DeGauQs tJ»S. may docide
to ditch Europe,
(6) Stayed with Henry fayior to Bejn 2 days and found
concern over war, influx of fundsf etc,, very real,
fhis is a grand trip and do hope you are having a pleasant
time. Our best to Ida, Europeans generally unhappy about both our
candidates but 1 have kept away from election*
As ever,
(Signed) Bill
P.S, fell Kiss Muehlhaun back Sept,
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Federal Reserve Bank of St. Louis
Hotel Plaza-Athene*
Paris
August 27, I960,
Dear Gejtbyi
Have just arrived in Paris after a wonderful tour, s per ding '
3 days with our Ambassador, Doe Matthews, an old friend in Vienna,
and s pleasant day in Luxembourg with their Prime Minister also an
old friend. Have avoided all press so far and believe sgr travels
largely unknown, Just finished & long luncheon with Eaumgartner
(only the two of us at his home) and also some other French inspectors
of old school. Have kept trip on a tourist visit basis and §o t0
London Monday and Tuesday, Plan to return ho»e September 0 OF 9th
getting to office not later than oepteLiber 12th, Will be at S&v@y
Hotel (London) 29, 30, 31»t if for any reason you n«ed to contact me
(Hope net). Following items nrny be of a little interest,
(1) Dollar OK m stronger than a year ago. fhi* virtually
unanimous, Switzerland* Austriaf ^leifsany, France. British press
beginning t$ campaign vs. dollar~~but so far hairing little effect.
(2) Inflation getting ahead of Europe and over capacity
developing.
(3) Our monetary policy generally approved but fearful it
ssay go too far. Bill rat© of under 2% deplored* k^t primef 3%
discount, 2$ bill not too serious but fear of U» 3» recession greater
than easing jsoney,
(4) Africa, Cuba, S» Amerioa vary serious
(5) F@ar*»particula.rly Adenauer & DeGaullB U.S* may decide
t© ditch Europe*
(6) Stayed with Heary Taylor ia Beam 2 days and found Swiss
coRG©Hi over wart influx of fundsf etc«g very real^
fhi* in a grand trip and do hope you are having a pleasant
time. Our beat to Ida, Europeans generally unhappy about both our
candidates but 1 have kept away from elation.
As ever,
(Signed) Bill
P.S. fell Kiss MuehXhftUfi baek Sept. 8*12,
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Federal Reserve Bank of St. Louis
|
i
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Governor Mills
Governor Robert
Governor Shepards
Governor King
Please return to
Governor Balderston
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Federal Reserve Bank of St. Louis
Hotel Frankfurter Hof
August 9* I960
Dear Canbyi
Had dinner Sunday evening with Mr. and Mrs. Absf Blessingj Otto
Itaingar and had a 4 hour visit afterward at Aba house. They assert confi*
dence in the dollar and assure me that at the
things are quiet.
Abs viiently against revaluation of the
which British have pressed
for and which a number of professors and even
in the Bundesbank favor.
Abs worried about East Germany and possibility Eussians may assume U.S.
unable or unwilling to act during elections.
Monday spent 2 hours with Blessing going over German domestic
situation. Over .full employment and a real boom. Only 100,000 registered
unemployed and over ^QOgOOQ available jobs. Prices beginning to rise and
building facilities in particular strained. Pointed out to him this made
a political problem for us because of our unemployed. Bank doing everything it can to restrict credit but so far unsuccessful. Situation very
similar to ours in 1956. (Wolf their economist with whom 1 visited later
very pessimistic about doing anything because Adenauer is already campaign*
ing for 1961 reelection.)
Local states have had a windfall in tax revenue and are spending
more money than they should at a time when labor and resources are strained.
They took in more than 4 billion D.M. mere than anticipated and Blessing
et al are trying to get them to invest at least 3/4 of it, i.e. 3 billion Wl
in government securities through higher interest rates but without too much
success. More understanding of interest rates than with us but still quite
a bit of criticism, (Visited with 5 bankers including Adenauer's adviser—
Pferderadnges-^and found them inclined to think Central Bank too tightvery much like our bankers). This battle against inflation never ends.
fislted with ITocke who also is inclined to think things are going wild and
should do more to restrain. Stock prices more inflated now than ours
were last year*
Lunched with staff of
and Blessing. All of them feel !J. S»
eeonongr will have at least a mild upturn in fall. None of them think we
will have serious recession now although they feel adjustments must be wide
in our economy over next few
or a serious downturn will occur in
1961. fery apprehensive about our elections and feel both Kixon and Kennedy
are at heart inflationists.
Very unhappy about Mr. Pick whose dollar forecasts have received
wide publicity and unnamed Swiss bankers. Applaud U. S. balanced budget and
Federal Reserve policy as two moves which have restored confidence in cur*
rency. Things alright now despite heavy inflow of dollars, part of which
are coming because of hope for revaluation of the mark, fhink further easy
mon<ay moves by the Fed are probably necessary but they will not make it any
easier for them. I conditioned Blessing a bit on this and found he personally
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Federal Reserve Bank of St. Louis
-2
does not think a 3 P«r cent discount rate and more reserves will do
damage but feels we should stabilise around at 2 per cent bill rate,
4*1/2 per cent prime rate, 3 p«r eent discount rate,
These are hasty oommants of long and on the whole eneoureging
visits. Did not see any press and believe visit useful. Weir Brown will
inform Treasury of dollar situation, tart rotate to Bern today where will
spend evening viith Konry Taylor and reeheek Swiss thinking*
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Federal Reserve Bank of St. Louis
(Signed)
Bil3
"
/
I
Grand National Hotel
Luoerne
August 10, I960
Bear Ganbys
Spent yesterc&y evening with Henry Taylorj out*
Ambassador in Berne, and then met with some 20 of his staff
for a go around. Very little to
to HQT previous notes.
Inflow of dollars continue 8*-now over 1 billion Swiss francs*
Manager Katioiml
in S@nw very disturbed about it and
they are taking aetive step® to halt it but to no avail. They
are going to charge 1/2 per sent eomnission on n©w deposits and
limit withdrawals for 6 months* Neither of these measures "will.
be very effective in say opinion but are indicative of their worry.
Some Swiss are very worried about >iar*—again this is the
first time 1 have heard this from responsible people for a long
time. Moves by Khruschev since breakup of summit indicate in Judjg*
ment of these a. willingness to go to war. last Berlin crisis
probable starting place. Henry "Taylor agrees. Personally I doubt
it.
Am convinced no real worry about dollar at the aoiwnt.
Cuite a bit more talk about U. S. recession here. Strangely enough
those *ho believe in this seero to think it assures them of sound
dollar and hence want to have dollars for puiehages in U, -S. when
prices decline.
One thing I did not mention in nsy letter from Strasbourg*
i»e. Blessing et al repeatedly said they hoped H» S» Steel poopls
would succeed in selling more steel in Germany* This would b@ very
helpful
prevent Geraan steel people from expanding their pro*
duetiva fa@il5.ties far beyond anything Wolf et al think they ean
sustain in the near future*
1 am gradually working ray in a leisurely fashion toward
Austria and
spend a few
in Vienna ns^cfc week, I wiH be baelc
in Bonn around the SOth. Donft bather about eonnnmlcating with me as
1 te.ve no fixed schedule and no roaerratlons so just take it as it
eoiies*
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Federal Reserve Bank of St. Louis
(Sign**) Bill
.TV-5* 1
';•;•'.<.-&•&*
interiiatioiul e concede policies matured
in the
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th« long run if «» Mtoptt*; i'-,,r- sighted pcfcL.t-.-jt-: t> le^din-,: to the
•Ion of tr-.rrl^ t,rncii» AIXA that the wl«<» ^c»ur^ far ttilt <-^unt.r;; was to
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good* aad in J^r>-v>r volutt^*
1 •;.
•.-
t?«fey, t i5eil*»v« t
;i« the ;/«rt of th» ^ejlcaa j^oolti o/ th«$ mixl far
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Federal Reserve Bank of St. Louis
nrcstfi^iit betuwen th« '.jolted .*-&&»* ar.«- c»th«r c
with th* and o/ thr . - - -
: . - - ••-: •»_
<•.-•• .rar- ;.
t a tia» *^«i4, the
in Western iorep* wuj pmoari.oo« and ii
that axi^ f \artl; -r ."•
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iiC.uier.xc «olXtu:)0 aui to .:.;iv& t,*-clr *:*,:: ^erutts forums & baiter
i
to rally the great majority o/ peoj&e in opposing & sowonent for which
they r*ally had litU* Uktng* 'i'ho contest was b«t*wm ideas, md ti*
idea *0 ao4 th* touropearj rxn?ornr.*«nt«i wire Til^tir^ ted trtmndnus Ai
«bgn «Mfi ««or« sd«er»bl« and l:»«;v :•
' .• :.r -o^ttn^aents vainly stnxi::
against ecooonic deter i^r&ti cm »
Hd u«.-:«jr t3.«: -urovtitfi ^c-n^V' •ro,:r-'-. )&a a.'t lisil^d tc*- those
countries where the oornunist r/,r«-.v.t •.,,;, .. :..'-;••.••.;•;.
^Xjr aeo^>m: ^'Aspoae
to aasiift a «tv>Ie j^ro^ oi* friendly nations to speed th« t;rocese of
stability to thcdr .;overa^^its Uuxt there would be little danger
thai t';
iv.', t'orn ta eom^uni^t '-'olloJUtd* It would al^o r<t-
Hovc; this ootmt^' of the necessity to contitvac its burdensome
of foreign ald§ as* U ...oU* coiW^rt tha rricti^^- n&tioii^ ^fror;
-.- -- -'• •.
. ,••„: -.iT!3 ijif T-.ower, ,;'.ble 1: join ^rroctlv^Ic ^n a
oauat of ddf^nae JLT it iw&m >&•:.*•••:•—&: 1-- '*alt ^^ressors*
The plan was auccessf >il in its iBsaiediate purpow, and the
govemaenU wera able to hold their iro'Ju:-: arr to Defeat tii© c
throat,
3ut not^lUi»taiic;ing t,h& ra.Jl^ *r;*ui»lor* oT laroductloc
Europe, ,, ly limited suocesa can b* Oaimad in attalidn^ the lar^r
jioae to fcriild up Btrar^ 3elf«-€njpportinft 00 ^iomi«s« Tht growth of .pr
tion beyeort prewsr l^v»ls i^s n--*t .ro'ut'ht & o^rres-ufxidltsg ii^rcyvegMjnt in
th< voluMi ant:: .nattem of intorz^-ttwial trade becaLiae foreign eountri^a
not yst fentllt «|> a «;iiffi?:ient volMrap of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
la
in Britain,
for - .-
large* Thu fine progtwi* that oautitry IMMI oaue In re
t "iuch «5*." tii-iw ..r.';.««:
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
^•
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' • -r. •.- .;.; vrixiuct-lon*
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To:
Iflr.
Mr.
1/ir.
Mr.
Mr.
Mr.
Mr.
Mr.
J/tr.
!,&•.
Martii
Itfneh
lillis
Arnold
Glendinning
Schaffner
Hynning
Minskoff
Curtis
Bitterman
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Federal Reserve Bank of St. Louis
Secretary Sayder
February 23 § 195>Q
Mr. lynch
Congressional Activities mth Respect to OCA, February 22, 19$Q
Qa February 22, 1S?$G the Senate Foreign Relations Cornndttee
continued BCA hearings, Mr. Hoffman was the only -witness. Mr. Hoffman
did not present a prepared stateioent* fh© Committee continued the
questioning of him watch had started the previous day.
The House Foreign Affairs Committee heard a statement, a copy of
which is enclosed, from Mr. Averell Harriman, which outlined in some
detail toe progress made toward political stability in Western Europe
during the past year* Mr. Harriman was subjected to questioning at the
conclusion of tne statement*
A copy of H. R« 7378, which was Introduced by the Chairman of the
House Committee, is enclosed. This bill, which was prepared by EGA and
has been reviewed ty the Bureau of the Budget, is identical with that
being consideredfcrjrthe Senate, wnich, however, does not formally have
a bill before it,
A. Senate Foreign Relations Cosnmittee
Sterling Oil andjCA: Dhder persistent questioning by Senator Lodge
who seemed to be interested in what steps could be taken to expand
British sales of oil, Mr. Hoffman said tftat further reduction could not
b6 nade in the funds allocated to Britain for petroleum products without
a cut-back in the United States production. He also talked of the
unavailability of larger British petroleum supplies. He said that the
dollar cost of expanding British Middle Eastern production is not
sufficiently smaller than would be the cost of procurement from American
Sftddle Eastern conipanies, Mr. Hofftaan concluded that the present system
of procurement from American eotapsnies is preferable.
Clearing Uhiom Oaty slight reference was made to the Clearing Uhion,
wtiich had been covered the previous day. Ifev Hoffman did state that he
hoped for an additional 2$% reduction In quantitative restrictions
throughout .t&rope by the aid of 1950. Trie BCA staff will present an
analysis of the Clearing Union for the record.
European Integration* j*r. Ho.f fman stated that persuasion rather than
coercion is trie better approach to achieve European integration. For this
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reason he thinks it undesirable to introduce mgr further statutory
provision aimed at obtaining European Integration*
g«rfflinatiQRT of JEA t It is and has been the «i» of the MCA to terminate
European"'"iwisietance^'S^a continent wide basic la 19$2* this dots not ineanf
nowever, tnat after 1952 there will not be aid. <m a specific country basis,
amator Connally* $sn* CosnalJgr said that he wished to withdraw his
remarks oi tne previous day to the effect that the Senate Cosu&tteo had
been Bdsin formed by BCA* He stated that ;£A hadf In fact, included in the
previous year* testimony the material wider reference*
B. House Foretlga Affairs Joaspjlttee
ar» :jarrj^i^»s,_^^
Talking of progress toward politioal
etadility' W« karriman' cit^Ta nu«ber of exampies, eaeh a» ^ie eleeti«»i
reverses sufferedfcQrthe C©«iinists in Horway, W»stern Qer-asfiy and Belgium*
and the strengtliettlng of aon-Cow?iunist trad* unions ia France and Italy,
ae evidence t?iat Comaw&ieit has suffered a ^ofeeJale11 setback in Europe*
Harrif«ri also told the Cotaedttee that 1^ie $£*$£ billims being requested
for !5CA for fiscal year 19551 is ar* absolute minijaaii^ and if that amount
is reduced self-support will never be achieved bjr ifo* participating n
oountrles and the "program would shift from recovery to were- relief *
Uteiy of the questions diroctod at 4iarrij»in after he read his
prepared statement were the **e as t^iose asked Aoheson fuesda^*
particularly those dealing with the aecessitv for post~i952 aid, the
broadetting of the Investment program^ and toe situation in -outheast
Asia* For the most part Harrlnsn*s replies paralleled Acheaon*s and are
not reported here* i>ther phases of the liCA program on irich Harriwaii
nas exandned are the following!
'orcip. polleys Rep* fioltou {f),) asked if M
rjCAjMM|^:part of ^
Jiust be continued 1 r'ea^guard t;ie security of
the U*S. Harrluim replied
that the MAP 11
and >CA pgrograoe were plainly ttpart and parcel of our
foreigr* policy , and unless there are healthy economic and social
condtticj.is in Birope there cannot be political stability, and in the
a'beenoe of a stable political situation Europe would most likely fall to
•--.••••:: . :'-•,;,, which wnuM ;. 1 WBftm* IfeViMA «i our M security.
'";L^J;
-^E£* ^P* ^srrow (!«»«,) recalled that
' ^ i the joint session that there wouH be f%£® aillions
carried ov«r froa feie current fiscal year to 1951* and ho asked why,
if suci - saving ©ould be s'.rectea Wee re.-^0*5;: "or ly^l c^jtlJL^ »t !>e
i£t2i
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cut considerably* H&rriajan repeated that in his opinion the |2.9£ billions
figure represented an absolute minimum, and he Mid the $150 millions
saving had been considered whan eoroputing this amount* lit said further
that Hoffman should not be penalised by having his reddest cut* after he
had demonstrated his good faith i$r affecting a substantial saving daring
the current year*
East-great trade •under _. J3gA» Hep» Fulton (Pa») aslosd far information
relative to trade bSbiSS^i CA countries and the soviet satellites*
Harriasn repeated the PC A policy of encouraging the expansion of east-west
trade except for military itents* He said* however, that this trade
hasn't developed to tne degree hoped for, chiefly because the eastern
countries haven't got the products essential to support and advance such
•-•-.: X".
of u jorM _ 3ank to., ^uropeaR ,.jracove.3Qr> Rep* Fulton ( Pa* ) asked
about the activities "6? the'TtSD''' in relation'" to the €A» He also wanted
to taaow if there wasn't soae overlapping of activities of EC A and the
Bank* Harriasa said there was no such overlapping, but he said it nad
been hoped the "\orld Bank would have wide acre loans than it actually
has to V€A countries*
The Senate Foreign Delations OoaaElttee will continue hearings
Thursday with the Secretary of State Bean Achescn as toe witoeas*
01
ABMtschgii Jiallyi EFRains
iof 2/23/50
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H. R. 7378
IN THE HOUSE OF KEPKESENTATIVES
FEBRUARY 21,1950
Mr. KEE introduced the following bill; which was referred to the Committee on Foreign Affairs
A BILL
To amend the Economic Cooperation Act of 1948, as amended.
1
Be it enacted by the Senate and House of Representa-
2 lives of the United States of America in Congress assembled,
3 That section 111 of such Act is hereby amended by
4 adding at the end thereof the following new subsection:
*
5
" ( d ) The Administrator is authorized to transfer funds
6 directly to any central institution or other organization formed
7 to further the purposes of this Act by twro or more participat8 ing countries, or to an}^ participating country or countries in
9
connection with the operations of such institution or organ-
10 ization, to be used on terms and conditions specified by the
11 Administrator, in order to facilitate the development of trans-
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2
1 ferability of European currencies, or to promote the liberaliza2 tion of trade by participating countries with one another and
3 with other countries."
4
SEC. 2. (a) Section 114 (c) of such Act is hereby
5 amended in the following particulars:
6
(1) By striking out the period at the end of the first
Z sentence and inserting in lieu thereof a colon and the follow8 ing: Provided further, That, in addition to the amount
9 heretofore authorized and appropriated, there are hereby
10 authorized to be appropriated for carrying out the provisions
11 and accomplishing the purposes of this title not to exceed
12 $2,950,000,000 for the fiscal year ending June 30, 1951:
13 Provided further, That, in addition to the foregoing, any
14 balance unobligated as of June 30, 1950, or subsequently
15 released from obligation, of funds appropriated for carrying
16 out and accomplishing the purposes of this title for any
17 period ending on or prior to that date is hereby authorized
18 to be made available for obligation through the fiscal year
19 ending June 30, 1951, and to be transferred to and con20 solidated with any appropriations for carrying out and
21 accomplishing the purposes of this title for said fiscal year."
22
(2) By amending the last sentence of such section 114
23
(c) to read as follows: "The authorizations in this title are
24 limited to the period ending June 30, 1951, in order that
25 the Congress may pass on any subsequent authorizations."
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Federal Reserve Bank of St. Louis
3
1
(b) Section 114 of such Act is hereby further amended
2 by adding at the end thereof the following new subsection:
3
" (h) Of the amounts authorized to be appropriated for
4 carrying out the provisions and accomplishing the purposes
5 of this title and allocated for assistance to Germany the Pres6 ident may transfer such amounts as he deems appropriate
7 to any department or agency which may be used without
8 regard to other provisions of this title as the President may
9 specify, for expenses not otherwise provided for, necessary to
10 enable the President to meet the responsibilities and obliga11 tions. of the United States in connection with the rehabilita12 tion of occupied areas of Germany, including such minimum
13 supplies for the civilian population of such areas as may be
14 essential to prevent starvation, disease, or unrest prejudicial
15 to the objectives sought to be accomplished, and the cost
16 of such supplies, commodities, equipment, and services as
17 may be essential to carry out the purposes of this subsection:
18 Provided, That any such funds which are so transferred may
19 be expended either under the authority contained in this
20 subsection or under any provisions of law applicable to the
21 department or agency to which so transferred and not incon22 sistent herewith: Provided further, That such part, as may
23 be agreed upon by the Secretary of State and the Adminis24 trator for Economic Cooperation, of the local currency de25
posited or to be deposited by Germany under the bilateral
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Federal Reserve Bank of St. Louis
4
1 agreement entered into by the Government of the United
2 States and the Government of the Federal Eepublic of Ger3 man}^ on the 15th day of December 1949, or any supple4 mentary or succeeding agreement which shall not substan5 tially alter the basic obligations of either party in this respect,
6 shall be deposited into the GABIOA Special Account under
7 the terms and conditions contained in article V of the afore8 mentioned bilateral agreement, and shall be available without
9 reimbursement from any appropriation to the Department of
10 State in such quantities and under such terms and conditions
11 as may be determined by the Secretary of State after con12 sultation with the Administrator for Economic Cooperation,
13 for carrying out the responsibilities of the United States in
14 the occupation of Germany, including any contingencies
15 which may arise in connection therewith."
16
SEC. 3. Section 115 of such Act is hereby further
17 amended by adding a new subsection as follows:
18
" ( j ) The Administrator shall utilize such amounts of
19 the local currency allocated pursuant to subsection (h) as
20 may be necessary, to give full and continuous publicity
21 through the press, radio, and all other available media, so as
22 to inform the peoples of the participating countries regarding
2^ the assistance, including its purpose, source, and character,
24 furnished by the American taxpayer."
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Federal Reserve Bank of St. Louis
81ST CONGRESS
2o SESSION
H. R. 7378
A BILL
To amend the Economic Cooperation Act of
1948, as amended.
By Mr. KEE
FEBKUAKY 21,1950
Referred to the Committee on Foreign Affairs
Statement by ^jnbassador yj. ^verell Harriman
U. 8. Special Representative in Europe
Before the Senate Foreign Relations Committee
For Release upon delivery,
February 1950.
ivlr. Hoffman has outlined to you the progress of European
recovery thus far and the prospects for continued success. I will
not 20 over the ground which he has covered, but will confine my
report to certain aspects of the situation in Europe as I have
observed them develop.
When I appeared before your Committee last year I expressed
my conviction that we were winning the struggle for reconstruction
and freedom. During the past year political stability and democracy
have been strengthened throughout Western Europe. This has been
demonstrated in one national election after another.
In the Norwegian elections of last October, the Communist
representation in the national Assembly was wiped out. They lost
all the eleven seats they had previously held.
In August, the people of Western Germany had their first
opportunity to register a free choice as to the kind of federal
government they wanted. Out of 402 seats, oniy 15 went to Communists,
When the Belgian people went to the polls last June, the Communists were left with only 12 seats out of 212 in the Assembly as
compared with 23 out of 197 in the previous election. In the Senate
the Communists were reduced from 17 cut of 167 to 7 cut of 174.
The people of Austria, even with part of their country under
Soviet occupation, have been firm in their rejection of Communism,
with only five percent voting the Communist ticket and the number
of seats in the Parliament held down to five out of 165.
Communism has experienced its most notable setback in the
European trade union_movement which it sought to penetrate and control at all costs, intent on using the labor movement as the spearhead of their drive, the.Communists had captured the major trade
union federations in. Italy and Franco before thv: Marshall Plan took
shape. J-ne labor movements in tnese two countries were under
virtually complete Communist domination now that control is losing
its grip and the non-Communist labor movements are rapidly gaining
strength. In France, the Force Cuvriere, together with other nonCommunist trade unions, is cnalle-nging the Communist control of the
French labor movement,
In Italy two major non-Communist labor federations have broken
away from the Communist-controlled confederation, and are now combining their forces of more than 1,500,000 free Italian workers.
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At a convention held last October in Western Germany at which
the trade unions formed a single federation, the Communists could
muster only a handful of delegates.
In other countries like Austria, Belgium and Norway, where
Communists had once been strong, their influence in organized labor
has diminished to insignificance.
In many of the countries, Communists are still in control of
some labor unions and are still in a position to cause economic dislocations, and otherwise capitalize on social unrest, but their
power is steadily declining.
The rising determination of workers to drive out Communist
agents from positions of control and influence in the labor movement has had worldwide repercussions. The walkout of free labor
organizations from, the once powerful florid federation of Trade
Unions, which has been an instrument of Communist intrigue, was a
significant advance in the march of labor toward freedom and democracy. Meeting in London early 1'.-st December, representatives of
free trade unions from 53 countries, including 15 EKP countries and
the United States, formed the new International Confederation of
Free Trade Unions with a total membership of over 48 million. This
great new labor organization issued a forceful declaration in support
of the Marshall Flan. TiJe in America can be justly proud of the
leadership of the great labor organizations of the United states,
who, working closely with labor unions in other lands, have helped
establish the new Confederation as a world organization devoted to
the advancement of workers' welfare and the defeat of Communistic
infiltration.
These are notable gains scorud in the struggle of freedom
against Communism. But the insidious campaign to capture and control Europe is still being relentlessly waged in many forms and in
many guises.
The gains made by the voters and workers of Europe toward
the free way of life would have been impossible if economic recovery
with Amorican aid had not given them new confidence and new hope.
The people of Europe are increasingly aware of the part which
our country and our people have played in the joint recovery effort.
At the express direction of the Congress, in the 1949/50
appropriation act, the EGA is carrying forward, a vigorous information program to make certain that the full story of ^jnerican aid
and its purposes gets to the peoDle of 7/estern Europe. The participating governments, despite a slow start by some, are showing increasing Initiative in doing their part to get the facts of the
recovery effort and the role of American assistance faithfully to
the public.
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Federal Reserve Bank of St. Louis
- 2-
There is reassuring evidence that the Marshall IIan story is
getting over to western Europe and is creating the understanding
vital to it3 success.
Western Europe's 2,000 daily and weekly papers, with a combined
circulation of 110,000,000, are now publishing some 4,000 Marshall
Plan articles per week -- double the number of a year ago.
In cooperation with the Governments, Marshall rlan news,,
explanatory interviews and programs dramatizing the ERP are broadcast on the nationwide radio networks of all the Marshall Plan
countries. The European radio listener in each country now has
available in his own language an average of two special HR? broadcasts weekly, ^ur studios show that they are being heard by some
40,000,000 listeners. In addition to all this there is constant
coverage by the Voice of America.
Over 50 EGA. documentary films have been made, each adapted
to particular countries and reproduced in various languages. Individual nowsreel shots on ;>-ar shall rlan subjects are being shewn in
commercial theaters vjith an average weekly audience of 30,000,000
Europeans. This distribution is being steadily increased.
Last summer seme 5,000,000 European fair-goers saw ERP exhibitions which were prepared and shown in collaboration with the
participating governments, and this year the ERP will be graphically
portrayed at an even larger number of fairs.
The story is told in many other ways. In some places the
European postman has spread the word of American aid through
special ER? stamps. A million EHP school books are in use in the
German schools. This year four ERP showboats will ply the inland
waterways of the continent.
In connection with the EGA Information ^rogram in Europe, there
are two points I should like to mention:
One is that the principal cost of this activity -- more than
four-fifths of all expenditures -- is paid out of the local currency
counterpart funds.
The second is that the Marshall Plan must meet imaginatively
and without timidity the unceasing attacks and propaganda directed
against ..jneriean aid and American motives by the obedient Communists
in every country.
L big job remains to be done both by the participating governTiorrts and by the EC^. itself. rrepaganda is the principal weapon
Df the Communists and the more the ERP succeeds the more they try
to misrepresent it. While most Europeans are now aware of the Marshal
Plan, there are still too many who do not know enough about it or
adequately understand it.
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Federal Reserve Bank of St. Louis
- 3-
You have before you today tho Second Report of the Organization
for European Economic Cooperation. This is more than a staff study
by a group of experts. It represents the unanimous judgment of the
participating governments, appraising the progress that has been.
made and the problems confronting them and the United States in
ear joint effort. It defines economic objectives and the policies
necessary to achieve them. It contains commitments to positive
action, individual and collective, by the 18 responsible member
governments.
among these 18 is the new German Federal Republic. It is
significant that the GEEC is the first international organization
into which the new Gorman Government has bo en admitted as a full
partner. This is an earnest of our hopes for the peaceful and constructive association of Germany in the- Western European community.
The OEEC proceeds from appraisal of specific problems to
negotiation of the necessary commitments by the governments and a
fcllovj-through on the action required. These are no easy tasks. I
and tne members of my staff have participated r..s observers in countless meetings of CISC committees dealing with a wide range of common
problems. Ere have been deeply impressed with the earnest concentration and determination shown by the national delegates and the able
international staff brought together in r'aris.
There are many ways in which the organization is contributing
day by day to steady progress in the building of a healthy European
economy,
During the past year, for example, its Food and Agriculture
Committee has initiated far-reaching activities for the expansion
of far.rn output in Europe, The Electric Rower Committee has developed
plans for speeding the expansion of power supply, including internationally interconnected systems which will go far to remove the
one remaining major physical bottleneck in European production.
Through the work of the OEEC Manpower Committee, solid progress .
has been made in facilitating the resettlement of workers within
Europe, In encouraging overseas emigration from surplus population
countries, and in providing assistance for industrial training
and improved employment services. Freedom, of movement of workers
across national boundaries has been increased and aigher employment
in Europe has been promoted by this pioneer effort of concerted
international action.
In the field of trade liberalization, a special committeo has
scrutinized ^ach member nation's proposals, defining rigorous common
standards of performance to test compliance with the agreed course
of action, /-.nether committee has made a searching and critical
review of the internal financial position and policies of each
Participating country. PL second review is now under way. Such
action in an international organization is without precedent.
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Federal Reserve Bank of St. Louis
_ 4 -
A new study is being undertaken of vjays and means to encourage
arivoto internatioria.L investment — especially --morican invest—
ifi.ent — in the member countries and their overseas territories*
Mr. Hoffman has described to you the work of the OEEC and the
formidable problems which it faces in connection with economic
integration of Europe. These problems are occupying an increasing
share of the organization's attention and we must lool-: for more
vigorous and effective progress in their solution.
This constant process of collaboration on every aspect of
economic policy has helped to build in Western Europe a growing
sense of common purpose and community of interest. Even the disputes
that have taken place in thu Organization and attracted a good deal
of puolic attention demonstrate the vital character of the issues
it deals with and the decisions it makes. It is fair to say that
no important economic policy is now adopted by any one of the
participating countries without serious consideration of its repercussions on that country's CEEC partners ond on the progress of the
European Recovery Program.
I should like to stress one feature of Europe's economic
effort which seems to mo particularly significant, j-'hat is the very
large share of -^uropo's total economic resources which is going
into investment rather than current consumption. Although European
living standards arc far below our own and in most countries still
below pre-war, the rate of investment is much higher than pre-war.
European investment averages about 20 percent of gross national
product compared with 15 percent in the bnj_ted states.
These investments are mainly for the direct expansion of production: Thmy are in power projects, transportation systems,
production of basic materials and export industries. ^'hey are the
means by which Europe can use this period of American aid to build
up its production and expert potential to the point where aid can
safely be terminated without leaving impoverishment and unemployment
in Europe. These high levels of investment mean that consumption
is being held down, TTIG respite afforded by our aid is not a period
of mere living on charity. The ERP is no international dole; it
is a program for genuine recovery.
This vital progress towards a healthy -^uropean economy, with
which our own long-range prosperity is bound up, is made possible
only by ERP aid. Almost half of western Europe's needed imports of
goods and services must at the present time be paid for in dollars.
Throe-fifths of these dollars are being supplied by ^-jnerican aid.
It is all too easy to see what would happen if aid were cut
off in the middle of the program. The European countries would
simply have to slash drastically their imports from us,
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Federal Reserve Bank of St. Louis
- 5 —
They would have to eliminate imports of capital equipment,
without which they cannot achieve self-support, •'•hey v;ould have to
cut down imports of industrial rav; .materials, throwing millions
out of work. Cuts in food and feed imports vjould at once reduce
living standards and farm output. V/itli production down, exports
would, dwindle and imports would have to be still further cut. The
fateful downward spiral would be started. Europe would again be
faced with the hunger, chaos and despair in which Cor;munism breeds.
On the other hand, if cur assistance were continued, but cut
to a level below the minimum needed, there would be no margin left
for the expansion of production and earning power. Self-support
could not be achieved. The progran would shift from recovery to
mere relief.
I think it is important that we remember the present and
potential significance of the European economy, v/e are concerned
with the future of 275 million people. Wo are concerned with an
area whose industrial output is second only to ours and far exceeds
that of the Soviet Union and all its satellites. The combined
ruscurces of the V/e stern Jiuropean countries must remain on the side
of freedom, ^ny other outcome would spell disaster not only for
them, but for us, and for free men ...verywhere.
In closing, I should like to express a conviction which 1
hold deeply. It is simply this: That the American people, and the
Congress which has acted in their name in launching the greatest
cooperative venture ever known in peacetime, have a right to be
proud of the role which the United States is playing in Europe today
I have found among the nations participating in this effort the will
to do their share — the determination to stand and work with us
to preserve the liberties which we and they cherish in common.
If this nation remains steo.dfast in its purpose to complete the grea
work it has undertaken, wo will find our partners fin:, at our side.
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Federal Reserve Bank of St. Louis
- 6-
Hold for Release
Hold for Release
INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
Washington
FOR THE PRESS
FOR RELEASE 12:15 P.M.
Press Release No. 171
February 8, 1950
The International Bank for Reconstruction and Development today
released a statement of the principal activities of the International Bank
since September 1, 194-9, supplementing the Fourth Annual Report of the
Bank, which was furnished the United Nations for the use of the Economic
and Social Council in connection with its consideration of the Barikfs
Annual Report.
(Statement attached)
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Federal Reserve Bank of St. Louis
INTERMTIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
February 6, 1950
Statement of Principal Activities
Since September 1, 194-9
This statement supplementing the Fourth Annual Report of the
International Bank for Reconstruction and Development, has been prepared for
the use of the Economic and Social Council in connection with its consideration of the Bank's Annual Report. It summarizes the loans granted by the
Bank since the issuance of the Fourth Annual Report and its other activities
during this period.
-LQ4NS GRANTED
India
On September 29, 1949, the Bank lent $10 million to the Government of
India for the improvement of agricultural production. The proceeds of the
loan are being used to finance the dollar component of the cost of agricultural equipment and spare parts needed for the reclamation of lands infested
with a weed known as kans grass, and for the clearing of jungle lands. The
loan was for a term cf seven years and carried an interest rate of 2 1/2$,
plus commission at the rate of 1%, which, in accordance with the Bank's
Articles of Agreement, is allocated to its special reserve fund. Amortization payments, calculated to retire the loan by maturity, will start on
June 1, 1952.
$8,750,000 will be devoted to the kans grass project, for the purchase
of 345 heavy tractors, ancillary equipment, and spare parts. Out of an area
of 10 million acres in Central India which are 1mown to be infested with
kans grass, the Government has surveyed 3 million acres which will be reclaimed over a seven-year period with the help of the Bank's loan. The
method of reclamation involves deep plowing with heavy tractors, plows, and
ancillary equipment. The total capital outlay for reclamation and subsequent
cultivation of these lands, the major part of which will be financed by India
out of her own rupee and sterling resources, amounts to the equivalent of
$24,900,000.
It is expected that substantial quantities of grain from the reclaimed
areas will be available to the domestic markets. Because of the high yields
from reclaimed land, a total of about 4 million tons is expected to be available to the market, in addition to the farm consumption in the reclaimed
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Federal Reserve Bank of St. Louis
- 2areas, over the seven-yerr period, and about 1 million tons annually thereafter. This will make a substantial contribution to India's food requirements,
which even on the basis of the present low average of grain rations are
currently increasing at a rate of one-half million tons per annum through
population growth alone.
To meet the need for increasing India's acreage of arable land, the
Government has carried out experiments in jungle clearance. The clearance of
jungle lands iiivolves removing of trees, elimination of brush, plowing arid
harrowing. The balance of the Bank's loan, amounting to 01,250,000, will
help finance a pilot program for clearing about 100,000 acres of jungle lands
in northern India. The loan will finance the dollar cost of heavy tractors,
ancillary equipment, and spare parts. The Government of the United Provinces,
where jungle lands will be cleared, will meet the costs of the construction of
roads, housing and control of malaria, and other incidental expenses, the
total of which cannot at this time be determined. This pilot program will
enable the Indian Government to gauge the practicability and the cost of
large-scale clearance of jungle lands with modern equipment. It will also
make some contribution to India's food supply.
Timber Equipment Loan
On October 17, 1949, the Bank lent the Republic of Finland 02,300,000
and the Federal People's Republic of Yugoslavia 02,700,000, for the development of the timber resources of those countries. The loans will be used to
finance the purchase of timber-producing equipment. Both loans are for terms
of two years and carry interest rates of 2%, plus the usual commission of 1$.
Amortization payments begin on June 30, 1950, and are calculated to retire the
loans by their maturity, September 30, 1951.
These loans were two of a series of loans considered in connection with
a Timber Equipment Project developed by the Food and Agriculture Organization
of the United Nations, the Timber Committee of the United Nations Economic
Commission for Europe, r.nd the Internatiora 1 Bank, with a view to alleviating
the current and prospective shortage of timber in Europe by expanding production in certain timber-exporting countries. The project had its origin
in the findings by the F.A.O, and the Timber Committee of the E.G.E. that the
production and export of timber by the timber-exporting countries could be
substantially increased if lumbering and sawmill equipment could be obtained
by them from Europe and the United States. Discussions were tlsn held among
those agencies, the International Bank, and representatives of the important
timber-importing and timber-exporting countries of Europe.
As was stated in the Bank's Fourth Annual Report, these discussions
resulted in the formulation of a..plan, the salient features of which were as
follows: The Bank would make loans to the timber-exporting countries of
amounts necessary to finance the dollar purchases of equipment; other timberproducing equipment in approximately the same amount would be obtained from
European suppliers without financial assistance from the Bank: the timberexporting countries would agree to export at reasonable market prices specified
quantities of timber; and finally, the principal timber-importing countries
of Europe would enter into Timber payments Agreements with the borrowers under
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Federal Reserve Bank of St. Louis
- 3which these countries would pay dollars to the Bank for a sufficient part of
the timber to be imported by them to ensure repayment of the Bank's loans.
It had originally been contemplated that similar loans would also be made
to Austria, Czechoslovakia and Poland, but Austria and Poland did not request
such loans and Czechoslovakia withdrew its application in view of difficulties
encountered in working out Timber Payments Agreements.
Finland entered into Timber Payments Agreements with Belgium, Denmark
and the United Kingdom and the loan became effective December 16, 1949*
Yugoslavia entered into Timber Payments Agreements with the United Kingdom,
the Netherlands, France and Italy, and tbo loan became effective January 24,
1950.
Best available estimates indicate that the machinery to be obtained
by Finland and Yugoslavia as a result of the Bank's loans and of purchases
from European suppliers will enable those countries to increase their annual
production and exports of timber by amounts having a value several times as
large as the amounts of the loans. These increased levels should be maintained long after the loans are repaid. The timber-importing countries of
Europe will likewise derive substantial benefit, both from the availability
of increased supplies of timber needed for the reconstruction and development
of their productive facilities, and also from their reduced dependence upon
imports of timber from North America, which must be paid for in dollars,
El Salvador
On December 14, 1949, the Bank made a loan of 012,545,000 to the Rio
Lempa Hydroelectric Commission to finance imports of materials and equipment
required for the construction of a 30,000 KW hydroelectric plant. The loan,
which is guaranteed by the Government of El Salvador, is for a term of 25
years and carries an interest rate of 3 1/4$ > plus the usual 1% commission
charge. Amortization payments begin in 1954.
The Pvio Lempa Hydroelectric Commission is a non-profit agency of the
Government of SI Salvador, created in 1946. Lack of electric power has
handicapped the development of El Salvador, and the additional supply generated
by the new plant will satisfy a backlog of demand on the part of urban,
agricultural and industrial consumers, and provide for some future expansion.
In order to meet the local currency costs of the project, the Rio
Lempa Commission plans to make a public issue of colories bonds in El Salvador,
The Director of Marketing of the Bank will advise and assist the Commission
in the sale of these bonds.
The Loan Agreement will not become effective until the Guarantee
Agreement is ratified by an elected Constituent or Legislative Assembly in
El Salvador, The present Government is provisional,, but elections for a
Constituent Assembly are expected to be held this year.
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Federal Reserve Bank of St. Louis
— 4—
OTHER OPERATIONAL ACTIVITIES
Latin America
Brazil - A Bank mission visited Brazil in October and November 1949
for the purpose of:
1. studying general economic and financial conditions, with special
reference to Brazil's capacity to assume additional external debt;
2. considering what priority various proposed development projects
should receive;
3. surveying Brazil's government policies for promoting the development of the country's economic resources.
The mission^ report is now under consideration.
A survey has also been made by a Bank representative of the electric
power market in connection with the Paulo Afonso hydro-electric project which
is under consideration.
Chile - A Bank mission visited Chile in November and December 1949 for
a review of Chile's economic and financial situation, with special reference
to certain development projects which have been submitted to the Bank.
Colombia - The large-scale mission under the direction of Dr. Lauchlin
Currie, referred to in the Bank's Fourth Annual Report, remained in Colombia
from Joly to November 1949, making a study of the country and its development
potentialities. Its reports are in the final stages of preparation.
The Bank is currently considering three hydro-electric projects in
Colombia.
Costa-Rica - Bank representatives paid a short visit to Costa Rica in
November 1949, for preliminary conversations with the new Government, which
had just taken office.
Cuba - The Vice-President of the Bank visited Cuba in November 1949,
for informal discussion of de\relopment plans. A Bank mission may soon visit
Cuba to make a more detailed study.
Ecuador - A study of the textile industry has been completed and is
currently under consideration.
Conversations are continuing concerning several projects proposed for
Bank financing.
Guatemala - Representatives of the Bank visited Guatemala in mid-November
for preliminary exploratory discussions on Guatemala's development program,
Guatemala has requested that the Bank organize a mission to study certain aspects of the Guatemalan economy and to assist the Government in formulating
its development program.
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Federal Reserve Bank of St. Louis
- 5Mexico - Negotiations have continued towards the granting of a longterm .loan of £>26 million to the Mexican Light and Power Company, Ltd. The
Bank has made the completion of the reorganization of the capital structure
of the Company a principal condition of such a loan. A reorganization plan
was issued by the Company in December 194-9 to its security holders, who will
meet to vote on it in February 1950, The maturity of the interim loan of
$10 million granted by the Bank in January 194-9, originally set at December
31, 1949, has been extended until July 1, 1950 in order to allow time for
the reorganization to be completed.
Nicaragua - Bank representatives visited Nicaragua in October 1949,
for exploratory discussion of the country's development possibilities*
Uruguay - Negotiations for a loan of approximately (-31 million for
improvement of electric power and telephone facilities are entering their
final stage.
In response to a request by the Government of Uruguay, a representative
of the Bank is visiting Uruguay in February 1950 for discussions concerning
the loan and Uruguayan technical assistance requirements with respect to
certain sectors of her economy,
Europe
Turkey - Technical studies of the grain storage project, the port
construction and improvement project and the project for a multi-purpose dam
on the Seyhan river are in progress end will be completed shortly.
The Bank has agreed to send a mission to Turkey to help the Turkish
Government prepare a coordinated investment program for the development of
the Turkish economy as a whole. Preliminary studies for this purpose have
been made.
A Bank consultant, who was in Turkey in October and November 1949,
investigating the means by which private investment in Turkish industry can
be stimulated, has returned to Turkey after consultation with the Bank concerning proposals for this purpose.
Yugoslavia - The mission referred to in the Fourth Annual Report has
now returned and the economic, financial, and other data it obtained are
being studied. Discussions with representatives of the Yugoslav Government
are now under way.
Asia,_Africa and Middle East
Egypt - The Egyptian Government has requested that consideration of
the Quena project by the Bank be postponed pending further explorations by
the Egyptian Government as to the possibility of obtaining the necessary
equipment in soft currency areas without financial assistance.
Ethiopia - The Bank is examining certain projects recently submitted
by the Ethiopian Government, A Bank mission may visit Ethiopia in the near
future.
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Federal Reserve Bank of St. Louis
- 6India - Negotiations have been entered into for a loan to finance the
dollar component of the cost of the Bokaro-Konar project. This project
involves the construction of a thermal electric plant, a hydro-electric plant
ana a transmission system, and represents the first stage of a broader
development program for the Damodar River Valley.
A. Bank mission is visiting India early in 1950 for a further review
of its economic and financial position.
Iran - The Bank expects to send a mission to Iran in the spring or
early summer of 1950 to examine high priority projects under the country's
seven-year development plan.
Iraq - A Bank mission visited Iraq in November-December 1949 for
discussions concerning the possible financing of the Uadi Tharthar flood
control project. This project would divert the flood waters of the Tigris
River, in order to prevent destructive inundations downstream, and may make
possible their later use for irrigation purposes,
Pakistan - The Bank mission which is visiting other countries in
the Far East will visit Pakistan early in 1950 for preliminary conversations
concerning the economic and financial problems of the country,
Philippines - A Bank mission visited the Philippines in December 1949
for the purpose of reviewing the economic and financial position of the
country.
Thailand - A Bank mission arrived in Thailand December 29, 1949 for
a study of the economic and financial situation of the country and its
development program and possibilities,
U.K. Colonies - The Bank and the Colonial Development Corporation
have announced that it has not been possible to bring to a successful conclusion the negotiations that had been underway with respect to a loan for
the purchase of equipment to be used in development undertakings promoted
by the Corporation in the dependent overseas territories of the United
Kingdom.
MARKETING OPERATIONS
No borrowing has been necessary since September 1, 1949, for the
purpose of raising "new money51 to be used in the Bank's lending operations
as available funds on hand were adequate to meet its needs during the period,
However, a refunding operation was undertaken, in the United States market,
which involved calling for redemption the outstanding issue of ,'>100,000,000
Ten Year 2k% bonds, due July 15, 1957, for payment at 101 and accrued interest on February 17, 1950, A new issue of the Bank's Serial Bonds of 1950,
due 1953-1962, in like principal amount, was sold at competitive sale on
January 25, 1950, Four syndicates submitted bids for the bonds, with the
aggregate number of bidders totalling 393 commercial banks and investment
banking firms, located in 33 states and the District of Columbia. The
winning group, which was headed by Halsey,Stuart £ Co., Inc. and the First
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Federal Reserve Bank of St. Louis
- 7-
National Bank of Chicago and was composed of 37 commercial banks and 99
investment banking firms, submitted a bid with net interest cost to the
Bank of $14,441,000 or 1.9254 per cent. It is calculated that this
refunding operation will result in a net interest saving to the Bank of
approximately 31,250,000.
The Bank's 3% bonds due in 1972, which were originally offered on
•July 15, 1947, are presently quoted 103 9/32-11/32 where they yield
approximately 2.30^ to maturity. It should be noted, however, that these
bonds are callable at any time on 45 days notice (the present redemption
price being 102-g-) so that the current selling price is slightly less than
1% §*)0ve the call price.
The Director of Marketing of the Bank is visiting Switzerland for
the purpose of exploring the possibilities of borrowing Swiss francs to
be used in connection with certain of t he loans that have been approved by
the Bank,
The United States has consented to the use of its paid up subscription for lending purposes. Belgium, Canada and Denmark had consented to
the use of their currencies totaling the equivalent of '310,125,000 and the
United Kingdom had consented to the use of £500,000 at December 31, 1949,
The funds which have become available for lending up to December 31, 1949
expressed in round numbers in terms of United States dollars consist of:
' —>
—
—
w
7
paid-in portion of United States subscription ............ 0635,000,000
2% portion of subscriptions of other countries
paid in gold or dollars .............................. , 93,555,000
Part of l3/o portion of subscription of
Belgium, Canada, Denmark and United Kingdom ............ 11,525,000
Proceeds of two bond issues in the United States .......... ., 250,000,000
Sale of Swiss Franc Bonds to the B.I.S. .... .............. ....
4,000,000
Net available funds resulting from operations ...... .......... 20,764,000
$1,019,344,000
Of this sum, approximately $304 million remains available for lending.
The Bank hopes to obtain further authorizations for the use of some
part of the 18$ local currency subscriptions of other members, both in
order to increase the amount and flexibility of its loanable resources and
to strengthen the international character of its operations.
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Federal Reserve Bank of St. Louis
INTERNATIONAL
BANK
FOR
RECONSTRUCTION AND
DEVELOPMENT
Pnr rnncirWaf inn af
ror consiaerdtiuu at
INTERNATIONAL BANK FOR
INSTRUCTION AND DEVELOPMENT
CONFIDENTIAL
Executive Directors' Meeting
R - 288
(To be submitted to the
Executive Directors on
February 11, 1950.)
FROM; The Secretary
February 3, 1950
UNITED STATES AND OTHER MARKETS FOR BANK'S BONDS
(Report of Marketing Department)
On January 2f>, 1950, at 11 A. M., the Bank received, in the New York Office,
four bids for its new issue of Serial Bonds of 1950, due 1953-1962, and at that
time awarded the issue to a syndicate headed by Messrs. Halsey, Stuart & Go, Inc.,
and The First National Bank of Chicago. This group was composed of 37 commercial
banks and 99 investment banking firms. A complete record of the bidding follows:
Net Interest Cost Net Interest Cost
$
%
Group Managers
Price
Coupon
Halsey, Stuart £ Co. Inc.
The First National Bank
of Chicago
100.559
2$
$1U,U|1,000
1.9251*
Bankers Trust Company
Morgan Stanley & Co,
100.10U5 2%
$11^895,500
1.9860
The National City Bank of
New York
J. P. Morgan & Co.,
Incorporated
Kuhn, Loeb & Co.
100,5199 2 1/8$
$15,1|17,600
2.0556
The Chase National Bank of
the City of New York
The First Boston Corp.
C. J. Devine & Co.
Salomon Bros, & Hutzler
100.385U 2 1/8$
$15,552,100
2.0736
It is calculated that the sale of this new issue and the redemption of the
Ten Year 2 1/1$ Bonds, due July 15, 1957, will result in a net saving to the Bank
of approximately $1,250,000.
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Federal Reserve Bank of St. Louis
INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
CONFIDENTIAL
(To be submitted to the
Executive Directors on
February 11, 1950,)
FROM: The Secretary
February 3, 1950
UNITED STATES AND OTHER MARKETS FOR BANK'S BONDS
(Report of Marketing Department)
On January 2$, 1950, at 11 A. M., the Bank received, in the New York Office,
four bids for its new issue of Serial Bonds of 1950, due 1953-1962, and at that
time awarded the issue to a syndicate headed by Messrs. Kalsey, Stuart & Co. Inc.,
and The First National Bank of Chicago. This group was composed of 37 commercial
banks and 99 investment banking firms. A complete record of the bidding follows:
Net Interest Cost Net Interest Cost
$
_
%
_
Group liana gers
Price
Coupon
Halsey, Stuart & Co. Inc.
The First National Bank
of Chicago
100.559
2%
Bankers Trust Company
Morgan Stanley & Co.
100. 10^ ?$
$lU, 895,500
1.9860
The National City Bank of
New York
J. P. Morgan & Co.,
Incorporated
Kuhn, Loeb & Co.
100.5199
2 1/8$
$1$, 107,600
2.0556
The Chase National Bank of
the City of New York
The First Boston Corp.
C. J. Devine & Co.
Salomon Bros. & Hxitzler
100.3851; 2 1/8$
$15,552,100
$ll|,Ujl,000
1.9251*
2.0736
It is calculated that the sale of this new issue and the redemption of the
Ten Year 2 1/1$ Bonds, due July 15, 1957, will result in a net saving to the Bank
of approximately $1, 250,000.
Sec:h-121
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The aggregate number of bidders in the four competing groups totalled 393
commercial banks and investment banking firms located in 33 states and the
District of Columbia. This seems to indicate clearly the widespread interest
in the issue.
There follows an analysis of the proposed reoffering prices of the four
bidding groups, together with the New York Office "pre-bid tentative scale of
prices" and the yield range that had been forecast by certain organizations prior
to the bidding.
Analysis of Proposed Offering Prices of
Four Groups Bidding for The Issue of
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
Serial Bonds of 1950, Due 1953-62.
Year
Halsey,
Stuart
& Co.
(High Bid)
1953
1.35
19Sh
1.145
Bankers
Trust
Company
(2nd Bid)
City Bank
(3rd Bid)
1.35
I.il5
1.55
1.65
1.80
1.90
Io99
i.5o
1,60
1955
1956
1957
1958
1959
1.55
1.65
1.75
1.95
1.80
1.90
2.00
I960
2.00
2.10
1961
1962
2.07
2. lit
2.15
1.85
National
1.70
2,06
2.125
2.20
2.25
2.20
Chase
National
Bank
(lith Bid)
Approx.
Average
Four
Groups
Pre-Bid
New York
Office
Tentative
Scale
i«5o
l.Itl
1,1*0
1C60
1.70
1.80
1.90
2.00
2.125
2.18
2.20
2,22
1-53
1.63
American Banker, Yield Range
Savings Banks Trust Co. , "Digest"
Yield Range
Moodyf s Investors Servi ce, Yield Ran;se
(Sent to Subscribers and for
Interoffice Use)
Sec:U-121
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Federal Reserve Bank of St. Louis
i.5o
1.60
1.70
1.7U
1.8U
1.9U
1.80
1.90
2.00
2dO
2.20
2.25
2.03
2.10
2.16
2.20
1953
i.Uo
1.U5
i.Uo
1962
2.20
2.25
2.10
-3 -
Following is a record of the prices at which the bonds were reoffered by the
winning syndicate:
Priced
Maturity
To Yield
1953
195U
1955
1956
1957
l«3fi*
1.U5
1-55
1,65
1.75
Maturity
1958
1959
I960
1961
1962
Priced
To Yield
1,
1.95
100 (2.00)
99 1/U (2.07)
98 1/2 (2.110
The bonds are generally regarded as being fully priced and the offering is
reported to be encountering considerable investor resistance with a substantial
portion of the issue remaining in the hands of the underwriters. It is not
possible to report accurately the number of unsold bonds as the syndicate was
a "divided account" whereby each bidder in the group agreed severally to purchase
a specified principal amount of the bonds from the Bank, divided into equal amounts
of each maturity. In this type of account each bidder has the right to take down
from the syndicate account the full amount of bonds he had agreed to purchase.
It is, therefore, not possible to determine accurately the amount of bonds so
withdrawn that remain unsold in the hands of such members of the group.
Contributing to the slowness of the issue is the continued uncertainty in the
U. S. Government bond market that has persisted for some weeks. There is considerable speculation as to whether the U. S, Treasury's announcement of the
terms to be offered to holders of certain securities maturing in March, will
forecast a further tightening in the rate for short-term money. The market unsettlement has also affected prices of longer-term Treasury issues with some of
these bonds having receded in price 3A °f 1$ "to 1$ from the high levels
established around the turn of the year.
Sec:i|-121
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Federal Reserve Bank of St. Louis
-lilt is widely regarded that a clarification of the present confused market
picture must occur before the Bank's issue may be expected to move at a faster
rate from the hsnds of the winning syndicate into the portfolios of investment
institutions.
Favorable comments have been received from the managers of all four groups
that .participated in the bidding as to the efficient manner in which the issue
was presented and the quality of the material and service that was rendered
them in connection with the sale of the Bank's bonds« This was possible only
because of the splendid teamwork among the various Departments of the Bank.
Distribution;
Executive Directors and Alternates
President
Vice President
Department Heads
LD:gm
Sec:lt-121
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Federal Reserve Bank of St. Louis
MEMORANDUM
March. 14, 1951
From: Under Secretary Foley
To:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin
Bartelt
I^mch
Graham
Eaas
I think you will find Mr. Leffragwell1s
letter to the President (copy of which is attached)
interesting, even though you may not agree with it.
You will note that Bill Hassett in his
memorandum is referring the letter to the Secretary
of the Treasury "for consideration and further
acknowledgment".
I am asking George Haas to prepare a. draft
reply which should be distributed to Messrs. Graham,
Martin, Lynch and Bartelt for suggestion and
criticism prior to its being put in final form.
I am sending a copy of Mr. Leffingwell's letter to
each of the men referred to in this paragraph.
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Federal Reserve Bank of St. Louis
FM-
the Honorable M» W< Holtrop,
President,
the Netherlands Bank,
0ear Marias?
This letter is the promised follow-up oil my acknowledgment of yours 01 July 23rd* At the outset, let me express
gratification at your fresh eispression of cooperation in our
efforts to bridge the 0* S* payments deficit for what we both
hope viil «ot be too lotig a ttae, At thefias»«time, it is
te^ortatit to a**ure you that we, ott «f«ir aide, do appreciate
that the incidence of our payment• deficit fails in part on
the surplus countirifet oi Earope, iriho find theauielv«»t by
virtue of their ««rplw*e»» expoteil to a pace of monetary
expansion that has been producing «het yoti refer to ea a
creeping inflation* the whole development «^h&«iee« that
the «ttaiment of the pm|me^t« eqtiiliferiuw mm are all »eek*
ing it a two-sided affair &ad call* for positive policies
on the part of all concerned. We both agree, I'm *ure» that
the sooner the current dise^itiliferiym ie remedied, the
healthier will he the financiel .and economic relationships
among the major trading partners of the Western World,
for sane tins, X have been deeply troubled by the
evident feeling among European monetary officials that U* S,
policies in recent years have not sufficiently grappled
with the 0.3* payments deficit* Over much of this period,
we have had a delicately-balanced economy and there has
been recurrent doubt in so»e business, financial and govern*
mental places as to whether the II*. S* uptrend, which was
moderate as coopered with other postwar periods of cyclical
eiepanslon, would be s«st§i«e«J «r s?iperseded by recession.
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Federal Reserve Bank of St. Louis
-2*
perhaps even deflationary recession, IB these circumstances*
you will understand*. 1 ma sure, why we have had to past through
a phase of divided counsels a* to whether internal or external
developments should re€«ive greater emphasis in -our national
policies* With existing margins domestically sf unemployed
manpower and capital resources, it h*t appeared unavoidable that
tDore positive empbaeis on policies oriented t$ the payments
deficit bad to b* field in abeyance until the course of economic
trends clarified, fn saying this, 1 do not mean to convey an
tmpreaiioti that we Here unprepared or unwilling until the very
recent period to take further monetary action lor fe*i*ne*«*f*
payments accownt, bad the evidence of fapaenta flow* sfeown
thi« to be nte«*««?y* but th« evidence froei th* currently
available dat*t in- say ji*dg»entt did not appear to warrant aueli
.action* At the June 20tb W?*3ffleetteg,Ralph Young gave « foil
report on t!*e domestie financial developments that were aaaping
federal leaerve viena and 1 tliink his remarks will warrant your
reading because they fairly set forth tb« dilewaiit. that b«« con*
fronted u*. A copy is enclosed for your personal information*
As it bec-sae- clear to us that domestic eonditions
would penait more positive steps by my of monetary action, it
appeared appropriate to choose a ttoing related to a broader
prograa of balance*of»pay«itents policy to be announced by the
fresident and seheduled to b« forthccwiiaf. regardless of our
action. As in ell cases- of shifting posture for monetary policy
and shifting reliance on its available Instrumentsy there are
.many uncertainties as to. effects and counter-effeets in domestic
and international aariiets* We can only proceed by watching
unfolding d«velop§M«its closely, endeavoring to diagnose them
correctlyt and responding according to the Judgments- w« make*
I felt obliged to ccHHMmt <m this aspect of our m®mtmxy policy
problem at a bearing before the Souse Banking and Currency
Cofaftittge 4n Mly 22, held for the purpose of providing further
public clarifi,ettlitt of ttia issues, and * cuopy of my format
•statement is also enclosed for your reading, In its concluding
paragraph* X statedi
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Federal Reserve Bank of St. Louis
the Board's recent netions are an essential part
of a total effort to bring to an end the II. i. payments
deficit, with its harmful effects on the domestic
economy as well as on. the international standing of
the United States. While this process is under way,
it is essential that monetary .policy remain flexible
«nd uneewmittedwfree to move either to check «« unwanted and inappropriate tightening of credit*, should
it develop, or te defend more aggressively the inter*
national position of the dollart should that be necessary*
the Honorable u. w, goitr-op
-3*
1 am glad to kacni thmfc you are still vrestling with
th« question of the '*Eoas€*e«fer,sf I can welt, understand your
dispoiition toward debt prepayment at ttiis time and I want yon
to moT* taat, £rom a U* S, standpoint, your recent decision in
this respect wan ttoely and helpful*
I vms not personally familial? with the quotation, you
cited £ro» a treasury Itapft*taunt eiruulor of Hay li» but I feel
sure that the treasury, In Including the particular ^ttotatiim,
dii not intend to e«w«y that it plmttuMi to f*ly Ix^ortantiy o»
European sources to fittasee its bwdgefc deficit, Our c»:od.:lt
iaavitetft a»4 !«£$« ««ving» vuppty are surely up to the fiitaskcing
need* of the U, S. Treaftury*
A»d there Is no probleni 0f financing thescr nee4s
ttecwgh tbe fea»k», lxide*i,: 1 hava p«r«onatly l>ft«tt aurprived
that tli* banktt ov#r tlia pa»t y*ar and thr««*H|uiirt«r*t have
alloeate^ Such a loodedt proportion of their iner^aae im sairifiga
deposits to inv«atne&t in longer*term 0, S* Goveneaent securi*
ties, vliich ss® certainly the beat prime quality imreataent
media- available to them* Actually^ the coaiaercial b«itks* total
holdittga of Goverawtnta ahownd flo gain during .1962 ^ und ot«r
the f*r*t half of thi* year have declined hy nearly I3 billion*
Since their holding* of loiag*tetm« have inereased moderately,
the deelitte in their short "term haa eneeeded the wasoutit cited,
with Borne consequent eroaiom in overall h*nk liquidity* At
the end of 1961» lor inst^nee^ conmieroial hank holdings of
f, §, HoverfflMent securities maturing within one year represented
II per cent of bamk deposits, nhile at «id*I9$S the ratio hmd
fallen to 7.5 per cent.
In terms of its total financing operation, the treasury*s
•tuitsntent that you. cite is technically correct * feut the «eotmt
of turopeefi plsc-effient of interstediate*term paper projected fey
Under Secretary i0os& is quite rasrgiaal in terms of the. H. S.
treasury*s total linanciftl progtm* As toos* has explained him*
self, this particular international financing operation has ?.s
a target, say, a fourth or a little less of an outside projection
o€ our paysienfcs deficit, fo the extent that progress is wad*
toward payments balance* reliance on this paper would he reduced,
Hie placement of the i»termedisfee*ter« paper is* in my
judgwenti properly arranged on a bilateral hasis. fh« problems
and opportunities for its use arise that *r«y and the paper is
designed to provide «nlf«e advantag4Mit ^'o® both a short* and
an intermediate*t«ri» sta»^ointt to loreiga fiscal and monetary
authority holdersy while at the game tia*e being advantageous to
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Federal Reserve Bank of St. Louis
tint Honorable M* W, Holtrop
~4«
the $« S* Hi a payments debtor inter nationally* By acquiring
them, a surplus country Is u&der no more internal inflationary
pressure than it would be from acquiring, let consequence of any
further payment* surplus, either dollar exchange or gold. It
night be argued that, fey resort to th«% the f» 8* as borrower
has relieved it tell, to a degree, of deflationary monetary pressures deriving from Its payments deficit. But 1 should think
that this in exactly what is desirable in order to avoid risk
of starting a deflatloacry spiral in the G, S.» which could
tyave consequences reaching far beyond its mm borders,
the purpose of the treasury's Europaan borrowing
exercise is and mast be to bridge tiswu -Any concerted action
to liait the potential awoutit of this type of finane ingf there*
for«g would be tftntanoustt to setting a formal time limit during
sliieli international p*ya«Kits forces have to «c«rk through to
equiiibriusi. Aside from the question of whether oiir economic
knowledge is such -as to v&rratit reaching Sttch «a embracing jwdg*
ment by wwltilateral negotiation., 1 would personslly doubt
«tiether the circwastiinees warrant European, dollar holders taking
such stem action* for the action in itself notild have far*
reaching iwflic«tiOfis and accordingly widespread effects on
norId markets. He have tried to make clear & full awareness
of otxr payments deficit problem and a determination to adapt
our national policies so that the problem is in reasonable time
resolved * 4 tsaia intention of the President** recently announced
program was to naiw that determiiistion isanifest*
By the w«yt some pertinent discussion ol the European
borroiiing operations of the W* S, fre&stiry is contained in
an
article titled, "Conversations on Inter national finance,*1 being
published In the current '.Monthly Review of the- M«s? fork federal
Reserve tank. Its preparation was a collaborative effort of
Messrs« €oo»bs of that Bank, Xkli of the Swiss national Bank,
tanalii of the Sank of .Italy* and fUngeler of th« ittttdesba«k»
Th*y are all well known to you and X. am sure ymt trill find their
observations on this matter interesting and helpful*
1 hope that* ifhen you are in Washington for the Inter~
national Motietsry fund meetings, you can find tlstt not only to
visit i*s byt al«o to discuss with o«r staff the. over*all borrowing program of the II* S, treasury and its policies with regard
to flloag»tens borrowing in the domestic market," I think you
will find from such a review that this is what the 0, S, Treasury
hat been accofi^lishing^-by the sMthod of borrowing new c«th
short and refunding maturing debt long by the pre*reftindiiig
technic^ie* 1 perS'Otially find ismch to be gratified about in the
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Federal Reserve Bank of St. Louis
-5*
way mm treasury** finaneiot is currently being managed; and I
tMak Secretaryfiiiicttiand 0nder Secretary &©o*a deserve a lot
of credit lor if*
the ittfonsation you give about reactions to the
Preeideait** balance ^f "payment* program 1*£ on the whole,
heartening, four comment* about the Euro-dalla? warkfct sad
Its possible behavior *r« especially illuminating to me, bec&u»6
we on tills side h«v* too tic tie uaderatandiag of it*
four reaction* to the infcere*t equalisation tax are
v«ry much along lines of my mmfchliikittg--attractivefrom the
standpoint of theory but with msny di!fietsi*i*0 ia fr*ctl««*
flt.« II, 8, fr«m«iay, after wrestling with alternative*—itteIudit^
the deflationary ite^g neee*eary to rai*e long-term int«re»t
rates by & full percewftagc point and the diffieoltieey tinder
tf» S, market condition** of selective eitatitiietretive control of
fdre-ign i*§ae***ea»e to the eoncluaion that the tax approach
offered moat adirantage* in term* of balanee«of^ayatents nece*»
eitiea and goale* fh« freeeury f«it that the decision once
made had to be eiotely liept moitii «nn.oiifieed«, Also» upon annoimce*
wentt the treasury had to be prepared to make adaptations in its
plan to provide for specialised, operating problems and uninten*
tionally severe ls^aet*« these matters have been a preoeettpation
of the treasury in the last few weeks*
&et me eay a word about the three ghosts you meat ion,
because we are not really so plagued by them a* you euggeet*
In the first place* Congress has deaMmstrafced a eapaeity to
adapt the debt 1eeiiing as conditions warrant, and, to protect
the SoveriBRent * creditt will in »y Jud^pent always lift the
limitf however reluctantly# in good timt. Second, the ceiling
on. interest payable on federal Debt has been with us since the
liberty fcoan Act of April 2*>» Itlf and, while§ at csrtain timest
it has seriously handicapped treasury debt mmgmmmt policy»
this ha* only been for relatively short periods* {Ihnr*jrtfcele**»
1 think it should be changed «s its inhibitions are a drag on
longer~te»» finance,) third, the gold cover reeMrement* G* *n«
federal teeerve Act, which are iubjeet to tsaporiwry *tt*pen*lon
by the federal &ee«rv* Board, if necessaryy are not in fact the
bairrier they may literally seem and. should not prove inhibiting
to appropriate 8* 8, monetary policy. OB the whole, 1 personally
doubt that the 9* S* has been shackled very tsucb in pursuing a
dynaeiic economic policy by virtue of their existence* And* while
they are am administrative nuisance of a sortj they do serve as
a foewi for political discwssion and de&efce about basic financial
issues that ought to receive public attention and this is in
their favor*
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Federal Reserve Bank of St. Louis
file Honorable H« W, Holtrop
-6*
Before closing, I should like to coeiaeat briefly oa
the recent. II» f» performance with regard to prices and costs,
because it has bee»t X think, perhaps a littie better than you
have thought* Since IfSfy our «tiole**ie prices of ftoislaed
industrial products have been stable, and, considering the
improvement in quality of stany products, theirs hag probably
been some real decline in these prices. Furthermore, prices
of industrial materials «se 2 psr cent lower than four years
ago*
As regards costs in the manufacturing sector, labor
costs p*t unit of output* apart front moderate cyclical changes*
have changed little sines 19S9* Over postwar years, however,
ii^rovetftSfit in thm lehiwior of unit labor costs in ttsnn&eturing
bss been progressive* CaiaparisoRs over ti®*f ms^te in sueh *
way as to abstract frim cyclical flttctiiatioiiSf smow that unit
labor costs in manufacturing rose 15 per cent from 1940 to lfS$t
i per cent ff§n. If53 to 1957, and about I per cent front 1957 to
t$$$«4Q* tfoftffiying this shift in beltovior is a persistent**
perhsps> acc«lerat«d«<*advanc« in output per msntiour and a
progressively less rapid pace of increase in wage rates and
fringe benefits, Output per manhour increased at am annual
rat* of 3 per cent irea 1947 to 1959 and- at a rate of 3-1/2. per
cent since than* Sourly earnings* after some allowance for
fringe benefits* rose at an annual rate of 9 per cent in 1947-4$,
» rate of $ per cent in 1955*57, and a rat* of about 3 par cent
since If5$. A few r«c*»tly negotiated labor contracts in wajor
.aamifasturiag industries suggest that currently the Annual rate
of increase in hourly earning* is running a little less tha»
3 per cent,
X mention this Because of your statement that our gains
in competitiveness had tiot y^t been, sufficient to reestablish
equilibrium^ inflyinsv 1 infer, that financial policies strong.
enough to bring about a progressive decline in our industrial
price level might better have been applied* Such a course of
policy nottld have involved a broad-scale curtailment of iicmesttc
&m&mdf 'this vouicl have risfcai a <Jownifard force on industrial
proiu&tioxi greater than on prices* There vould also hav« btan
a risk that any nalanee*of^payments gain w«ul<t have come through
a r«4uction. of Imports rather than an appreciable, eiepansion of
exports, iueh a policy course, moreovert wouli have affteteil
unfavorably output per manhoixr» tewling to reduce ajaahour out*
put in the short rtift anil slow its growth over the longer rua.
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Federal Reserve Bank of St. Louis
One naturally wonder* a^out the total repercussions,
political as well a* economic, of such a financial policy and
whether the eventual solution to the balamce«»of*paytaeiits problem Might not have heen .one highly disruptive of present inter*
national financial and political rei&tiaa*. It has sceoiBd to
me « imich better approfteh for" v» to have followed policies to
employ our noinscil additions to resources sad nbsoirh as well '
sooft resources that «re unaopley«dy «fetle eftdeavoiriitg to &ec*l*r*
«t« the adwnee 1» owr econw^iy't prodwctivity.
This reply to your letter has run Into siore pages
th^-a I fis4 origiiuiily tofce»4e<i, but the matters -under dis«us»
•lota are of vital later cat: a»d we hoth seek as auich ctl*jri£ic**>
ttoii ,iti4 iiiiderstattiiing s« it is possible to attain. And* of
eowrse, all of us here share y«ur hope that the early future
will reveal that ths W* S. is now making concrete gains toward
a better payments balance internationally,
With vsnoest personal regards,
faithfully yours.
tfe» McC* Mart ittt *Tr •
Enolosures $
ccs Under Secretary Eoos*, Treasury
8/7/63
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Federal Reserve Bank of St. Louis
COMMUNIQUE
The Governors of the Central Banks of Belgium, Germany, Italy,
the Netherlands, Switzerland, the United Kingdom, and the United States
met in Washington on March 16 and 17, 1968 to examine operations of the
gold pool, to which they are active contributors.
The Managing Director
of the International Monetary Fund and the General Manager of the Bank
for International Settlements also attended the meeting.
The Governors noted that it is the determined policy of the
United States Government to defend the value of the dollar through
appropriate fiscal and monetary measures and that substantial
improvement of the U.S. balance of payments is a high priority objective.
They also noted that legislation approved by Congress makes
the whole of the gold stock of the nation available for defending the
value of the dollar.
They noted that the U.S. Government will continue to buy and
sell gold at the existing price of $35 an ounce in transactions with
monetary authorities.
/lU^u^cA^
The Governors support this policy, and believe
it contributes to the maintenance of exchange stability.
The Governors noted the determination of the U.K. authorities
to do all that is necessary to eliminate the deficit in the U.K. balance
of payments as soon as possible and to move to a position of large and
sustained surplus.
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Federal Reserve Bank of St. Louis
-2-
Finally, they noted that the Governments of most European
countries intend to pursue monetary and fiscal policies that encourage
domestic expansion consistent with economic stability, avoid as
far as possible increases in interest rates or a tightening of money
markets, and thus contribute to conditions that will help all
countries move toward payments equilibrium.
The Governors agreed to cooperate fully to maintain the
existing parities as well as orderly conditions in their exchange
markets in accordance with their obligations under the Articles
of Agreement of the International Monetary Fund.
The Governors
believe that henceforth officially-held gold should be used only
to effect transfers among monetary authorities and, therefore,
they decided
no longer to supply gold to the London gold market or
any other gold market.
Moreover, as the existing stock of monetary
gold is sufficient in view of the prospective establishment of the
facility for Special Drawing Rights, they no longer feel it necessary
to buy gold from the market.
Finally, they agreed that henceforth
they will not sell gold to monetary authorities to replace gold sold
in private markets.
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Federal Reserve Bank of St. Louis
-3The Governors agreed to cooperate even more closely than
in the past to minimize flows of funds contributing to instability
in the exchange markets, and to offset as necessary any such flows
that may arise.
In view of the importance of the pound sterling in the
international monetary system, the Governors have agreed to provide
further facilities which x^ill bring the total of credits immediately
available to the U.K. authorities (including the IMF standby) to
$4 billion.
The Governors invite the cooperation of other central banks
in the policies set forth above.
March 17, 1968
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Federal Reserve Bank of St. Louis
GROUP OP TM _
Stockholm, 30th March, 1968.
D R A F 0?
Communique of the Ministerial meeting
of the Group of Ten
on March 29-30th 1968, in Stockholm
1.
The Ministers and central bank Governors of the ten countries
participating in the General Arrangements to Borrow met in Stockholm on
29~30th March, 1968, under the chsirmanship of Mr, Krister ¥ickman,
Minister for Economic Affairs in Sweden, Mr, Pierre-Paul Schweitzer,
Managing Director of the International Monetary J?und , took part in the
meeting, which was also attended by the President of the Swiss
National Bank, the Secretary-General of the O.B.C.D, and the
General Manager of the B.I.S.
2.
Ministers and Governors first discussed the international
monetary situation and, second, they considered a report by the
CT .airman of their Deputies on a Proposed Amendment to the Articles of
'/./;•{/: *':••• "'•'•' °
Agreement of the I.M.F, which has been drawn % in accordance with a
Resolution of the Board of Governors of the I.M.F. adopted at the
annual meeting of the Fund in Rioc'de Janeiro last September. This
Amendment relates to the scheme for special drawing rights in the
?und, the Outline of which was approved at that meeting, and to
improvements in the present rules and practices of the Fund.
3.
As regards the first point, Ministers and Governors
£<eCt0k.
expressed great satisfaction with the measures taken by the United
^f '.-'
Kingdom which aW designed to achieve a substantial overall surplus in
$A .,-•
&-*$\£
the United Kingdom's balance,of payments by 1969, They stresse^'the
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i:
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y«ry great importance ol* early action by tteUnited States, through
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appropriatejfiscal and monetary measures to improve its balance
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of Payments substantially,
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This objective
given the highest priority, in the interests not
only of the United States' economy, but also of the general stability of the
international monetary system.
pThe Ministers and Governors reaffirmed their determination to co'/
operate in the maintenance of exchange stability and orderly exchange arran[
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gements in the world, based on the ^**4^31S./price
of gold. '=
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As regards the second point, the Ministers and Governors noted with
appreciation that the Executive Directors of the I.M,F« had successfully
resolved most of the problems that had arisen in the course of their efforts
to carry out the task entrusted to them and that they had reached the final
stage of their work. The Ministers and Governors settled the o^wm'ri*^ points
of difference between them and agreed to give the necessary authority to the
Executive Directors of their countries, so that, in co-operation with those
of other countries, they will be able to complete the final draft of the
proposed Amendment.
They took note that this proposed Amendment will be attached to a
Resolution which will be transmitted to the Board of Governors of the I.M.F.
with an explanatory Report and that Governors will be requested to vote by
correspondence as is the usual practice of the Fund.
The Ministers and Governors noted that the Managing Director of the
Fund was confident that the Executive Directors would be able to transmit
these documents to the Board of Governors within a brief period.
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One Delegation did not agree '•with the views expressed above.
K^jOMKDUs OB' COHVSRSATIOH
Participants:
France:
.
•
heichcl Bebre; Minister of Eco7K;;T;y' and Finance
Ons staff assistant
U.S..:
Secretary Fowler
Cbairmn Martin
Mr, Dale
. Tame find Place:
Subject:
9:15 &.in.,-Tuesday, July 18, 1967
Secretary Fowler's Suite, Claridgef.s, London
Reserve Creation and. Meeting of Group of Ten
Mil)inters and Governors
SECRETAKx POWLRR begsn. by saying that he va,s sor.ry it was necessary
.for him to depart from the meeting of the Ministers of the Group of Ten
that afternoon at about 1x00 p«m« but it tras necessary for him to be in
Vlasbtrgten the following morning due to important commitments related to
fiscal problems in the United States,
MlKXGTlhR PI'BRh1 said he understood that and was also sorry that it
was necessary» He ashed, v/hat Secretary Fowler would think of the possibility of a further ireetin^; of the Group of Ten Minie'Lere during the first
veek in September. This vould be precedccl b;y' further vorh by the Deputies
of the Ministers. It \:as his feeling that during the cc/.'ning Looming
session of tl-e Ministers a/id Governors there vould be a rather difficult
discussion of the in-portant subject of re-constitution, probably veifhout a
clear and agreed result. Then there \joule be a rather relatively short
afternoon discussion, covering further comments or-, decision-making and
other important matters. It uould be too bad to have the meeting break
up in disagreement.
SECRETARY FOvTT.l:R said that lie- vou.ld be prepared to go anywhere, at
any time, to dir.cu.ss these matters with, any Minister or individual if
that would advance the objective of reaching an agreed solution.,
MIluSTER DBBRtf expressed the via,/ that it vould be highly desirable
to arrive at r> solution o:r> this natter at Rio« Further nieetingG of the
G--10 3>eputies voulh be Jielpful in this co?inectiou. .'he'f-lt that our .'
positions arc: s'tlll. very far apart* Howcjver, )--.e i-greed as to the neces*}:••-."';."! lr; opin.l':vj le t-hi. c n/.ttev, 'a:S e ya;. y o? a- '>.'-s ti.v-.ve of V'-: v,.-i'y lc/r...g
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fi.-jci erd'-.ooG negovla'/5 o is which E; a bc-ej involved. Certainly it vo'.OO bo
lisuch better to come 'to a conclusion fit Rio, even if that v/ere not absolutely necessary. He could not agree vlth Secretary Fowler's analysis of
the broad aspects of the liquidity controversy; and in his opinion this
analysts was not right; but at the same time he had a high admiration for
all of the hard, work of the Secretary and his colleagues on this matter
and for the sincerity of the position resulting fro:3 this work. He was;
in any event;, rather fearful that the whole thing could not be resolved
by '^:00 pdnc. today and he hoped tlrat some v/ay could be found to provide
for a inethocj of contlnuiiig to search for agreement.
SECRETARY FOY/LEE agreed that we must find a procedure to end the
negotiations and to cone to an agreement on as vj.de a basis as possib3.ec
He would be willing to postpone the ga!3. bladder operation which his
physicians had advised, and to come back to London in. "early August or in
early September^, or whenever would be a mutually acceptable and convenient
txmec He would also support further meetings of- the. Deputies. .He would
have for the afternoon session of the Ministers1 and Governors1 meeting
seme- procedural suggestions as to how we can arrange for further work and
discussions in a spirit of respect for each otherTs positions and in-an
atmo sphe r e of d 1 gnl ty *.
MINISTER DEERE lndtco,ted that the Fi.-en.ch agree on a scheme for creation of drawing rights with a clear and real reconstltution feature for
the first five years. There are; however^ other problems •Jncludlng the
majority for decision-making and stlJl others of great importance. The
main thing is that the French wholly agree to give their best efforts to
try to have- an agreed solution by September* He urged Secretary Fowl.er
not to think that France is trying to have no solution by that time.
SECRETARY FOELER indicated that he understood the political problem
which Minister Debre is facing* In his opinion, when countries find themselves in conflict reflecting Important substantive differences^ they
must find a dignified procedure with which to resolve those differences
in respect for the sincerity with which the different viewpoints are held,,
He felt that we must fine!, a procedure which will enab.'te us to reach Em
agreed so3.uti.on in a genuine spirit, of .give and take e Such an agreed
solution would of course not involve the imposition'of the will of one
side on the othert
. MINISTER PEBES said that he believed from the bottom of bis heart i.n
the desirability of having an acceptable agreement in'Rio. He recognized
that it takes time to draft such, an arrangement Into lego..!, language and
to ratify,. }ie would do everything possible to facilitate rcaqhlng such
an arrangement^ but it must be recognised that there are basic pRilosoph-- .
leal differences between our approaches to this natter*
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SECRETARY FOWLER" recognized these important differences, but he .felt
tint the mental approaches of Minister Debre and himself toward their,
responsibilities are quite similar. In £-ny events-he would be ready to
meet at any reasonable time and; as lie had mentioned^ would have pro-.
cedural suggestions to this end c
MINISTER DEBRE fc.'jt that the discussion in the ensuhng morning session
would pose difficultlesc However, it would be useful if in the formal
meeting in the afternoon agreement could be reached on a procedure to continue the discussions later« It would be desirable to identify problems
on which resolution would be needed; and to be quite frank about the nature
of those problems and the work to be done, lie suggested that this matter
be introduced for discussion around an hour or so before it, was necessary
for Secretary Fowler to leave, so that adco.uato "dtsc-ussion and resolution
of these procedural matters could be accompli shed<
SECRETARY FOWLED observed that he had proposed that there be a minimum and maximum amount established for drawing rights creation in the
first basic period* The French and Americans could find common ground
in that; since a maximum would be useful to us both* His view was that
a modest amount of drawing rights creation should be tried for four or
five year3;. and then experience would permit a ''further slice at it"*
MTITIS'.CER DEBRE observed that the U<8<. view is that whatever the situation of the U « G * balance of payments deficit, there is a shortage of
international liquidity.. On the other band, the French think there Is
no shortage so long as a IhSe deficit continues,, Their view is that
activation of liquidity creation is not urgent, because the first priority
problem for the International monetary system is the l.h,Sc deficit*
SECRETARY FOWLER responded that the United States felt there were
three legs to the international monetary problemc One is the ILS* deficit,
the second is the need for adequate international liquidity, and the third
is the continued conversion facility into gold of ILSf. dollars, which gives
the fixed exchange rate system its basee These are the three elements of
stability in the system*
*s
\.'
MHO'STER DEBEE responded, that he felt there was a practical problem,
which was not related to differences of doctrine. It was the French view
that the UrSr balance of payments deficit i-s a main reason (though ho
conceded it is not the only one) for a general feeling of lack of confidence. If was his view that relatively large amounts of golO would come
into official, reserves if this one destabilizing factor were set straight,
SECRETARY FOWLER stated, that the United States recognizes this source
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of the UcS< deficit has the highest priority with the United States«, The
two high priority economic ^atters with the UoSc Government are the deficit
in the budget and the "balance of payments due to the conflict in Viet-Narn.
It was his conviction that with the er<d or the de-escalation of the conflict
in Viet'-ITani we would go into equilibria;.'] or surplus in the bail.ance of payments «
KlhlSTSR DB3RE said that when the French were in conflict :i n Algeria
for a period of six years; there were three years of French balance of
payments deficit- followed by three years of French, balance of payments
surplus* Even vhen there were roilitary conflicts of this sort^ in his
Opinion the position of the balo.nce or payments i-G sli'aply a matter of
discipline*
SBCRL/rAKY FO^/IER repeated that there v/ere tvo economic probleras which
were receiving the highest priority in the United States—the balance of
payments and the budget deficit<, It was Ills intention to do everything
reasonably possible.to deal with them and to eliminate them*
MINISTER DEBRE Kcntioned that his third problem is interest rates.
He very much looped that the evolution, of economic conditions^ especially
in the United States and the -United Kingdor:^ wo\\ld not be such as to
require
renewed increases in interest rates,
-*x because that would require
•»
French interest rates to rise alsoc It was his hope^ for wany reasons.,
that this would net be necessary.
Y/ith that; the meeting ended> since it was necessary to travel to
Lancaster House for the beginning of the sheeting of Ministers and Governors,
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B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E SYSTEM
/
To
Fmm
/
pqte
12/1/67
Chairman Martin
J> Dewey Daane
These are the Carli proposals
which he passed out at Frankfurt.
Thus
far they have had no other distribution.
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C Civr IDEi.tr LA. L
25 noverobre 1967
^^DISTRIBUTION
Continuation of the "gold pool"
1,'The US Treasury will continue to sell gold at the existing price of
USA S 35- an ounce.
2. The US Treasury will put at the disposal of the pool the entire amount
of its "free" gold. The US Goveminent will immediately introduce
necessary legislation in order to abolish the obligation of the
the
25
per cent gold cover.
3. Central "banks which are acting members of the pool Vt? ill abstain from
converting into gold future increases of their dollar holdings
(l)
4. All acting members of the pool will abstain, until further notice ,
from buying gold from whatever source, except among themselves or from
the IMP. However, the Bank of England will continue to buy gold on the
London market for the pool at a price eq_ual or below (35 - X) dollars
an ounce, (X) "being substantial.
5. This understanding is open to all gold holding countries. Hov/ever,
future members v/ill have to share in the obligation of the scheme. T;O
the same extent that they would have done if they had adhered to it
from the beginning..
(1) This obligation can be limited either in time (i.e. for t
months) or in amount (the same amount that the US Treasury puts at
the disposal of the pool in gold). Central banks will consult anon^
themselves on the sharing of this obligation (for instance through
harmonisation of gold ratios)
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CCMFIDEMTI^L
./!•<£.]!'CULM A b
LIMITED DISTRIBUTION
25 novembre 1967
Discontinuation of the gold pool through separation of the gold marke
from the official sector
1. Gold holding countries participating in.the scheme will buy and sell
gold at the existing price of USA 335 an ounce only among themselves
and from/to the IMF. They will-abstain from any other gold transaction,
However, the Bank of England might be authorized to buy gold, on the
London market for the account of the participants at a price
equal
or below (35 - X)'dollars an ounce, (X) being substantial.
2. This engagement will have two consequences:
a) the Bank of England will -cease to intervene in the London market,
except as provided above.
b) the 'US might have to cease to buy dollar balances held
by
non -
members of the scheme. Hov/ever, the US will respect Art. VIII, Sect.
4 of the IMF articles if it continues to buy from non-members of the
scheme dollar balances recently acquired as. a result of
transactions and whose conversion is needed for making
current transactions.
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current
payments for
@FedFRASER